Partner New York
"As of January 1, 2024, most new and existing entities formed or based in the United States are required to file reports disclosing their Beneficial Owners and Company Applicants with FinCEN."
BACKGROUND
As of January 1, 2024, most new and existing entities formed or based in the United States are required to file reports disclosing their Beneficial Owners and Company Applicants with FinCEN. These requirements are borne out of the CTA, an expansion of anti-money laundering laws, and have impacted millions of business entities. Under the CTA, a beneficial owner is defined as any individual who, directly or indirectly, exercises “substantial control” over an entity or owns or controls not less than 25% equity in it. A company applicant is defined as (1) the individual who directly files the document creating the entity, or in the case of a foreign reporting company, the document that first registers it to do business in the United States and/or (2) the individual who is primarily responsible for directing or controlling the filing of the relevant document, if more than one individual is involved in the filing of the document. For more information please see our previous client alert.
Different timing rules apply to existing and newly formed entities for initial reporting. A reporting company created or registered to do business before January 1, 2024 has until January 1, 2025 to file its initial BOI report; a reporting company created or registered in 2024 has 90 calendar days to file its initial BOI report. In 2025, this timeline will shorten, as a reporting company created or registered on or after January 1, 2025 will have 30 calendar days to file its BOI report after receiving actual or public notice that its creation or registration is effective. In any case, if there is any change with respect to information previously reported, the reporting company is required to file an updated report within 30 calendar days after the date on which the change occurs.
NEW GUIDANCE
FinCEN’s new guidance clarifies that if a reporting company continued to exist as a legal entity for any period of time on or after January 1, 2024, and did not “formally and irrevocably” dissolve before January 1, 2024, then it is nonetheless required to report its beneficial ownership information to FinCEN. This holds true even if the reporting company had wound up its affairs and ceased conducting business before January 1, 2024, but has not “formally and irrevocably” dissolved. Only companies that have “entirely completed the process of formally and irrevocably dissolving” before January 1, 2024, are omitted from the reporting requirements.
"FinCEN has not clarified what a company must do to 'irrevocably' dissolve."
FinCEN emphasized that a company that ceased to exist as a legal entity before the beneficial ownership information reporting requirements became effective January 1, 2024, was never subject to the reporting requirements and thus is not required to report its beneficial ownership information to FinCEN. However, if a reporting company was created or registered on or after January 1, 2024, and then subsequently ceased to exist, it is required to report “even if it ceased to exist before its initial beneficial ownership information report was due.”
TAKEAWAYS
FinCEN’s recent guidance expands the reporting requirement to explicitly include legal entities that have been dissolved or otherwise ceased to exist on or after January 1, 2024, meaning that reporting companies that no longer have corporate personhood or the capacity to act are still obligated to file reports to FinCEN.
However, this new guidance does not explain which natural person is expected to prepare and submit the report of the dissolved reporting company and who would then consequently be liable for the failure to file the report.
Additionally, the guidance does not expand on what information is required to be reported by the dissolved reporting company. For instance, as part of the winding-up process, the entity may terminate employees and service providers and distribute its remaining capital to some or all its owners. Therefore, if a dissolved reporting company is expected to establish its beneficial owners as of the end of its existence, such acts may meaningfully lessen the number of reportable persons or abolish them fully.
If natural persons are required to submit a form to FinCEN on behalf of a reporting company, those persons or their employers will expect to be compensated for their action.
FinCEN has not clarified what a company must do to “irrevocably” dissolve. Under many different state and foreign laws, a dissolution or termination can be unwound, and a company can be reinstated, even many years after a company has completed its dissolution and filed all termination paperwork. For example, under §311 of the Delaware General Corporation Law, a corporation may revoke a dissolution at any time within three years following voluntary dissolution. FinCEN has not explained whether that type of entity has “irrevocably” dissolved, thus leaving open a question regarding entities that fully dissolved prior to 2024.
For more information about BOI reporting obligations under the CTA, please contact one of the authors of this article or your regular Watson Farley & Williams contact.
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