Entities that ‘cease to exist’ must still comply with corporate transparency law | Publications | Perspectives

Entities that ‘cease to exist’ must still comply with corporate transparency law | Publications | Perspectives

In one look

  • On Monday, July 8, 2024, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued additional FAQs clarifying that reporting companies formed or incorporated on or after January 1, 2024, that are subsequently dissolved or cease to exist, are required to file a CTA even if those reporting companies cease to exist before the due date of their initial CTA filing.
  • A company is not required to file an application for CTA registration if it ceased to exist as a legal entity before 1 January 2024.
  • The same reporting deadlines apply to reporting companies that cease to exist on or after January 1, 2024: reporting companies created or registered in 2024 are still required to file their initial CTA filings within 90 days of their creation or registration, and reporting companies created or registered in 2025 or later must file their initial CTA filings within 30 days of their creation or registration.
  • FinCEN’s guidance does not address whether there is a requirement to update reporting information for reporting companies that are dissolved or cease to exist.

On Monday, July 8, 2024, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued additional FAQs clarifying that a reporting company (i.e., a company to which no exemption applies) formed or registered on or after January 1, 2024, that is subsequently dissolved or ceases to exist, is required to file a report under the Corporate Transparency Act (CTA) even if it is dissolved or ceases to exist before the due date of its initial CTA report (see FinCEN FAQs). FinCEN clarifies that entities that were completely dissolved or ceased to exist before January 1, 2024, do not have reporting obligations under the CTA. As noted in our previous alert, the CTA is a new federal law designed to combat money laundering, tax evasion, and other illicit financial activities by requiring “reporting companies” to disclose beneficial ownership information about their “beneficial owners” to FinCEN.

Reporting companies for which a dissolution process began before 2024 but that were not “formally and irrevocably” dissolved before 2024 are still required to file a CTA. FinCEN clarified that administratively dissolved entities generally do not cease to exist as a legal entity until the dissolution becomes permanent. In other words, if a reporting company legally existed at any time in 2024, a CTA filing is required by the applicable filing due date – even if the reporting company does not exist on that due date. The applicable filing due date varies. Reporting companies formed or registered in 2024 have 90 days from the date of formation or registration to file their return. Reporting companies formed or registered in 2025 or later have 30 days from the date of formation or registration to file their return.

FinCEN has notably distinguished between reporting companies that are dissolved and reporting companies that cease to exist, suggesting its intent to cover the various structures within the scope of the CTA that terminate the existence of a reporting company. Dissolution is one means of terminating the existence of a reporting company, and there are others, such as a merger in which a reporting company is dissolved. Although reporting companies that are dissolved are not mentioned in FinCEN’s guidance, these entities cease to exist upon the consummation of the merger and, therefore, are arguably covered by the guidance. Thus, there are CTA considerations in M&A transactions that involve the creation of a newly formed entity that is ultimately dissolved through merger.

You may be wondering how to determine when a reporting company is dissolved or ceases to exist. To answer this question, FinCEN has relied on the laws of the jurisdiction of incorporation or registration.

With respect to updated reports, if a reporting company files an initial CTA and then is dissolved or ceases to exist, FinCEN does not require the reporting company to file an additional report with FinCEN indicating that the company has ceased to exist.

While FinCEN’s new guidance clarifies some important points, it raises additional considerations. It is unclear whether a reporting company formed or registered on or after January 1, 2024, that is subsequently dissolved or ceases to exist is required to update or correct previously reported information. With respect to update requirements, FinCEN clarifies that there is no need to file a filing indicating that a reporting company has ceased to exist, but it does not clarify whether other update requirements are waived. Could it be that FinCEN intends to ensure that these reporting companies have ongoing compliance obligations well after their legal existence has ceased?

In addition, FinCEN has not clarified what information must be reported by such a reporting company. For example, in the course of winding down its affairs, a reporting company may terminate employees, so the beneficial owners to be reported may vary significantly at any given time. It appears that determining who should be reported as the beneficial owner in such circumstances is a somewhat moving target. In addition, it is unclear who should be responsible for filing the initial CTA filing or updates, if any, for such reporting companies. If all employees and owners are no longer associated with the reporting company, it is unclear who is responsible for handling the CTA reporting obligations.