If your business has not yet focused on the Corporate Transparency Act (CTA), it is time to do so. Every entity formed or registered in the U.S. before January 1, 2024, must file beneficial ownership information (BOI) reports with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) on or before December 31, 2024, unless the entity falls within one of the CTA's 23 exemptions. Non-exempt entities formed in 2024 must file a BOI report with FinCEN within 90 days of formation, and those formed on or after January 1, 2025, must file within 30 days of formation.

In 2021, Congress enacted the CTA to combat money laundering and other illicit activities. The law requires non-exempt entities (such as corporations and LLCs) to report information to FinCEN, including personal identifying information (PII) of individuals who directly or indirectly have a substantial ownership interest in or otherwise exercise substantial control over the reporting company. More details about whether an entity is exempt from the filing requirements, who are its beneficial owners, the filing process, and the requirements to update filings can be found in our previous alerts here.

Since the CTA's enactment, several lawsuits have been filed questioning its constitutionality, and bills have been proposed in Congress to repeal or limit the scope of the CTA. While businesses should monitor developments in this regard, there is currently no indication that the CTA’s requirements will be revised or that its filing deadlines will be delayed.

Companies that existed before 2024 should be analyzing their CTA filing obligations now. It is important to allow ample time to determine whether any exemptions apply, identify beneficial owners, coordinate with those beneficial owners to obtain the required information and documents, and complete the necessary filings. This is especially true for entities with complex capital structures, multiple entities, or a large number of beneficial owners.

Recent CTA Guidance on Dissolved/Terminated Entities

In July, FinCEN issued updated FAQs to provide guidance on how an entity’s dissolution or termination impacts its filing obligations under the CTA. The FAQs are not a model of clarity in several respects, but they do confirm that a non-exempt entity that "existed" on or after the January 1, 2024, effective date of the CTA may not avoid its filing obligations by dissolving or merging out of existence prior to the applicable CTA filing due date. The guidance also makes clear that an entity that made its required BOI reports prior to completing its dissolution is not required to file an updated BOI report to disclose its dissolution or termination.

Specifically, the guidance provides that an entity that has been administratively dissolved or voluntarily filed articles of dissolution will nevertheless continue to "exist" for purposes of its filing obligation unless:

• Prior to 2024, it entirely completed the process of formally and irrevocably dissolving (which the guidance suggests would in most instances require filing dissolution paperwork with the jurisdiction of creation or registration, receiving written confirmation of dissolution, paying related taxes or fees, ceasing all business activities, and winding up affairs such as fully liquidating assets and closing bank accounts); or
   
• It is otherwise clear under applicable state law that it irrevocably ceased to exist as a legal entity prior to 2024 (which will often be unclear, since many state corporation and other entity laws provide that a dissolved entity continues to exist for certain purposes for an indefinite period of time).

The recent FAQs do not expressly discuss merged entities, but it is evident from FinCEN’s reasoning that the same principles would apply. Thus, unless it is otherwise exempt, a merged entity in each of the following scenarios would nevertheless continue to have a filing obligation:

• The entity existed before 2024 but was merged out of existence in 2024 (prior to the applicable deadline for its CTA filing).
   
• The entity (such as a transitory merger sub in an M&A transaction) was created in 2024 but merged out of existence within 90 days of its creation (prior to the applicable deadline for its CTA filing).

In order to avoid complications in determining the appropriate beneficial owners and the proper filing person, non-exempt entities involved in dissolutions or mergers should file their BOI report before consummating the merger/dissolution, rather than waiting until closer to the applicable filing deadline.

Compliance Is Key

FinCEN estimates that over 33 million entities will need to file BOI Reports in 2024. To avoid the civil and criminal penalties provided for in the CTA, now is the time to assess whether your entities are exempt from filing and, if not exempt, to prepare for your initial filing and continue from there with compliance efforts. Legal counsel or other advisors are available to assist, particularly regarding exemptions and beneficial ownership analysis.

For more information, please contact us or your regular Parker Poe contact. You can also subscribe to our latest alerts and insights here.