An alert participant in a recent seminar asked about the filing obligation under the Corporate Transparency Act for an entity that is either dissolved, or in the process of dissolving. The question is a good one because neither the statute nor the draft FinCEN regulations provide clear guidance on when an entity ceases to have a filing obligation. (Hat tip: Darrel Begnaud, General Counsel, burton + BURTON®)
The Corporate Transparency Act obligates a "reporting company" to file a beneficial ownership report. Draft Regulations 31 CFR 1010.380(a)(i) . FinCEN's draft regulations (31 CFR 1010.380(c)(i)) define "reporting company" as either a "domestic reporting company" or a "foreign reporting company" with the following definitions:
(i) The term ''domestic reporting company'' means any entity that is:
(A) A corporation;
(B) Limited liability company; or
(C) Other entity that is created by the filing of a document with a secretary of state or any similar office under the law of a State or Indian tribe.
(ii) The term ''foreign reporting company'' means any entity that is:
(A) A corporation, limited liability company, or other entity;
(B) Formed under the law of a foreign country; and
(C) Registered to do business in any State or tribal jurisdiction by the filing of a document with a secretary of state or any similar office under the law of a State or Indian tribe.
FinCEN's draft regulations do not indicate when a corporation, limited liability company or other entity that is a "domestic reporting company" ceases to constitute a "domestic reporting company."
In many states, the process of dissolving a corporation or limited liability company takes several steps. Under the Revised Uniform Limited Liability Company Act (adopted in 20 states), for example, an LLC may be dissolved (a) administratively, by the Secretary of State, if the entity ceases to pay its annual fees and file its annual reports, (b) by the voluntary action of the LLC's members or managers, and (c) as a result of several external events (such as a court order). [RULLCA Sec. 701]. But dissolution is not the end of the LLC's legal life. Under Section 702 of the RULLCA, a dissolved LLC continues to exist for the purpose of "winding up" its activities. During the "winding up" phase, a dissolved LLC may take a variety of actions to conclude its business, including settling litigation, selling assets, transferring assets, discharging indebtedness and so on. [RULLCA Sec. 702(b)].
If the purpose of the CTA is to empower law enforcement, through FinCEN, by collecting beneficial ownership control information, mere dissolution should not end an entity's role as a "reporting company." Dissolved entities continue to have legal personhood. They may sell assets, discharge indebtedness and transfer assets (including cash). As a result, the policy behind the CTA would seem to require a dissolved company to continue to report its beneficial ownership until the dissolution process is final and the entity's legal existence is ended.
This is especially true in the case of LLCs under the RULLCA because that law contemplates the possibility that a dissolved LLC may "revoke" its dissolution and return to active business status. [RULLCA Sec. 703].
So, while the draft FinCEN regulations to not provide clear guidance, it would be prudent for companies and their counsel to continue to report beneficial ownership, even after the company has begun its dissolution or "winding up." Perhaps the final FinCEN regulations will make it possible for a reporting company to amend its beneficial ownership report to indicate that it has begun winding up. Ideally, there would be a final amendment (similar to the final amendment to an SEC registration statement for a "going private" transaction) that a dissolved entity would file to signify the completion of its winding up and the end of its corporate existence.