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Key Considerations for BOI Reporting During Entity Transitions

BOI Reporting During Entity Transitions

Disclaimer: As of December 26th, 2024, the CTA reporting requirements are not enforceable due to a preliminary injunction. The information in this article does not include considerations regarding the preliminary injunction. Entities formed while the injunction is in place should be prepared to file reports immediately if/when the injunction is lifted (if the 30-day period has elapsed).

The Corporate Transparency Act (CTA) mandates the reporting of beneficial ownership information (BOI) for certain legal entities beginning in 2024. When altering the structure or jurisdiction of an entity—such as through dissolution and re-formation, merger, conversion, or adding registration jurisdictions, understanding how these changes affect BOI reporting obligations is critical. Below, we explore considerations for each type of transition.

Dissolution of an Entity in One Jurisdiction and Formation in Another Jurisdiction

Dissolving an entity in one jurisdiction and forming a new one in another is a comprehensive process involving liquidation, settling of liabilities, any other wrap up requirements needed to meet dissolution requirements. There could be various, major federal and state tax items to consider. The new entity that is formed in the other jurisdiction may also need a new Employer Identification Number (EIN), contributing to the reason that it will be a separate BOI reporting entity and would be considered a newly formed entity.

For BOI reporting purposes, if the original entity is fully dissolved before the CTA’s effective date (January 1, 2024), it may have no BOI reporting obligations. However, if the dissolution occurs after the effective date, an initial BOI report should be filed since the entity will still be subject to reporting requirements (See FAQ C.13 from FinCEN). Although, subsequent updates to the entity BOI may not be applicable if the entity no longer exists. This leaves the possibility of two BOI reports needing to be filed even though the intention was for the new one to replace the other.

While this method is an option, the associated costs and administrative burden are significant due to the need to transfer assets, comply with dissolution procedures, and possibly file an additional BOI report if the dissolution of the original entity is not formally completed or was done in 2024.

Merger of Entities

In a merger, one entity becomes the surviving entity while the other ceases to exist. This statutory transaction simplifies asset and liability transfers. The CTA implications are that the surviving entity would be the one that must file a BOI report reflecting its beneficial ownership. The non-surviving entity generally does not retain a separate reporting obligation, since it is no longer a legal entity. However, it is important to consider when the merger occurs. If it occurred after the CTA effective date of January 1, 2024, the non-surviving entity may still need to file an initial report since it met reporting obligations (FAQ C.13). The report would reflect the beneficial owners right before the merger occurred. After the merger, it would no longer be a legal entity, so any subsequent updated reports would not be required for that non-surviving entity.

Now, if both BOI Reports have been filed already and they undergo a merger, what entity is responsible for maintaining updated information with FinCEN? Given that the surviving entity is the only entity that remains legally in existence if the merger is executed correctly, it should be updated for any changes to beneficial ownership information because of the merger. Presumably, the other entity is no longer subject to reporting requirements and wouldn’t need to file any updated reports because of the merger since it ceases to exist at the end.

Statutory Conversion or Domestication

A statutory conversion (or domestication) is a seamless method for changing an entity’s formation state where it is authorized to conduct business. Typically, no separate BOI report is required for the entity as it exists after the conversion because the entity remains the same legal entity, just in a new jurisdiction. Some states don’t have these transactions available and may vary so it is important to ensure that no entity remains in the original jurisdiction to avoid unintended reporting obligations or compliance issues.

While a whole new initial BOI report may not be applicable, it will be important to update the existing BOI report for the entity to reflect the new “jurisdiction of formation”. Additionally, if the conversion required a change in the legal name—perhaps because the current name was not available in the new state—this does not automatically mean there is a need for a new BOI report. However, an updated report should be filed to reflect the change in legal name to ensure compliance with FinCEN requirements. Remember, updates to Beneficial Ownership Information are required to be filed within 30 days of a change.

Another common example that would result in the need for an updated BOI Report to be filed is upon the conversion from an LLC to a corporation, or vice versa. Given that in these conversions the legal name of the entities change – My Company, LLC to My Company, Inc., an updated report should be filed to reflect the new name (FAQ C.18).

Registration in Additional Jurisdictions

Registering an entity in a new jurisdiction while maintaining its original formation state is another aspect of compliance to consider. Per FinCEN’s FAQs, no additional BOI report is required for adding a registration in another jurisdiction if the original registration stays intact. If the entity subsequently dissolves in its original formation state, an updated BOI report must be filed to reflect the change in formation jurisdiction.

If the entity operates under the same EIN and name in both jurisdictions, it is typically treated as one entity. If a different name is required in the new jurisdiction, this alternative name should be included in the BOI report as equivalent to a DBA or trade name. Ultimately, there may be no resulting BOI reporting obligations when adding a jurisdiction. However, if it needs to be registered under a different name than its legal company name, an updated report will need to be filed within 30 days of the registration including that alternative name.

Evaluate BOI Reporting

Restructuring an entity—whether through dissolution and reformation, merger, conversion, or adding jurisdictions—is a common practice that allows businesses to adapt to changing needs. However, with the introduction of new BOI reporting obligations under the Corporate Transparency Act, it is key to evaluate how such transitions will affect reporting requirements.

By planning carefully, consulting with legal and tax professionals, and considering state-specific guidance, which can vary widely, entities can navigate these transitions effectively. A proactive approach ensures that restructuring decisions align with both business objectives and regulatory compliance.

Disclaimer: This blog article is intended for informational purposes only and does not constitute legal advice.  For advice on specific legal issues, please consult with a qualified attorney.