How to Handle Inactive Entities That Aren’t Fully “Dissolved”

How to Handle Inactive Entities: An Overview

In the ever-evolving landscape of business compliance, navigating the requirements for Beneficial Ownership Information (BOI) reporting can be complex, especially when dealing with entities that are not “fully” dissolved. One FAQ from July 2024 sheds light on how to handle inactive entities.

When a business is listed as inactive at the Secretary of State but has not been formally and irrevocably dissolved, it often raises questions about ongoing compliance obligations. 

Does such an entity still need to report its beneficial ownership information under the Corporate Transparency Act (CTA)? The answer, according to FinCEN’s latest guidance, is nuanced and depends on specific circumstances.

Understanding Dissolved Status

First, it’s essential to understand what FinCEN means when they refer to dissolved entities that do not fall under CTA obligations. A company is dissolved when it ceases to exist by completing the process of formally and irrevocably dissolving with its jurisdiction.

Generally, this includes:

• Filing dissolution paperwork with its jurisdiction of creation or registration,
• Receiving written confirmation of dissolution,
• Paying related taxes or fees,
• Ceasing to conduct any business,
• Winding up its affairs (e.g., fully liquidating itself and closing all bank accounts).

While certain entities may not be conducting business, or fail to file their required annual report, they still exist in a legal sense until they are formally dissolved and must comply with the CTA. It is important to assess by jurisdiction as states require different actions for permanent dissolution. 

Steps for Compliance

For businesses that find themselves in the situation, for example, where they are administratively dissolved and required to report, the following steps are essential to ensure compliance with BOI reporting requirements:

1. Review Your Entity’s Status: Verify with a state attorney whether your entity is classified as permanently dissolved or not. This can also be done through the Secretary of State’s office where your business is registered.
2. Prepare Beneficial Ownership Information: Gather necessary information about your entity and its beneficial owners. This includes details such as names, addresses, DOB, and ID details.
3. Submit Required Reports: Use the appropriate forms and procedures to submit your beneficial ownership information to FinCEN. Ensure that you meet all deadlines to avoid potential penalties.
4. Consider Formal Dissolution: If your entity is truly no longer in use and you wish to avoid ongoing compliance obligations, consider formally dissolving it. This involves completing the dissolution process with the Secretary of State, which legally terminates the entity’s existence.

Importance of Staying Informed

Understanding and adhering to these requirements is essential for maintaining compliance and avoiding potential fines. It’s important to stay up to date with FinCEN guidance since many questions get raised about reporting, including those about what it means for dissolved entities.

By taking proactive steps to review your entity’s status, prepare the necessary information, and submit reports on time, you can ensure that your business meets all regulatory obligations.