Dissolution and the CTA
Updated 7/10/24
A frequent question at our Corporate Transparency Act webinars is whether an entity that dissolves before December 31, 2024 would still be obligated to file a BOI report. Until recently, this was a subject of some debate. FinCEN’s regulations were not entirely clear. In July 2024, however, FinCEN updated the FAQs on its website so that (at least in FinCEN’s opinion) the answer is quite clear.
Overview – Dissolution Does Not Eliminate the Duty to File
We’ll explain more below, but the bottom line is that FinCEN has told us that any reporting company in existence on or after January 1, 2024 will need to file an initial BOI report, even if the entity is dissolved before its applicable filing deadline. FinCEN’s guidance is set forth in its FAQ C.13.
Reporting companies that existed during 2024, but that were dissolved before their filing deadline, face a bit of a conundrum, however. If the reporting company has been dissolved, no individual can claim to be “duly authorized” to file a BOI report on its behalf. Similarly, if the reporting company has been dissolved, it cannot be said to have any beneficial owners. Consequently, reporting companies that have been dissolved but that need to file will either need to be resurrected so that they can file before re-dissolving, or the reporting company could file its beneficial ownership data as it existed at the time of dissolution. Reporting companies will need to work out these details with counsel.
What is Dissolution?
In the same way that corporation formation is a matter of state law, so is corporate dissolution. States define and treat dissolution differently. And, even within a single state, there can be multiple types of dissolution procedures and different procedures for different types of entities, like corporations and LLCs.
Dissolution for Georgia Corporations
In the Georgia Business Corporations Code, an entity may undergo a voluntary dissolution (O.C.G.A. 14-2-1401 et seq.), an administrative dissolution (O.C.G.A. 14-2-1420 et seq.) or a judicial dissolution (O.C.G.A. 14-2-1430 et seq.).
A Georgia voluntary dissolution begins with a resolution adopted by the board of directors (and sometimes also a shareholder vote). Once approved, the corporation “shall begin dissolution” by delivering a “notice of intent to dissolve” to the Secretary of State. O.C.G.A. 14-2-1403. That process, however, may be revoked “at any time prior to the filing of articles of dissolution” by action of the board of directors (or shareholders) “in the same manner as the dissolution was authorized.” O.C.G.A. 14-2-1404(b). After notice of revocation is filed with the Secretary of State, the revocation “relates back to and takes effect as of the effective date of the filing of notice of intent to dissolve” so that “the corporation resumes carrying on its business as if dissolution proceedings had never occurred.” O.C.G.A. 14-2-1404(e).
Absent a revocation, however, filing the notice of intent to dissolve causes a corporation to “continue[s] its corporate existence” but prohibits it from carrying on “any business except that appropriate to wind up and liquidate its business and affairs.” O.C.G.A. 14-2-1405.
In a voluntary dissolution, after “all known debts, liabilities and obligations of the corporation have been paid and discharged, or adequate provision made therefore, the corporation may dissolve by delivering to the Secretary of State” articles of dissolution. O.C.G.A. 14-2-1408.
Thereafter, “upon filing articles of dissolution the corporation shall cease to exist, except for the purpose of actions or other proceedings, which may be brought against the corporation by service upon any of its last executive officers named in its last annual registration, and except for such actions as the shareholders, directors, and officers take to protect any remedy, right or claim on behalf of the corporation, or to defend compromise, or settle any claim against the corporation , all of which may proceed in the corporate name.” O.C.G.A. 14-2-1408(b) (emphasis added).
Nevertheless, even after a corporation is finally dissolved, it may be revived by filing an amendment to its articles of incorporation. O.C.G.A. 14-2-1409. Thus, a voluntary corporate dissolution has several stages, eventually culminating in a final dissolution that is not entirely final, since a voluntarily dissolved corporate can be revived years after its “final dissolution.”
In contrast, a Georgia corporate administrative dissolution is administered by the Secretary of State if a corporation fails to pay its applicable annual registration, fails to pay its license or occupation tax return, fails to maintain a registered agent or registered office for 60 days or more, or fails to attend to any other administrative obligations. O.C.G.A. 14-2-1420. The Secretary of State must mail a notice of pending administrative dissolution to the corporation. If the administrative failures are not remedied within 60 days, the Secretary of State may immediately dissolve the corporation, subject to the corporation’s ability to wind-up and liquidate. A corporation that was administratively dissolved may apply for reinstatement for up to five years after the effective date of dissolution. O.C.G.A. 14-2-1422. If the Secretary of State denies an application for reinstatement, the aggrieved corporation may file an appeal in Superior Court. Consequently, an administrative dissolution is relatively swift, but can be administratively reversed for up to five years (or even longer if an administrative denial is litigated).
A Georgia court may also dissolve a corporation, on the application of the State Attorney General or in a proceeding brought by a shareholder or creditor with proper cause. In judicial dissolution proceedings, the court has wide discretion to “issue injunctions, appoint a receiver or custodian pendente lite with all powers and duties the court directs [and] take other action required to preserve the corporate assets wherever located, and carry on the business of the corporation until a full hearing can be held.” O.C.G.A. 14-2-1431(c).
If a Georgia court issues a decree ordering a corporation dissolved, it has the “same effect as a notice of intent to dissolve” as described above. O.C.G.A. 14-2-1433(a). Following the judicial decree, however, the winding-up process is to be directed by the court, with the costs and expenses of dissolution being paid from the remaining assets of the corporation. Once completed, the court should enter a “decree of dissolution” which is to have the “same effect as articles of dissolution.” O.C.G.A. 14-2-1433(c).
Thus, through three different avenues – voluntary dissolution, administrative dissolution, and judicial dissolution – a Georgia corporation can reach an end of its corporate life, and yet retain a potential for reinstatement for years to follow.
Dissolution for Georgia LLCs
In contrast to Georgia corporations, Georgia LLCs are different.
First, the dissolution rules for an LLC formed prior to July 1, 1991 are slightly different that those formed after that date. (LLCs formed after the date have more leeway for perpetual existence than those formed before the cutoff.)
In either case, however, an LLC may be dissolved as specified in its articles of organization or written operating agreement, or when approved by all the LLC’s members or when a judicial decree of dissolution is entered under O.C.G.A. 14-11-603.
The Secretary of State may also administratively dissolve an LLC in roughly the same manner as it would a corporation. O.C.G.A. 14-11-603(b). Like a corporation, an LLC that is administratively dissolved continues its existence to the extent necessary to wind up and liquidate its business. O.C.G.A. 14-11-603(b)(3). And, like a corporation, an LLC that has been finally administratively dissolved may apply for reinstatement within five years after the effective date of dissolution. O.C.G.AG. 14-11-603(b)(4).
Impact of Dissolution on a Reporting Company’s Duty to File a BOI Report
FinCEN’s Final Rule for BOI reporting does not directly address the question of whether a dissolved entity is relieved of its duty to file a BOI report. FinCEN first addressed the question in its BOI FAQs in July in FAQ C.13.
FinCEN’s rule is that a reporting company that exists during 2024 must file an initial BOI report, even if it is dissolved before its initial BOI report is due. Presumably, FinCEN adopted this outlook in order to prevent bad actors from forming entities, engaging in illicit transactions, and then dissolving before the initial BOI report came due.
For reporting companies that existed in 2024 but that dissolved without filing an initial BOI report, there is a conundrum. If the entity is finally dissolved so that it does not exist under state law, then no individual can truthfully claim to be duly authorized to file its BOI report. That same dissolved entity will not have any beneficial owners, since the entity does not exist and cannot be “owned.”
This leaves two alternatives.
First, a dissolved reporting company could reverse its dissolution for the purposes of filing an initial BOI report. Complete the BOI report and then dissolve itself again. It will be difficult to explain to business owners why this seemingly pointless housekeeping is necessary, but it seems to be required by FinCEN’s FAQ C.13.
A second alternative would be for a dissolved reporting company to file a BOI report based upon its beneficial owners as they existed immediately prior to final dissolution. Depending on the state’s dissolution procedure, some dissolved entities might be able to take this kind of administrative action notwithstanding their dissolved status under state law. The individual filing the report would need to feel confident representing the accuracy of the BOI report notwithstanding its dissolved status. In most situations, where the company has been dissolved, the primary beneficial owner should feel comfortable representing the accuracy of the beneficial ownership at the time of dissolution.
Once it has filed its initial BOI report, a reporting company may dissolve. A reporting company does not need to file an update or amendment to report its dissolution status to FinCEN.
The Inactive Entity Exemption.
If is important to note that these concerns with dissolution are entirely separate from FinCEN’s exemption for an “inactive entity” that meets the six separate criteria for inactivity. Because the six criteria are very precise (for example, an inactive entity may not own any kind or type of assets and may not have sent or received any funds in excess of $1,000 during the preceding twelve months) only a truly dormant entity will qualify for this exemption.
Conclusion
Although FinCEN’s regulations at 31 CFR 1010.380 do not discuss whether a dissolved reporting company must file, there has been some confusion. FinCEN resolved this confusion in July 2024 when it published its FAQ C.13. That FAQ clarifies that an entity that existed on or after January 1, 2024 will need to file an initial BOI report, even if the entity dissolves before its BOI filing deadline. In other words, reporting companies cannot escape the obligation to file an initial BOI report by dissolving themselves.
