CTA Lessons on Good Corporate Hygiene

Ed. Note: Although the Trump administration has indicated that the reporting requirements under CTA are suspended, the law remains in effect, and a future administration could revoke that suspension. What is noted below remains relevant and underscores the ambiguity caused by failing to follow through and file formal dissolution papers for inactive entities.

A habitual tendency is the abandonment of defunct or obsolete business entities. This abandonment is called administrative dissolution.

Administrative dissolution occurs when an entity fails to meet requirements, such as reporting or fee payment, leading to revocation or suspension by the creation jurisdiction. Sometimes, revocation is permanent, but often it can be reversed by fixing the issue, including fee payment, with retroactive effect if no ongoing harm occurs. The federal Corporate Transparency Act (CTA) sheds light on this practice, highlighting the ambiguity of its finality.

Under the CTA, FinCEN says that an administratively dissolved or suspended company does not cease to exist unless the dissolution or suspension becomes permanent. This applies to foreign reporting companies as well, which remain registered unless the suspension turns permanent.

The Beneficial Ownership Information Reporting Requirements Rule states that (1) administrative dissolution does not exempt an entity from CTA reporting, as delinquent reports can be filed and good standing restored, and (2) winding-up activities are considered active business, requiring CTA compliance. To cease to exist and avoid CTA, an entity must formally terminate through an affirmative filing with the Secretary of State, not just dissolve or be in dissolution.