Acquisitions, divestitures, spinoffs: How to ensure CTA compliance
As you navigate acquisitions, divestitures, and spinoffs, make certain your due diligence process includes CTA compliance. This includes assessing the applicability of the law, identifying exemptions, and understanding the timing of required CTA filings.
Consider the following:
- Set roles and responsibilities: When documenting a transaction, specify roles and responsibilities for filing initial BOI reports and updates, identifying beneficial owners, and keeping track of reported information. Make sure to include this information in the closing documents. For example, retain any CTA-related reports as part of the deal documentation and include them in virtual closing binders.
- Review all transaction documents: This includes rollover agreements, employment agreements, shareholder agreements, and operating agreements, to identify any necessary updates related to the CTA. These updates should aim to clarify the responsibilities of individuals who meet the definition of beneficial owner in providing beneficial ownership information. This will help you streamline the management of this information.
- Track timing for updated filings: Any changes to information reported about the company or its beneficial owners from a previous BOI filing will require the filing of an updated BOIR within 30 calendar days after the change. Examples of changes include a change in the reporting company’s legal name or principal place of business address, the registering of a new assumed (dba) name, or, changes to beneficial owners or the information reported about beneficial owners such as an address change. A reporting company that qualifies for an exemption after filing its initial report is also required to file an updated BOIR. A company that had been exempt, but that no longer qualifies, must file an initial report within 30 calendar days of it no longer being exempt.
- Spinoffs: If you sell a business unit, ensure that the closing documents specify who is responsible for filing an updated BOI report. And, if it is the new owner, be sure to follow up to guarantee the new owner files the update.
- Dissolutions and terminations: A reporting company that existed for any period on or after January 1, 2024, must file an initial BOI report, even if it dissolves and terminates its existence before its initial report is due. However, there is no requirement to report a company’s termination or dissolution. Review FinCEN’s FAQ on dissolved entities for more information.
- Review exemption qualifiers: For an inactive entity to be exempt from the CTA’s reporting requirements, it must meet six qualifiers:
- The entity was in existence before January 1, 2020.
- The entity is not engaged in active business.
- The entity is not owned by a foreign person, directly or indirectly, wholly or partially.
- The entity has not experienced a change in ownership in the past 12 months.
- The entity has not sent or received any funds in an amount greater than $1,000, either through a financial account in which the entity or any affiliate has an interest in the past 12 months.
- The entity doesn’t hold any assets, in the U.S. or abroad, including any ownership interest in any corporation, LLC, or similar entity.
Administratively dissolved entities and the CTA
Based on FinCEN’s guidance, if a reporting company is administratively dissolved or terminated (for example, for not filing reports or paying fees), it does not necessarily cease to exist. States usually allow for reinstatement within a specified time, so unless the dissolution is permanent, the company is still considered a legal entity. As such, if an administratively dissolved reporting company began the dissolution process but didn't finish before January 1, 2024, it is still an existing legal entity and must file a report.
In most jurisdictions, there are more administratively dissolved entities than those that meet the legal definition of a dissolved entity that has ceased to exist. To avoid confusion, FinCEN suggests checking state statutes to determine the rules for the timeframe in which an administratively dissolved company can be reinstated.
FinCEN’s goal is to prevent misuse of dissolution to avoid beneficial ownership reporting.
Expansion of states adopting beneficial ownership reporting
Some states also will soon require entities to disclose BOI to the state business entity filing office, such as the Secretary of State. To date, only the District of Columbia and New York have enacted such laws.
On March 1, 2024, New York’s Governor Hochul signed Senate Bill 8059, mandating that beginning in 2026 all LLCs (both those formed in New York and those formed outside of New York) doing business in New York need to file a beneficial ownership disclosure or an attestation of exemption with the New York Department of State.
Massachusetts, California, and Maryland also introduced bills that would require some form of BOI reporting, however, as of September 2024, none of those bills had been enacted, and Maryland’s bill died in committee.
Others in the series:
Corporate Transparency Act: Best practices for beneficial ownership information reporting
Corporate Transparency Act: Considerations for joint ventures
Corporate Transparency Act implications for bankruptcy cases
Learn more
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