Current Month (July 2025)
CTA Lessons on Good Corporate Hygiene and Administratively Dissolved Entities
By William E. H. Quick, Polsinelli PC
An update on the Corporate Transparency Act, and its reporting and amendment obligations.
A habitual tendency of business owners (and often their attorneys) is the abandonment of defunct or obsolete business entities. This abandonment has a technical name: administrative dissolution.
Administrative dissolution (or suspension) most frequently occurs when an entity, wittingly or unwittingly, fails to comply with periodic reporting, fee payment, or other requirements of the entity’s creation jurisdiction. As a consequence of such deficiency, the creation jurisdiction may revoke or suspend the entity’s charter. In some instances, the revocation is permanent (termination), but in many instances the revocation may be reversed, often simply by remedying the triggering deficiency, including payment of fees. This remedy frequently has retroactive effect: i.e., no (ongoing) harm, no foul. The government’s efforts in implementing the Corporate Transparency Act (“CTA”) cast light on this common practice, and certain implications of this transitory status and lingering ambiguity (lack of finality).
In this regard, the U.S. Treasury’s Financial Crimes Enforcement Network (“FinCEN”) has stated that “[a] company that is administratively dissolved or suspended . . . generally does not cease to exist as a legal entity unless the dissolution or suspension becomes permanent.” FinCEN BOI FAQ C.13, issued July 8, 2024. This point was reinforced for foreign reporting companies, in that “[a] company that is administratively suspended from conducting business . . . generally does not cease to be registered to conduct business unless the suspension becomes permanent.” FAQ C.16, issued Sept. 10, 2024.
Commentary in the Beneficial Ownership Information Reporting Requirements Rule indicates that (1) administrative dissolution does not exempt an entity from CTA reporting obligations (because delinquent annual reports may be filed, and the entity’s good standing status thus may be restored), and (2) winding-up activities are considered “active business” under the CTA, requiring an entity’s compliance with the CTA reporting requirements. 87 Fed. Reg. 59498, 59545 (Sept. 30, 2022). It also bears note that for an existing entity to “cease to exist,” and thereby no longer be subject to the CTA, that entity must formally terminate its legal existence through an affirmative filing with a secretary of state or similar office—not merely dissolve or be in a state of dissolution.
Further to this point, FinCEN in its website FAQs has written that “[i]f a reporting company . . . continued to exist as a legal entity for any period of time [during its reporting window] (i.e., did not entirely complete the process of formally and irrevocably dissolving . . .), then it is required to report its beneficial ownership information to FinCEN, even if the company had wound up its affairs and ceased conducting business . . . .” FAQ C.13. Parallel language applies to foreign reporting companies. FAQ C.16.
FinCEN’s approach highlights a latent issue inherent in failing to formally terminate an entity: the zombie entity may continue to wreak havoc with the living, long after its seeming demise. In regard to determining when an entity ceases to exist as a legal entity, consider FinCEN’s recommendation: “consult the law of the jurisdiction in which the company was created or registered.” FAQ C.13.
