Briefly Speaking Series: Corporate Dissolutions and Withdrawals

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Caitlin: Hello, everyone, and welcome to today's webinar, "Briefly Speaking: Dissolutions and Withdrawals." My name is Caitlin Alaburda, and I will be your moderator.

Joining us today are Christa Day and Helena Ledic. Christa has been with CSC for 10 years and is in our Springfield, Illinois office. In her time with CSC, she has worked on the UCC Self-Service Team, Illinois Corporate Team, Customer Service Representative Team, and has now transitioned to becoming a trainer to share her knowledge of entity dissolutions with new hires. Helena is an associate general counsel for CSC in the Chicago office. And with that, I'd like to welcome Christa and Helena.

Christa: Hello, everyone. This is Christa, and I'm excited to be here with you all today.

Helena: Thanks, Christa, and thanks, Caitlin. Hi, everyone. This is Helena, and of course I'm delighted to be speaking with you today. Before we get into the agenda, I just do want to remind our audience that, of course, this information today is not meant to be a substitute for legal advice or opinions. You know certainly we're not discussing specific fact situations.

So our agenda today of what we're going to cover is we're going to talk about what is a dissolution, and then we'll go into talking specifically about Delaware dissolutions. We'll go into a withdrawal. We'll talk about some of the states that have got more challenging tax clearance procedures. So we'll learn a lot about tax clearances today. We'll learn about terminations. We'll have a checklist. And then we'll also talk about the Corporate Transparency Act and end up with a Q&A session at the end.

Before we get into the presentation, let's talk a little bit about CSC first. CSC is the world's leading provider of business administration and compliance solutions. We work with more than 90% of the Fortune 500 and more than 10,000 different law firms, and we have expertise and capabilities in more than 140 jurisdictions. We work with forming entities, dissolving entities. We do secured transaction work. We work with M&A. Pretty much anything within the business space we do. We are the business behind business.

So our first topic that we're going to talk about today is going to be dissolutions, and Christa is going to get us started with that.

Christa: Thank you, Helena. Let's start with what a dissolution is. There are two types of dissolutions. There's a voluntary dissolution and an involuntary dissolution. A voluntary dissolution is when the entity files the formal dissolution or withdrawal with the secretary of state. An involuntary dissolution, however, is when the entity is terminated without its consent. So usually it's due to the entity not meeting obligations with the secretary of state for administrative reasons. This could be for not filing annual reports for an example.

The articles of dissolution is going to be filed with the secretary of state. This will be the form that's filed in order to terminate the entity with the secretary of state. And then Helena is going to give us a little bit of information on the tax clearance requirements.

Helena: So the tax clearance process can be very complex, and it can take a long time. It's certainly not unheard of for it to take a couple of months. As Christa will walk us through some of the more difficult states or I should say the more challenging states, it can take as long as two years.

Where some of the complexities of this that people may not know about is that typically the tax clearance requirements have to come through from the Department of Taxation or the Department of Revenue within a given state, and then they typically need to be requested by an officer of that entity. And so it's not just that CSC can go and request it. It has to be a requested by someone from that entity, an appropriate person. There are a few states where we can actually get those tax clearance requirements or where we can get those status certificates then. But in all almost every instance, then there has to be a power of attorney given so that we can end up doing that request. So that's where this can definitely become a much more complex and involved process that people may not appreciate how difficult it can be.

Christa: Next let's dive into the Delaware dissolutions. We can start with the LLC and the LP dissolutions.

For LLCs and LPs, the only thing that has to be paid is the Delaware franchise taxes. It is $300 per year, and you will have to pay the current year in order to file the certificate of cancellation. So, for example, if you are dissolving your LLC or LP this year in Delaware, you will have to pay the 2024 in order to proceed with that dissolution. LLC and LP franchise tax payments are due by June 1st of every year, and no eFiling is required. They can be paid online.

And then for Delaware corporations, it is a little bit more complex. So before we can file a certificate of dissolution, again you will have to go ahead and file your 2024 annual report and pay the franchise taxes. Most of the time the annual reports are due by March 1st of each year, and the fee for that is $50. However, the franchise taxes are based off the issued shares and gross assets or your authorized shares, depending on if you're using the recalculation method or you're going off the authorized share method. So it would probably be best if you emailed CSC and got with your representative. We can let you know the exact fees that will be due before you have to dissolve.

If you do want us to file those annual reports online for you, we can definitely do that. We do have a worksheet that you can fill out. On that you'll have to provide us with the principal address of the entity. We'll need a phone number. We need at least one officer. We will need all of the directors. And then if you are wanting to use that recalculation method instead of the authorized share method, we will need the issued shares and gross assets for the reporting period or the reporting period during that time.

Helena: Up to now we've spoken about dissolutions in your own home state. Now let's talk about withdrawals that are in those foreign jurisdictions. As I mentioned, withdrawals are in the foreign state, so not your home domestic state. And it's that legal process by which a corporation relinquishes the authority to do business in that foreign state. It's a statutory procedure where you're obtaining the consent of the jurisdiction of that secretary of state to terminate that foreign corporation's authorization to transact business in that jurisdiction.

Now there's also an application for withdrawal. This is a statutory form that's filed in most states to end a foreign corporation's authority to transact business and to remove that corporation from the records of the state as an active corporation.

And as we spoke about on the earlier slide with tax clearances, when we were talking about them with dissolutions, it's still an issue with withdrawals, where the process can be very complex. It can take as long as two years. It has to go through the Department of Taxation or Revenue. And I should say it has to be requested by an officer. And sometimes it has to be accompanied by a power of attorney.

Christa: Yes, thank you, Helena. Tax clearances can be very, very difficult. A couple of states that can carry the difficult tax clearances is Pennsylvania. Pennsylvania actually requires that we get it from both the Department of Revenue as well as the Department of Labor, and this can take up to two years. New Jersey has multiple forms that have to be filled out, and this can usually take up to at least one year. Louisiana does have a tax clearance that has to be initiated by the state. There's no forms, but it can take up to two years, just like it does in Pennsylvania. For New York, tax consent is required. It can take anywhere from six to eight weeks. Sometimes it can take all the way up to four months.

And for Texas, we do need a certificate of account status. It is a lot better for the clients to get this themselves. The reason is they can go online with the Texas Comptroller and use their webfile number to receive this. Otherwise, if CSC has to take care of it, then we do have to submit it via paper. We're not able to get it online. And that could take up to 120 days. So if you do have a dissolution or a withdrawal in Texas that does require a tax clearance, I do highly recommend that the client receive it themselves with their webfile number.

Something that can be helpful with New York and Texas to try to get around those tax clearances is we can file a termination in lieu of regular withdrawal. And what that is, is we could take a certified copy of the dissolution from the home state. Also a state might require a certificate reciting dissolution from the home state, and we can take that and we can file it with the Secretary of State of New York in Texas. Sometimes that is able to get us around the tax clearance, sometimes it's not. But definitely keep it in mind and contact CSC if you have any questions.

Another state that doesn't require tax clearance but does allow a termination in lieu of regular withdrawal is Illinois. You can file a certified copy of the dissolution from the home state there, and you will not have to fill out any state forms in order to get that filed.

Helena: Oh, we've spoken about dissolutions and withdrawals. Let's now talk about terminations. And Christa is going to take us through everybody's favorite giveaway, the checklist.

Christa: Yes, I always love a good checklist to get me through a project. So the first thing that will need to be done is you will need to file a notice of intent to dissolve if it is required by that particular secretary of state. And then the next step will be to submit those articles of dissolution or withdrawal. And, of course, if a tax clearance is needed, we will need to obtain that upfront.

And then, after that, you will have to file a withdrawal of qualification or a registration. We may need to provide that evidence of dissolution or merger for each foreign state, depending on how the entity was terminated in the domestic state. If there are any assumed name or DBA certificates that are on file, we may need to cancel those as well depending on the state and where the DBAs are filed.

And then lastly, we will need to file any evidence of dissolution or merger with that secretary of state. And then if you have any permits or business license that you do need assistance with canceling as well, we do have a lovely Business License Department that can assist with that.

Helena: So Christa and I are now going to end up talking to you a little bit about the Corporate Transparency Act. And if you thought that you could escape some of those obligations by dissolving or withdrawing entities, unfortunately that's probably not the case as we'll learn.

So the Corporate Transparency Act or the CTA went into effect at the beginning of 2024, with the intent to make it harder for bad actors to hide their ownership of shell companies and other ownership structures. It's regulated by FinCEN, which is part of the U.S. Department of Treasury.

The CTA applies to corporations, limited liability companies, and other entities that fall within the CTA's definition of a reporting company. There are 23 types of entities that are exempt from the reporting requirements, and they typically somehow include companies that are regulated in one fashion or another. Unfortunately, many smaller companies will need to report.

Reporting companies have to provide personal identifying information about the individuals who own or control the company, as well as the individuals who formed the company. Only entities formed in 2024 have to report the individuals who formed the entity. The required information that needs to be reported typically includes the name, the birth date, a driver's license or a passport number, and an image.

Depending on when the entity was formed, entities may need to report by the end of 2024, or they may have 30 or 90 days to report. And willful violations can result in civil or criminal penalties.

So let's now talk about the reporting obligations of whether or not you are required to file or don't need to file. An entity is not required to file a report if it was formally and irrevocably dissolved prior to January 1, 2024. A reporting company in existence on January 1, 2024 must file a report even if it's formally dissolved prior to the filing deadline of January 1, 2025. Likewise, a reporting company formed or registered on or after January 1, 2024, but dissolved prior to the date of its initial report due date still has to file a report within the applicable time frame, which is going to be 90 days from creation or registration for companies formed during 2024 and then 30 days from creation or registration for reporting companies formed or registered on or after January 1, 2025.

Not only that, but FinCEN also advises that if a reporting company was administratively dissolved or suspended, it does not necessarily cease to exist as a legal entity unless the dissolution or suspension has become permanent.

So this chart over here, with the graphics on there, kind of lays that out of whether or not your entity was active and when that reporting obligation comes in.

So a key takeaway here is that if a reporting company ceased to exist in 2024, there's still a filing obligation, and dissolving ahead of that deadline still does not relieve the company of that obligation.

What we've learned with FinCEN FAQs that have come out recently is that the guidance appears to be extending beyond what the reporting obligations. It seems to be extending a little bit beyond the initial scope. And while we've gotten some good guidance on some of these reporting obligations, other questions have been raised certainly surrounding the withdrawals and then the dissolving. And as things go on, hopefully FinCEN will end up introducing more FAQs that will kind of help clarify this matter a little bit more.

Christa: Thank you, Helena, for all that information. We do have a team of CTA experts here at CSC who can securely collect all the required beneficial owner and company applicant information, such as their passports and driver's license. They can manage the outreach necessary to obtain the BOI and supporting documents. We can prepare and file your BOI reports with FinCEN. And, of course, we can deliver order submission confirmation and related evidence to you once the order is complete.

There are two ways that you can submit a CTA filing to CSC. You can log in to cscglobal.com with your username and password and use our smart form, and that will come over to us on an online order. You can also complete our CTA Excel template and email that to our CTA Team. We do encourage that you regularly visit the CSC CTA Resource page, where it includes the latest information and guidance for FinCEN.