As a business owner or someone managing multiple entities, it’s crucial to stay informed about the latest regulatory requirements. One such requirement that’s on the radar is FinCEN’s (Financial Crimes Enforcement Network) mandate for company registrations. If you’re like me and have a dormant or inactive company, you might be wondering whether you need to go through the hassle of registering it with FinCEN. This is a topic that’s been causing some confusion, so I want to clarify what you need to know.
In a recent video, Lee Phillips breaks down the FinCEN registration requirements, especially as they pertain to dormant or inactive companies. By the end of this post, you’ll have a clear understanding of when you must register your company and what exceptions might apply.
What’s the Deal with FinCEN Registration?
To start, all companies, regardless of their activity level, must register with FinCEN by the end of 2024 if they were in existence prior to January 1, 2024. New companies formed in 2024 or later have a 90-day window for registration in the current year and a 30-day window in subsequent years. Failing to meet these deadlines could result in severe penalties, including a $500 daily fine, an additional $10,000 penalty, and even up to two years in jail. Clearly, FinCEN is not messing around.
Now, you might be thinking, “I have a company that’s been inactive for years—do I still need to register?” The answer used to be a simple “no” if the company wasn’t active and had fallen off the state’s records. However, FinCEN has changed the game. Simply letting your company’s state registration lapse is no longer enough to avoid FinCEN’s requirements.
When Does an Inactive Company Need to Register?
According to FinCEN, your company is considered inactive and exempt from registration only if it meets all six of the following criteria:
- Existed before January 1, 2020: Your entity must have been in existence before this date. If you set it up after January 1, 2020, even if it’s inactive, you still need to register.
- No Active Business Operations: The entity should not be engaged in any active business. This is a common scenario for many of us who set up companies for specific projects that never took off.
- Not Foreign-Owned: The company must not be owned by any foreign person or entity. If there’s any foreign involvement, registration is mandatory.
- No Ownership Changes in the Last 12 Months: The company should not have experienced any ownership changes within the past year.
- No Significant Financial Activity: The entity must not have sent or received more than $1,000 in funds within the last 12 months. Even if you had a checking account and closed it, this could still count as financial activity.
- No Asset Holdings: The entity should not hold any assets, either in the U.S. or abroad, including interests in other companies.
If your company can honestly check all these boxes, then you’re off the hook—no need to register it with FinCEN. But let’s be real: meeting all six of these criteria can be challenging, especially when you factor in the nuances of financial activity and ownership changes.
Why You Should Consider Registering Anyway
Even if you think your company meets these criteria, it’s wise to err on the side of caution and register. The penalties for failing to register are steep, and while it’s true that a federal court in Alabama declared FinCEN’s regulations unconstitutional for the National Small Business Association, this ruling doesn’t apply to the rest of us. FinCEN has made it clear that they will enforce these rules rigorously, so don’t take any chances.
Final Thoughts
The clock is ticking, and if you have an older, dormant company, now is the time to evaluate whether you need to register it with FinCEN. Take a close look at those six criteria, and if you’re unsure or if your company doesn’t quite meet all of them, go ahead and get it registered. The peace of mind is worth it, especially given the potential penalties for non-compliance.
