Regulations That Apply to Beneficiaries in a Liquidation Context

1️⃣ State Corporate Law

Governs who qualifies as a shareholder or financial beneficiary during dissolution.

• Delaware General Corporation Law (DGCL)

• Nevada Revised Statutes (NRS)

• California Corporations Code
  ✅ Requires valid identification, ownership verification, and proper documentation to claim as a beneficiary of company assets.

2️⃣ Contract Law (Stock Redemption & Escrow Agreements)

If a beneficiary is named in an agreement (e.g., a stockholder with rights to funds via redemption), they are governed by the terms of that contract.

• Stock Redemption Agreement: Names the shareholder as a redeeming beneficiary.

• Escrow Agreement: Establishes legal rights to funds under specific conditions.

✅ Beneficiaries must:

• Sign required agreements

• Complete KYC/AML

• Prove legal claim (e.g., stock certificate, transfer records)

3️⃣ Bank Secrecy Act (BSA) & USA PATRIOT Act

Regulates identity verification of beneficiaries receiving money through financial institutions or escrow agents.

• KYC (Know Your Customer)

• AML (Anti-Money Laundering)

• OFAC screening (must not be on U.S. sanctions list)

✅ Required for all fund recipients:

• Government-issued photo ID

• Proof of address

• Source-of-funds or entitlement verification

4️⃣ Internal Revenue Code (IRC) – Taxation of Beneficiaries

Determines how proceeds are taxed when paid out to beneficiaries.

• IRC Section 331 – Shareholder liquidating distributions

• IRC Section 6043 – IRS notification of corporate liquidation

• Form 1099-DIV or 1099-B – Issued to beneficiaries for tax reporting

✅ If the beneficiary is a shareholder:

• Payment is usually treated as a capital gain, not ordinary income

• Tax documentation must be provided at year-end

5️⃣ State Unclaimed Property Laws (Escheatment)

If a beneficiary does not claim funds, the assets must be reported and sent to the state.

• Most states require escheatment after 3–5 years of inactivity or unclaimed funds

• Regulated under each state’s Unclaimed Property Act

✅ Transfer agents must make a good-faith effort to locate beneficiaries before turning over unclaimed funds.