New York Weighs Requiring Public Disclosure of LLC Ownership Information

The New York State Assembly recently passed the LLC Transparency Act (the LLC Act). If signed into law by New York Governor Kathy Hochul, the LLC Act would require limited liability companies (LLCs) formed or registered to do business in New York to disclose their beneficial owners to the New York State government, which would make this information available in a public database and potentially fundamentally change how businesses are organized in New York.

As discussed in our prior report, Congress enacted the federal Corporate Transparency Act (CTA) on January 1, 2021, establishing a reporting regime for beneficial owners of corporations and LLCs in an effort to make beneficial ownership information (BOI) available to law enforcement and, in some circumstances, financial institutions for use in combatting money laundering.

While the LLC Act requires reporting of the same information required to be reported to the US Treasury Department pursuant to the CTA, due to the inaccessible nature of the BOI that the Treasury Department will collect pursuant to the CTA, the New York State Assembly passed the LLC Act in an effort to extend the benefits of beneficial ownership transparency to civil society and local government in New York. If signed by Governor Hochul, the LLC Act would become effective 365 days after becoming law.

KEY FEATURES

Scope

While the LLC Act would apply to “reporting companies,” as defined in the CTA, the LLC Act would only include LLCs and foreign LLCs formed or registered to do business in New York. LLCs and foreign LLCs that are not otherwise defined as reporting companies and that meet a condition for exemption under the CTA would also be exempt from the LLC Act.

Information Required to Be Reported

The LLC Act would require reporting companies to disclose information identifying their “beneficial owners,” as defined in the CTA, including (1) their full legal name, (2) their date of birth, (3) their current business street address, and (4) a unique identifying number from an acceptable identification document defined in the CTA.

A reporting company may satisfy its disclosure requirements by submitting a copy of the report it submitted to the Treasury Department pursuant to the CTA. Unlike the CTA, the LLC Act does not require the disclosure of company applicants.

Timing of Reports

Reporting companies formed on or before the effective date of the LLC Act would be required to file their beneficial ownership reports by January 1, 2025. Reporting companies formed after the effective date will have 30 days from formation or registration to file their beneficial ownership reports.

Obligations of Exempt Entities

Exempt entities formed on or before the LLC Act’s effective date would be required to file a statement signed by a member or manager indicating the provision of the CTA on which it is relying to claim its exclusion from the definition of a reporting company no later than January 1, 2025.

Availability of Disclosed Information

The LLC Act would require the secretary of state to maintain a publicly available database on its website for each business entity organized in New York State and each foreign business entity with authority to do business in the state, that includes, but is not limited to, the following information:

• the name of the business entity;
• the history of such name and changes to such name, where applicable;
• the current business street address and the county associated with such business street address;
• the duration or date of dissolution of the business entity, where applicable;
• where the business entity is an LLC, the date of initial filing of the articles of organization, or, where the business entity is a foreign LLC, the application for authority;
• the date of the most recent filing;
• the filing history associated with such entity;
• any other information pertaining to such business entity as may be determined by the secretary of state and in accordance with applicable state and federal laws, rules, and regulations; and
• where the business entity is also a reporting company, the full legal name or names of each beneficial owner of the entity.

Treatment of Info Not Required to Be Included in the Public Database

All personal or identifying information of beneficial owners provided to the department of state under this section not required to be included in the business entity database will be deemed confidential except for the purposes of law enforcement or as otherwise required to be disclosed pursuant to a court order.

If confidential information associated with a beneficial owner is held electronically, those records would be encrypted or protected in a substantially similar manner. The department of state would assign each beneficial owner a unique identifying number that would not be based on any personally identifying number associated with the beneficial owner.

Waiver to Withhold Certain Information from Public Access

The LLC Act would require the secretary of state to establish procedures to allow beneficial owners of reporting companies who cite significant privacy interests to apply for a waiver to withhold the name and/or business address associated with a beneficial owner from the public database where (1) such name and/or business address would disclose personal or identifying information of such beneficial owner, (2) no amendment to such information would mitigate such disclosure, and (3) such disclosure serves no public interest.

Examples of significant privacy interests under the LLC Act include, but are not limited to, instances where a beneficial owner is a natural person participating in an address confidentiality program, a natural person participating in an address confidentiality program, or a member of an LLC acting as a relator in a False Claims Act lawsuit.

Penalties for Noncompliance

Under the LLC Act, a reporting company that fails to disclose its beneficial ownership for a period exceeding 30 days will be shown to be delinquent on the department of state’s records after the department of state mails a notice of delinquency to the reporting company’s last known business address.

A reporting company that fails to disclose its beneficial ownership for a period exceeding two years will be shown to be delinquent on the department of state’s records after the department of state mails a notice of delinquency to the reporting company’s last known business address and the reporting company fails to file its beneficial ownership information within 60 days of that mailing.

The reporting company’s delinquency will be removed from the department of state’s records upon the filing of an up-to-date beneficial ownership disclosure and the payment of a civil penalty of $250.

IMPLICATIONS

The LLC Act is more limited in scope than the CTA given that it applies only to LLCs, whereas the CTA applies to any business entity formed or registered to do business by the filing of a document with a secretary of state. However, unlike the CTA, which makes beneficial ownership information available only to limited parties and only in limited circumstances (primarily for use in law enforcement efforts), the LLC Act would make beneficial ownership information available to the public.

While there are opportunities for beneficial owners to obtain waivers from having this information published in a public database, if signed into law the LLC Act may ultimately affect LLCs’ decision to do business in New York altogether.