In 2021, Congress enacted the Corporate Transparency Act (“CTA”), which mandates the collection of beneficial ownership information as part of an effort to curb the use of shell companies for illicit purposes. Beginning January 1, 2024, the CTA requires corporations, limited liability companies (“LLC”) and other similar entities that are organized or registered to do business in the U.S. to report certain identifying information of its beneficial owner(s) to the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”).
Owners of LLCs in the State of New York have long enjoyed anonymity when registering to do business within the state. However, in step with the federal government, in its 2023 session the New York legislature passed the “LLC Transparency Act,” a bill aimed at putting an end to the practice of anonymous ownership of LLCs in New York. The bill is presently on Governor Hochul’s desk awaiting signature and will come into effect 365 days after the bill is signed.
LLC Transparency Act:
The LLC Transparency Act will require the organizer of an LLC to submit an initial report containing a list of beneficial owners to the Department of State. A beneficial owner is defined as a natural person who directly or indirectly holds a membership interest, exercises substantial control over the decisions of a membership interest, or has been assigned a membership interest in the LLC. If a beneficial owner seeks an exemption from disclosing this information, they must indicate the specific exemption claimed against the obligation to file the report.
The information to be disclosed in the LLC’s report must include the beneficial owner’s full legal name, date of birth, current street address, and a unique identifying number from an acceptable identification document accompanied by an image of such document. To reduce reporting burdens, the LLC is permitted to file a copy of the report that was submitted to FinCEN.
The new law includes a section that requires the Secretary of State to maintain a publicly available database on its website for each business entity organized in New York and each foreign business entity authorized to do business in the state. This database will include, among other details, the entity name, the current address, and the full name of each beneficial owner. Through regulations, the Secretary of State must establish procedures to allow beneficial owners who cite significant privacy interests to apply for a waiver to withhold information.
Legal Implications
Assuming Governor Hochul signs the bill into law, if you are a beneficial owner of an LLC that was formed on or before the effective date of the law, you will have to comply with the new regulations of the LLC Transparency Act, including filing an updated beneficial ownership disclosure document by January 1, 2025. If you fail to comply within 30 days, it will result in the Department of State records reflecting your status as “past due” until you comply with the new law. If the failure to comply exceeds two years, the Department of State records will provide you with a notice of delinquency.
If after 60 days from receiving the notice of delinquency you still have not complied, the records of the Department of State will mark your entity as “delinquent.” When in delinquent status, the LLC will not be able to file any other documents with the Department of State and, perhaps most importantly, will no longer have the liability protections that an LLC offers. To remove the delinquency status from your records, you will have to file an updated beneficial ownership disclosure and pay a civil fine of $250.
Beneficial owners soon may no longer be able to remain anonymous and must be prepared to disclose identifying information in order to remain qualified to do business in New York.
Leech Tishman’s Corporate and Real Estate Practice Groups are equipped to help clients be compliant under the LLC Transparency Act. If you would like to discuss the LLC Transparency Act in further detail, or you would like to review your beneficial owner information in light of this Act, please reach out to Leech Tishman’s Corporate and Real Estate Practice Groups.
Philip Simpson is a Partner in Leech Tishman Robinson Brog’s Litigation & Alternative Dispute Resolution and Real Estate Practice Groups. Philip is based in the firm’s New York office and can be reached at 212.603.6300 or psimpson@leechtishman.com
Alexander J. Gase is an Associate with Leech Tishman and a member of the firm’s Corporate Practice Group. Alex is based in the firm’s Pittsburgh office and can be reached at 412.261.1600 or agase@leechtishman.com.
Roger A. Raimond is a Partner in Leech Tishman Robinson Brog’s Litigation & Alternative Dispute Resolution Practice Group. Roger is based in the firm’s New York office and can be reached at 212.603.6300 or rraimond@leechtishman.com.