New York, N.Y. (February 21, 2024) – On December 22, 2023, New York Governor Kathy Hochul signed Senate Bill S995B, also referred to as the "LLC Transparency Act," into law.

The LLC Transparency Act will require the disclosure of the beneficial owners of limited liability companies (LLCs) in the State of New York. The LLC Transparency Act defines a "Beneficial Owner" to include any individual who, directly or indirectly: (a) exercises substantial control over the LLC; or (b) owns or controls not less than 25% percent of the ownership interests of the LLC. The LLC Transparency Act (NYTA) will become effective on an undetermined date in 2024 upon passage of a "chapter amendment" by the New York Legislature which is expected to remove the public disclosure element under the original bill proposed by the Senate.

Legislative History and Background

The NYTA aims to address various issues arising from the use of anonymous LLCs in New York since the 1990s to evade sanctions and taxes, and to finance illegal activities such as terrorism, organized crime, and money laundering. In particular, the NYTA is focused on targeting and correcting the use of anonymous LLCs in connection with purchasing and leasing real estate. Real estate leasing by anonymous LLCs has been linked to an increase in code violations, higher rents, and increased evictions, as compared to non-corporate property owners.

Compromise to Passage

As originally drafted, Senate Bill S995 would have required certain information regarding the identity of the Beneficial Owners of an LLC to be accessible through a newly publicly available database. However, Governor Hochul recently signed the bill into law on the basis of a compromise agreement with the New York Legislature, which removed the public disclosure element of the reporting. As part of the bill passage, Governor Hochul stated in her Approval Memo that "... amendments were necessary to clarify that the database should be accessible only to those in government who have a law enforcement interest in the information. Doing so will allow individuals to be held accountable for misconduct, while preventing unnecessary intrusions into personal privacy."

Accordingly, subject to information that is customarily maintained on the Secretary of State's website for business entities organized or qualified to do business in the State of New York, the personal or identifying information of Beneficial Owners disclosed to the New York Department of State under the NYTA will be kept confidential except for purposes of law enforcement or as otherwise required pursuant to a court order. This amendment addressed the concerns raised by real estate professionals that the law as originally proposed would have detered privacy-conscious buyers from purchasing homes in the State of New York.

CTA and the NYTA

The NYTA is modeled after the federal Corporate Transparency Act (CTA), which was passed in 2021 and became effective on January 1, 2024. The CTA requires Beneficial Ownership filings with the U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) for all non-exempt entities. The NYTA and the CTA were both created to combat criminal activities and corruption by requiring the disclosure of Beneficial Ownership information. The NYTA contains the same definitions of statutory terms as the CTA and offers the same 23 exemptions from the reporting requirements as the CTA.

However, unlike the CTA - which applies to all forms of entities - the NYTA only applies to LLCs. Like the CTA, which protects the confidentiality of Beneficial Owner information, the NYTA similarly provides that Beneficial Ownership information filed with the New York Department of State will be kept confidential and will be made available only to specified governmental authorities.
Furthermore, if an initial report is filed with FinCEN under the CTA that contains the information required to be disclosed under the NYTA, then the LLC may submit a copy of such initial report to satisfy the requirements of the NYTA.

Summary Of Statutory Mandates

The NYTA provides, among other things, the following:

  • The Beneficial Owners of LLCs that are formed in New York State, or qualified to conduct business within the State of New York, would be required to be disclosed. Domestic and foreign LLCs existing in New York before the NYTA's enactment would also be required to disclose their Beneficial Owners.
  • The Beneficial Owner information required to be disclosed includes: (1) full legal name; (2) date of birth; (3) current business street address; and (4) a unique identifying number from an acceptable identification document such as a nonexpired passport or driver's license number. The LLC's Beneficial Owner information would be kept confidential except for purposes of law enforcement.
  • If a New York LLC or foreign LLC qualifying to conduct business in New York falls within one or more of the 23 exemptions from the reporting requirement as contained in the CTA, then the entity is required to submit a statement signed by a member or manager of the LLC indicating the specific exemption under which it qualifies.
  • " After the effective date of the NYTA, both domestic LLCs and foreign LLCs seeking qualification in New York will be mandated to disclose their Beneficial Owner information. For LLCs formed or registered in New York before the NYTA's effective date, the initial disclosure must be submitted to the New York Department of State by January 1, 2025. However, for those LLCs formed after the effective date of the NYTA, the initial disclosure must accompany the filing of their articles of organization or application for authority.
  • If a change in Beneficial Owner information occurs after such initial reporting, the LLC must file an amendment to its articles of organization within 90 days of such change. However, foreign qualified LLCs must amend their applications for authority upon any change to their Beneficial Owner information.
  • LLCs that fail to disclose Beneficial Ownership information within the time limits prescribed by the Secretary of State will be marked as past due in the Secretary of State's records until the LLC provides an up-to-date Beneficial Ownership disclosure.
  • Failure to disclose Beneficial Ownership for a period exceeding two years and 60 days would result in the LLC being labeled as delinquent in the Secretary of State's records. In order to rectify this delinquency, the LLC would have to pay a civil penalty of $250 and submit the necessary Beneficial Ownership disclosure.
  • A delinquent LLC status could potentially prevent an LLC from obtaining a Certificate of Status from the Department of State that may be required in connection with qualifying to do business in another state, opening business bank accounts, obtaining commercial loans, or in connection with real estate, M&A or other business transactions.

Consideration and Conclusion

Domestic LLCs and foreign LLCs qualified to conduct business in the State of New York should be prepared for this new reporting requirement. In particular, entities should determine if they fall within one or more of the 23 reporting exemptions and, if so, file the appropriate exemption form with the New York Department of State. If an LLC does not qualify for a reporting exemption, it must file and disclose the Beneficial Owner information within the time limits prescribed under the NYTA and be prepared to continuously monitor and timely report changes in the Beneficial Owner information of the reporting entity. By engaging in proactive planning, LLC owners can be better prepared to comply with the new reporting requirements imposed under the NYTA and avoid potential penalties and consequences for failure to comply with the new law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.