Recent New York Law Requires Public Registration Of LLC Owners Which Takes Effect Later This Year – Corporate and Company Law

The new federal Corporate Transparency Act (CTA) has been in
effect for the past few months. A three-part series which was previously
published on this website reviewed the many provisions of this law.
In short, the CTA was enacted in order to combat fraud, money
laundering, tax evasion, organized crime and other activities which
were perpetrated through the use of shell companies, such as LLCs
and similar small business entities. Failure to comply with the law
can result in civil penalties and criminal penalties. The New York
state counterpart to the CTA incorporates several filing
requirements which must be made with the federal government.

It is estimated that 30 million companies will be required to
register with the government. However, New York decided that the
CTA was not broad enough, so the state passed a new law similar in
scope to the federal law. The new law is entitled the LLC
Transparency Act and only applies to companies which are either
formed in New York or registered to do business in New York.

The new law was signed by the governor on December 22, 2023, and
goes into effect on December 21, 2024. Just like the federal law,
New York seeks to fight fraud committed by those who would use
anonymous shell companies to hide their actions. The New York law
incorporates the federal law in many ways. For example, New York
uses the same definitions as the federal law for “beneficial
owner.” New York also has the same 23 exclusions for filing,
with one major exception to the federal law: if a company claims it
does not need to file because it falls under one of the 23
exclusions, then the company must report the basis for its
exclusion. Another similarity to the CTA is that any changes to the
initial filing must be reported. Sample changes could be the
address of an owner if he or she moves, or a change in
ownership.

Rather than reiterate the remaining rules, penalties and
coverage of the CTA, I will highlight some of the provisions of the
New York law which distinguish it from the CTA. First, the new law
only applies to limited liability companies, while the federal law
applies to any entity. The federal law requires a filing within 60
or 90 days of formation, but New York requires a filing at the same
time as formation. The penalties have a different structure, with
the CTA reaching limits of $500 per day, plus $10,000 in additional
fines, while New York’s penalties are much smaller.

The information required to be filed under the CTA is more
extensive than New York’s LLC Transparency Act. This leads to
the biggest difference in the two laws. All filings with the
federal government will be private, with no rights for individuals
to review the filings; the filings will, however, be made available
to law enforcement and federal agencies. In contrast, the New York
law requires the creation of a public database to be maintained by
the New York Secretary of State. The general public will be able to
search and obtain information from these filings. There is,
however, an exception to this rule. For companies who can
demonstrate appropriate privacy interests, the filing will be
confidential. Examples of these types of companies have been
provided, and they include companies which were formed on behalf of
whistleblowers, or if an owner is part of an address
confidentiality program. Eligible owners would include domestic
violence victims, stalking or human trafficking victims, etc.

Currently, other states are contemplating similar legislation to
New York, including California and Massachusetts.

In summary, many corporations in New York will have new filing
requirements which are certain to be extensive and complicated. New
York companies should be sure to review both the federal law and
the New York law to ensure compliancy.

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.