Summary of the Proposed Bill
On June 20, 2023, the New York Assembly passed the proposed New York State LLC Transparency Act (the “LLC Transparency Act”). The primary purpose of the LLC Transparency Act is to mandate public disclosure of beneficial owners of limited liability companies (“LLCs”) formed in New York as well as out-of-state LLCs qualified to do business in New York State (“Non-NY LLCs”). See LLC Transparency Act, A. 3484, 2023 N.Y. Assemb., Reg. Sess. (N.Y. 2023), and LLC Transparency Act, S.B. 995, 2023 N.Y. Sess. (N.Y. 2023). The bill now awaits delivery to Governor Hochul’s office for her signature or veto. If signed within 30 days after the bill is presented to Governor Hochul, the LLC Transparency Act will take effect one year thereafter.
Background
The LLC Transparency Act was proposed in response to perceived issues arising from the current anonymity of LLC owners. The Act’s supposed purpose is to address illegal activities conducted through anonymous corporate ownership, including tax evasion, money laundering, and violations of real property codes, carried out by beneficial owners anonymously hiding behind limited liability companies. The LLC Transparency Act echoes the efforts of the federal Corporate Transparency Act (“CTA”) to create a registry of beneficial owners of corporate entities. However, unlike disclosures required under the CTA, ownership information disclosed under the LLC Transparency Act will be available to the general public through the New York Department of State’s website.
Impact on LLC Owners
If the New York State LLC Transparency Act is signed, New York LLCs and Non-New York LLCs would be required to publicly disclose the names and addresses of beneficial owners through the New York Department of State’s database. The LLC Transparency Act’s definition of “beneficial owner” includes any individual who, directly or indirectly, (i) exercises substantial control over the entity; or (ii) owns or controls not less than 25% of the ownership interests of the entity. Failure to comply may result in monetary penalties.
Once the law takes effect, the New York Department of State shall establish and maintain a publicly accessible database on its website, through which the general public can access ownership information for any registered LLC.
The LLC Transparency Act provides that the Department of State may issue a disclosure waiver for beneficial owners demonstrating a significant privacy interest. However, it is expected that individuals seeking a waiver would need to make a strong showing justifying confidentiality. Some of the circumstances upon which the Department of State may grant a waiver include whether an individual is participating in a confidential program or is a member of a LLC, acting as a whistleblower using the LLC to commence an action under the False Claims Act.
What does this mean?
If enacted, the LLC Transparency Act, will require that the names and business addresses of beneficial owners of New York LLCs and Non-New York be publicly available, and parties will have to weigh the benefits of the LLC structure against any possible negative consequences of such public disclosures.
We will continue to monitor any developments.
This Client Alert was written by attorneys Michael M. Munoz and Christian F. Garcia Chavez.
For further assistance, please contact:
Michael Munoz (212) 907-7345
Email: mmunoz@golenbock.com
Christian Garcia (212) 907-7383
Email: cgarcia@golenbock.com
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