Recent New York Law Requires Public Registration of LLC Owners Which Takes Effect Later This Year

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.

This article is intended as a general discussion of these issues only and is not to be considered legal advice or relied upon. For more information, please contact Jeffrey Blankstein who counsels clients on estate and retirement planning, individual taxation, real estate and litigation. Mr. Blankstein is admitted to practice law in New York.