By: William L. Bricker, Jr., Linda Galler & Jennifer Mikhaylov
In June 2023, both houses of the New York State legislature passed the LLC Transparency Act (“the Act”). The Act would only apply to limited liability companies (“LLCs”) and not regular, or commonly called, “C” corporations.
The Act modeled after the federal Corporate Transparency Act (“CTA”). If signed into law by Governor Kathy Hochul, the Act would require all LLCs formed under the laws of New York and all foreign LLCs that are qualified to do business in New York to disclose the identities of beneficial owners to the Secretary of State. Some of the information collected would be included in a public searchable database. The Act would become effective 365 days after it is signed by Governor Hochul, who has not yet stated her intentions.
A beneficial owner is a person who exercises substantial control over an LLC or who owns or controls at least 25% of the ownership interests. The following information must be provided:
beneficial owner’s full legal name,
date of birth,
a unique identification number from an acceptable identification document (e.g., passport or other government issued ID), and
the LLC’s current business street address.
The Act would establish a searchable public database containing the information, but would display only a beneficial owner’s full name and the LLC’s business street address. The remaining information will be considered confidential, with exceptions for law enforcement or if the information is required to be disclosed by a court order. It is unclear where and how confidential information will be maintained.
Beneficial owners with “significant privacy interests” may apply for waivers to keep their names and/or business street addresses confidential. The burden will be on the beneficial owners to demonstrate that significant privacy interests exist; a strong showing of need for confidentiality will be required to qualify. Examples of significant privacy interests include whistleblowers who use LLCs to file False Claims Act lawsuits and individuals who participate in an address confidentiality program.
Penalties for delinquent filing will be $250.
While the Act is modeled after, and cross-references to the CTA, there are notable differences between the two. For example:
The Act applies only to LLCs, while the CTA applies to all entities that file with a state secretary of state or equivalent agency.
The Act will create a publicly available and searchable database containing the names of beneficial owners and LLC business street addresses, while information collected under the CTA will be stored in a secure, confidential, nonpublic database.
Penalties for failing to comply are substantially less severe in New York. Under the CTA, there can be civil penalties up to $10,000 as well as imprisonment for up to (2) years.
Similar legislation has been introduced in California. Other states may follow suit.