New York Transparency Act Requires Public Disclosure of LLC Beneficial Owners

New York Transparency Act Requires Public Disclosure of LLC Beneficial Owners

The New York State Assembly passed the LLC Transparency Act, and if New York Gov. Kathy Hochul signs the bill, the new law will aim to thwart crime and corruption by ending the practice of anonymous ownership for limited liability companies (LLCs). The New York LLC Transparency Act is based on the U.S. Corporate Transparency Act (CTA) enacted in 2021 and incorporates its definitions of statutory terms and provides disclosure relief for exempt companies. The Act establishes a searchable public database to disclose identifying information of ultimate beneficial owners (UBOs), but it far exceeds federal CTA standards.

New York’s Beneficial Ownership Disclosure

Who is Affected?

The New York law requires disclosure of UBOs for reporting entities that are LLCs when the LLC is formed in the state or registered to do business in New York. Filings can also be made by filing a copy of the beneficial owner information (BOI) reports filed with the Treasury's Financial Crimes Enforcement Network (FinCEN).

Public Disclosure

The New York LLC Transparency Act requires the state to create a searchable database that would allow the public to search for LLCs and access certain information, such as the entity’s name history, address and full legal names of UBOs. Personal or identifying information of UBOs is required to be treated as confidential and will not be included in the database.

Exempt Entities

The New York LLC Transparency Act includes exemptions from reporting for certain entities that are modeled after the CTA. The exemption is available to a variety of 23 distinct entities, including registered investment firms, venture capital fund advisors, broker-dealers, pooled investment vehicles, securities reporting issuers, among others, from its definition of a “reporting company.” For a comprehensive list of entities not required to register under the CTA, click here.

Many of these exempted organizations are already under significant oversight from either federal or state authorities and are often mandated to disclose their ownership details to relevant governmental bodies.

Implementation

The law would take effect one year after being signed into law. While existing LLCs may receive a one-year reporting extension for CTA requirements, they would still need to comply with the New York bill by Jan. 1, 2025. UBOs may apply for a waiver to protect privacy interests, but the criteria for granting waivers are limited, and few companies might qualify for an exemption from disclosure. It is anticipated that financial institutions will incorporate compliance with the bill into their know-your-customer and anti-money laundering procedures.

Enforcement of the New York LLC Transparency Act

The new law imposes stringent conditions on entities exempt from filing, such as including a statement in an LLC's articles of organization that it is exempt from disclosure, potentially prompting businesses to consider other jurisdictions for operations. Failure to disclose UBO data after two years will result in a "delinquency" from the New York Department of State, which carries a $250 fine and removal of company information from state records. State regulations are expected to further define the meaning of delinquency.

Other Considerations

The impact of the New York LLC Transparency Act could be far-reaching for PE and VC firms doing business in New York. While most funds themselves are organized as limited partnerships, firms occasionally use LLCs for certain entities in their structure, including portfolio company holding structures. Investors in entities formed as LLCs will want to consider the disclosure rules to best determine jurisdictions for conducting business, including property investments and compliance requirements. Entities organized outside of New York and pursuing business in the state should consult with counsel to ensure compliance with the new law and understand the interaction of beneficial ownership reporting rules under both FinCEN and New York State disclosure regimes.

CTA Update

On Sept. 27, 2023, the Treasury Department issued proposed rules extending the deadline for entities formed in 2024 to file their initial BOI report under the CTA. The final regulations issued in September 2022 provides a 30-day window for newly created entities to file their initial report. The proposed regulations extend this timeframe to 90 days, recognizing that those entities will need more time to understand the new reporting obligation and collect the necessary information to complete their filings.

Entities created on or after Jan. 1, 2025, would have 30 days to submit their initial BOI report. Further, on Sept. 29, 2023, the Treasury Department issued additional information regarding the new "beneficial ownership" disclosure requirements on the FAQ list section of the FinCEN site. The new FAQs address questions about who qualifies as a beneficial owner and the identifiers FinCEN will use to designate companies under the new requirements.

FinCEN also issued a brochure summarizing the new requirements, as well as versions of a small­ business compliance guide to the requirements issued earlier this month that have been translated into other languages. Under the new requirements, tens of millions of companies will have to disclose to FinCEN the names, addresses and other information about their beneficial owners—anyone who owns at least 25% of the company or exerts significant authority over it. Law enforcement agencies will use the information to crack down on shell companies that help fund terrorism, drug trafficking and other global criminal activity.

For More Information

CBIZ will continue to monitor developments and impacts in this area. Watch for updates on the CTA and New York LLC Transparency Act and further guidance. For more information or questions related to the New York LLC Transparency Act or the CTA, please connect with us.


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New York Transparency Act Requires Public Disclosure of LLC Beneficial Ownershttps://www.cbiz.com/Portals/0/Images/HEro-NYTransparencya.jpg?ver=hdgVsyo8Pi2og4WnYB0MnQ%3d%3dhttps://www.cbiz.com/Portals/0/Images/Thumbnail-NYTransparencya.jpg?ver=HRsI5GQ-IkAC86jcQfKsxQ%3d%3dThe New York State Assembly passed the LLC Transparency Act, and if New York Gov. Kathy Hochul signs the bill, the new law will aim to thwart crime and corruption by ending the practice of anonymous ownership for limited liability companies (LLCs).2023-09-11T17:00:00-05:00

The New York State Assembly passed the LLC Transparency Act, and if New York Gov. Kathy Hochul signs the bill, the new law will aim to thwart crime and corruption by ending the practice of anonymous ownership for limited liability companies (LLCs).

Regulatory, Compliance, & LegislativeFederal TaxState & Local TaxTax ReformYes