New York Governor Signs LLC Transparency Act

On December 22, 2023, New York Gov. Kathy Hochul signed the LLC Transparency Act (as amended, the Act). The Act, modeled after the federal Corporate Transparency Act (CTA), aims to enhance the ability of the State of New York (NY) to monitor the ownership and control of limited liability companies (LLCs) formed or registered to do business in NY and deter their use in illegal activities. Gov. Hochul negotiated a compromise with the legislature for certain changes to be made to the Act as a condition to her signature. These changes were adopted through an amendment signed by Gov. Hochul on March 1, 2024.

Overview of the Act

The Act, effective as of January 1, 2026, requires LLCs covered by the CTA (reporting companies) and formed or authorized to do business in NY to either disclose their beneficial owners to the New York Department of State (NY DOS) or certify the application of an exemption to such disclosure requirement.

LLCs formed or registered to do business in NY on or after January 1, 2026, will have 30 days after such formation or registration to make their initial filing with the NY DOS. All LLCs formed or registered to do business in NY prior to January 1, 2026, will have until December 31, 2026, to complete their initial filing with the NY DOS.

The Act defines "beneficial owner" and "applicant" with cross reference to the CTA's definitions of "beneficial owner" and "company applicant." Beneficial owners therefore include individuals who directly or indirectly exercise substantial control over an LLC that is a reporting company and individuals who own or control at least 25% of an LLC reporting company's ownership interests.

For each beneficial owner and applicant, a reporting LLC must provide the following information: (a) full legal name, (b) date of birth, (c) current home or business address, and (d) a unique identifying number from an unexpired passport, an unexpired state driver's license, or an unexpired identification card or document issued by a state or local government agency or tribal authority. Note that, unlike with the CTA, a copy of the identification document does not need to be provided.

The NY DOS will store the reported information in a database accessible only to law enforcement and other NY governmental agencies.

The Act and the CTA

While the Act overall is similar to the CTA, there are a number of important and impactful differences, including the following:

1. The Act affects only LLCs, unlike the CTA, which applies to any entity formed or registered to do business by the filing of a document with a secretary of state or equivalent office.
2. LLCs subject to the Act that qualify for an exemption under the CTA must file an attestation of exemption made under penalty of perjury with the NY DOS, detailing the specific exemption claimed and the relevant facts supporting the exemption claim. In contrast, under the CTA, exempt entities make no filing.
3. The Act requires that all LLCs subject to the Act electronically file an annual statement with the NY DOS confirming or updating, at a minimum, beneficial ownership information, principal address, and exemption status (if applicable). In contrast, the CTA requires subsequent filings only as and when there are changes to the information that was previously reported.
4. Express penalties under the Act are limited to civil penalties, unlike the CTA, which also includes express criminal penalties. Attestations of exemption under the Act made with false or incomplete information may still lead to criminal liability because they are required to be made under penalty of perjury. An LLC subject to the Act that fails to file its beneficial ownership disclosure, attestation of exemption, or annual statement may face one or more of the following penalties:
   
   1. An LLC subject to the Act that fails to file for a period of 30 days after the due date will be designated by the NY DOS as "past due."
   2. An LLC subject to the Act that fails to file for a period of two years may be designated as "delinquent."
   3. Any past due or delinquent entity may be deemed "suspended" upon 30 days' prior notice from the NY DOS, meaning that such entity shall not conduct business in NY until the required beneficial ownership disclosure or attestation of exemption has been filed.
   4. Separately, the New York state attorney general may elect to impose a fine of up to $500 per day for any LLC found to be past due or delinquent, and may bring an action to dissolve and cancel a NY LLC or annul a non-NY LLC's authority to do business if such entity is either delinquent in filing the required disclosures or attestations or knowingly provides false or fraudulent beneficial ownership information to the NY DOS.
   5. Past due or delinquent status can be remedied after filing such missing disclosure, attestation, or statement, with the payment of a $250 fine to the NY DOS and payment of any separate fine imposed by the New York state attorney general.
5. Beneficial owners may provide a business address under the Act, unlike the CTA, which requires a residential address.
6. FinCEN identifiers, which may be provided by beneficial owners and company applicants to reporting companies under the CTA, may not be used to comply with the Act.

Impact of the Act on LLCs Formed or Doing Business in NY

The Act increases the regulatory burden on LLCs formed or registered to do business in NY by introducing additional compliance requirements. Unlike the CTA, the Act requires exempt entities to file an attestation of exemption and requires all LLCs to make an annual filing. Any LLC that would qualify for an exemption under the Act now will need to develop an annual compliance plan.

Further, the Act will require entities to collect personal information from beneficial owners and applicants. The requirement to transmit personal information in all cases is likely to increase the risk of theft or mishandling of personal information as compared to the CTA.

It seems likely that when possible, LLCs will be formed and registered elsewhere. When that is not possible, limited partnerships and corporations may become more popular in NY.

A "past due" or "delinquent" designation caused by a late disclosure, attestation, or statement under the Act will be noted on any NY DOS certificates and may hinder transactions such as mergers or contract signings. The Act empowers the NY DOS to suspend a "past due" or "delinquent" LLC upon 30 days' notice, which would prevent the LLC from legally doing business in NY.