New York's Leap Toward Transparency: Understanding the LLC Transparency Act and Its Impact on Business

In our previous article, we touched on the pivotal moment approaching for New York businesses: the consideration of a legislative move to publicize their ownership information, pending the Governor's signature. The moment has now arrived, with Governor Kathy Hochul officially signing the LLC Transparency Act into law. This landmark decision heralds a significant shift in how businesses operate within the state. What does this mean for you and the future of your business? Read on to uncover the implications of this new legislative landscape.

Background and Scope of the NY-LLCTA

The New York LLC Transparency Act (NY-LLCTA) was enacted on December 22, 2023. after Governor Kathy Hochul signed it into law with agreed-upon changes and amendments, marking a significant milestone in the state's legislative landscape.

This piece of legislation seeks to enhance the transparency of business ownership in the state, reflecting a broader national movement epitomized by the federal Corporate Transparency Act (CTA). The rationale behind the NY-LLCTA is clear: to deter illicit activities by making it harder for individuals to use business entities as veils for misconduct.

While the NY-LLCTA adopts the CTA's terminology and spirit, its scope is more focused, applying exclusively to Limited Liability Companies (LLCs) formed under New York law or those licensed to do business within the state. Contrastingly, the CTA casts a wider net, affecting a variety of entities including corporations, LLCs, limited partnerships, and trusts, irrespective of their state of formation. This targeted approach by New York underscores the state's commitment to addressing specific challenges within its jurisdiction while aligning with federal objectives.

Key Provisions of the NY-LLCTA

The New York LLC Transparency Act (NY-LLCTA), effective from December 21, 2024, mandates that all Limited Liability Companies (LLCs) formed or registered to do business in New York disclose certain information about their "beneficial owners" to the Department of State (DOS), unless exempt. Exemptions under the federal Corporate Transparency Act (CTA) also apply here, with a notable distinction: LLCs seeking exemption must proactively file a statement with the DOS, specifying the applicable CTA exemptions.

"Beneficial owners" under the NY-LLCTA are defined akin to the CTA, including senior officers or individuals with significant influence over the LLC, and those owning or controlling at least 25% of the company’s interests. Required disclosures encompass the beneficial owner's name, date of birth, business address, and a unique identifier from an official ID, like a passport or driver’s license. Moreover, any changes in beneficial ownership or the provided information must be reported within 90 days.

In terms of timing, LLCs formed or registered to operate in New York after December 21, 2024, are obligated to report their beneficial owners to the DOS at the time of their formation or registration. Conversely, LLCs that were formed or registered before this date are granted until January 1, 2025, to submit their initial reports to the DOS.

Addressing Privacy Concerns: Amendments to the NY-LLCTA

In response to privacy concerns surrounding the initial draft of the New York LLC Transparency Act (NY-LLCTA), significant amendments have been made regarding the accessibility of beneficial ownership information. Originally, the Act called for the creation of a public database managed by the Secretary of State, detailing the beneficial owners of LLCs. This proposal sparked a debate over privacy implications for the individuals listed.

Governor Kathy Hochul, acknowledging these concerns, announced that a consensus had been reached with the New York State Legislature to modify this aspect of the NY-LLCTA. As a result, the database containing the names and information of beneficial owners will now be restricted and accessible only to government officials for law enforcement purposes. This amendment aims to balance the act's transparency objectives with the need to protect individual privacy.

Conclusion

Are you wondering about any of the issues mentioned above? Please email us at info@wilkinsonlawllc.com or call (732) 410-7595 for assistance.

At Wilkinson Law, we give business owners the documents and advice they desperately need to fund, grow, protect and sell their businesses. We are trustworthy business advisors keeping your business on TRACK: Trustworthy. Reliable. Available. Caring. Knowledgeable.®