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New York Legislature Passes LLC Transparency Act
Practical Law Legal Update w-040-0299 (Approx. 7 pages)
New York Legislature Passes LLC Transparency Act
by Practical Law Corporate & Securities
| Published on 21 Jul 2023 • New York |
The New York legislature has passed the LLC Transparency Act (the Act), which, if enacted, will require the disclosure of beneficial ownership information for limited liability companies (LLCs) that are reporting companies under the Act, including each beneficial owner's full legal name, date of birth, and current business street address.
The New York legislature passed the LLC Transparency Act (the Act) on June 20, 2023 (S.B. S995B). As stated in the bill's memo, its aims include ending the practice of anonymous ownership of limited liability companies (LLCs) in New York by defining beneficial ownership and requiring the disclosure of the identities of beneficial owners upon company formation or registration.
If New York Governor Kathy Hochul signs the bill, LLCs operating in New York will need to disclose beneficial ownership information (BOI), including each beneficial owner's full legal name, date of birth, and current business street address. The Act would become effective one year after it is signed into law and amend the New York Limited Liability Company Law (NY LLCL §§ 101 et seq.) and the New York Executive Law (N.Y. Exec. Law §§ 1 et seq.). There is no guarantee that Governor Hochul will sign the bill but LLCs operating in New York should become familiar with, and be prepared to comply with, the Act's reporting requirements.
Federal Corporate Transparency Act
The Act's reporting requirements and purposes are similar to those issued by the US Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) under the federal Corporate Transparency Act (CTA), a new anti-money laundering law (31 U.S.C. § 5336). On September 29, 2022, FinCEN issued a final rule under the CTA requiring entities that are reporting companies under the CTA to report their BOI and certain other information to FinCEN. The CTA is intended to assist law enforcement in combatting money laundering, tax fraud, financing of terrorism, and other illicit activity through anonymous shell and front companies.
The CTA imposes reporting obligations on domestic and foreign entities that are reporting companies under the statute and that do not fall within one of its categories of exemptions. The CTA's reporting requirements will likely principally impact small companies, as the exemptions generally apply to large operating company entities or to those that are already highly regulated (for example, public companies, banks, and insurance companies).
Under the CTA, reporting companies must disclose BOI about all beneficial owners, who are defined as individuals that either have substantial control over the company or own or control at least 25% of its ownership interests. FinCEN will maintain the reported BOI in a nonpublic database accessible only in certain circumstances by a limited number of authorized entities.
Reporting is required within 30 calendar days of creation for companies formed on or after January 1, 2024. For companies formed before January 1, 2024, reporting is required by January 1, 2025. Reporting companies must also update their BOI report with any changes to previously reported information within 30 calendar days of the change.
For more information on the CTA, see Practice Note, Corporate Transparency Act (CTA) Beneficial Ownership Reporting and FinCEN's FAQs.
Reporting Requirements Under the NY LLC Transparency Act
The reporting requirements of the Act are similar to those under the CTA, and the Act incorporates many of the defined terms from the CTA. Under the Act, reporting companies (as defined under the CTA, with certain exceptions (see Differences Between the CTA and the Act)) must provide BOI to the New York State Department of State (DOS), including:
- Each beneficial owner's (as defined under the CTA):
- full legal name;
- date of birth; and
- current business street address.
- A unique identifying number from an acceptable identification document (as defined under the CTA).
Reporting companies can satisfy New York's requirements by submitting a copy of the report filed with FinCEN under the CTA. Exempt companies must file a statement indicating which exemptions they are claiming, which are identical to those under the CTA.
Reporting companies must file the required BOI and exempt companies must file an exemption statement with the DOS:
- By January 1, 2025, if formed or qualified to do business in New York on or before the Act's effective date.
- With the articles of organization, if a domestic LLC formed after the Act's effective date.
- With the application for authority to do business in New York, if a foreign LLC qualified in New York after the Act's effective date.
In addition, after an initial report disclosing BOI has been filed by a New York LLC that is a reporting company, any changes to the BOI must be filed with the DOS within 90 days of the change. Foreign qualified LLCs that are reporting companies must amend their applications for authority whenever there is any change in BOI.
Differences Between the CTA and the Act
Both the Act and the CTA require entities that are created by the filing of a document with the government to report BOI. However, the Act applies only to LLCs while the CTA covers more entities, including corporations, LLCs, limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships. Only New York LLCs and foreign LLCs authorized to do business in New York must report information under the Act, unless they meet an exemption under the CTA.
Also, while FinCEN will maintain the reported BOI in a nonpublic database accessible only in certain circumstances by authorized entities, some of the reported information under the Act will be made public. The beneficial owners' full legal names and current business street addresses will be included in a publicly available database maintained by the New York Secretary of State (SOS) on its website. Beneficial owners of reporting companies can cite significant privacy interests and apply for a waiver to withhold their name, business address, or both, from the database under procedures to be established by the SOS.
Penalties under the Act
If a reporting company fails to file the BOI required by the Act for more than 30 days, it will be shown as past due on the DOS's records. To clear the past due record, the reporting company must file a current beneficial ownership disclosure. A reporting company that fails to file the required BOI for more than two years will be listed as delinquent on the DOS's records but only after the LLC fails to file the required BOI within 60 days of the mailing of a delinquency notice to the LLC's business address. The DOS will remove the delinquency from its records after the LLC files a current beneficial ownership disclosure and pays $250.
Existing BOI Disclosure Requirements
Regardless of whether the Act is signed into law, entities operating in New York should be aware of other BOI disclosure requirements in New York.
FinCEN's Geographic Targeting Orders
Since January 2016, FinCEN has been issuing and renewing Geographic Targeting Orders (GTOs), authorized under the Bank Secrecy Act (31 U.S.C. § 5326(a) and 31 CFR § 1010.370), that require US title insurance companies to collect and report information on the identity of natural persons behind legal entities that buy residential real estate in select US metropolitan areas. Under the Geographic Targeting Order (GTO) effective April 25, 2023 and ending October 21, 2023 as it relates to New York City, title insurance companies must discover and disclose to FinCEN the beneficial owners of legal entities purchasing residential real estate if purchased:
- For $300,000 or more.
- Through a US or foreign corporation, LLC, partnership, or other similar business entity (except a publicly traded company).
- Without a bank loan or other similar form of external financing and using, at least in part, currency or a cashier’s check, a certified check, a traveler’s check, a personal check, a business check, a money order in any form, a funds transfer, or virtual currency.
Within 30 days after closings of applicable transactions, title companies must record and disclose, among other information, the identity and photo identification of the beneficial owners of the purchasing entity, which includes any individual who directly or indirectly owns 25% or more of the equity of the purchasing entity.
For more information about the GTO, see FinCEN's FAQs.
New York Real Property Transfer Tax Returns
Transfers of real estate in New York incur a transfer tax that must be reported on the state tax form TP-584 or, if the property is in New York City, on the TP-584-NYC tax form. Since September 13, 2019, if the transfer involves a building containing up to four family dwelling units (including those with partial commercial use) to or from an LLC, the transfer tax form must also identify the names and business addresses of the LLC's members, managers, and other authorized persons. If any of them is an LLC or other business entity (other than a publicly traded entity, REIT, umbrella partnership REIT, or mutual fund), the names and addresses of the shareholders, directors, officers, members, managers, and partners of that LLC or other business entity must also be provided until ultimate ownership by natural persons is disclosed. (N.Y. Tax Law § 1409(a) and N.Y.C. Code § 11-2105).
The transfer tax obligation also applies in the transfer or conveyance of 50% or more of the ownership in any entity that owns real property in New York (N.Y. Tax Law § 1401). However, similar to the Act, the BOI disclosure requirement on the transfer tax return only applies to LLCs and no other business entities, unless they are members, managers, or authorized persons of an LLC that is the grantor or grantee of real property.
The seller and purchaser must jointly file the appropriate transfer tax form with the county clerk or city register where the real property is located. The form must be filed when the deed or other conveyance document is recorded but not later than 15 days after delivery of the deed or other conveyance document. (N.Y. Tax Law §§ 1409(a)(3), 1410(a).) Some counties and local municipalities have different filing deadlines and procedures, including their own transfer tax return form.