May 10, 2024

State of Anonymity for LLCs in New York State

State of Anonymity for LLCs in New York State

Due to their advantageous features, Limited Liability Companies (LLCs) are a popular tool used by real estate investors to structure their real estate acquisitions.

Evolving Anonymity

One key feature of LLCs is that they allow for beneficial owners to maintain anonymity. But, in early 2023, the New York legislature introduced a bill called the New York LLC Transparency Act (“NYLTA”) Senate Bill 995B/Assembly Bill 3484A, which would do away with that feature and publish the name(s) of individual owners on a public database.

However, to the relief of many real estate investors, New York Governor, Kathy Hochul, signed the NYLTA into law with Approval Memo 91, chapter 772, effective December 21, 2024 (“effective date”). This article discusses the NYLTA as it’s currently enacted and, as context, provides some comparisons to its older sibling, the federal Corporate Transparency Act (“CTA”).

The New York LLC Transparency Act Vs. the Federal Corporate Transparency Act

The NYLTA is modeled after the CTA, which went into effect on January 1, 2024. The purpose of both bills is to increase transparency in corporate structures, thereby making it more difficult for individuals to use anonymous entities for illegal financial activities.

The NYLTA, requires all LLCs — both domestic and out-of-state — that are authorized to do business in New York and that qualify as a reporting company under the CTA, to report beneficial ownership information unless it falls under one of the CTA’s 23 exemptions (which we’ll cover in a later article).

If an exemption applies, a statement must be filed stating the relevant provision. For comparison, under the CTA, all non-exempt entities — including LLCs, corporations, and limited partnerships — are required to report their beneficial ownership information.

Both bills define a beneficial owner similarly: Any individual who directly or indirectly exercises substantial control over the entity or owns or controls at least 25% of its ownership interests of the entity. The required information includes the beneficial owners’ names, business address, dates of birth, and unique identification numbers (such as driver’s licenses or passport numbers).

Timelines and Delinquencies

If an LLC is formed or applies for authority after the effective date, the disclosure or exemption must be submitted when they file their articles of organization or application for authority. Otherwise, LLCs formed or authorized to do business prior to the effective date of the NYLTA must file the disclosure by January 1, 2025. Any changes to the requisite disclosure information must then be updated within 90 days of such change.

Failure to comply with the reporting requirements within 30 days of the applicable date will result in a past-due status on the records of the Department of State. Furthermore, failure to comply for more than two years will result in a delinquent status in the records of the Department of State, as well as a penalty of $250 if a delinquency notice is sent to the last known business address, the disclosure remains unfiled, and the penalty is unpaid within 60 days of the mailing of the notice.

That said, these penalties are less severe than those enacted by the CTA, which includes penalties of up to $10,000 and two years in federal prison.

Public Database Vs. Privacy Concerns

Meanwhile, under the CTA, a non-public database of the disclosed information was created and is only accessible by authorized entities under specific circumstances. Conversely, under the original proposed draft of the NYLTA, the beneficial owners’ full names, but no other personal or identifying information were to be made available to the public with only narrow exceptions.

This generated a lot of criticism from investors and small business owners who were concerned about their privacy. Consequently, the final version of the NYLTA bill signed by Governor Hochul removed the public disclosure of private information and limited access to such information to government agencies and law enforcement. This brought it more in line with the scope of CTA disclosures.

Disclosure Exemptions

The NYLTA has adopted the 23 exemptions to the disclosure requirements outlined in the federal Corporate Transparency Act. While specific requirements are detailed in Title 31, section 1010.380 of the Code of Federal Regulations, the exemptions generally apply to:

  1. Securities reporting issuers
  2. Governmental authorities
  3. Banks
  4. Credit unions
  5. Depository institution holding companies
  6. Money services businesses
  7. Brokers or dealers in securities
  8. Securities exchanges or clearing agencies
  9. Other entities registered in the Exchange Act
  10. Investment companies or investment advisers
  11. Venture capital fund advisers
  12. Insurance companies
  13. State-licensed insurance producers
  14. Entities registered in the Commodity Exchange Act
  15. Accounting firms
  16. Public utilities
  17. Financial market utilities
  18. Pooled investment vehicles for exemptions 3, 4, 5, 6 and 7
  19. Tax-exempt entities
  20. Entities assisting a tax-exempt entity
  21. Large operating companies with 20+ full-time employees in the U.S. and over $5 million in gross receipts or sales reported on the prior year’s federal income tax return
  22. Subsidiaries of entities under exemptions 1-17, 19 and 21
  23. Inactive entities in existence on or before 1/1/20 and not owned by foreign individuals

These disclosure exemptions are narrowly defined and appear to exclude many small companies such as real estate holding companies, homeowner associations, mom-and-pop businesses and family offices.

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