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United States: NY amends LLC Transparency Act

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Tax News and Developments June 2024

In brief

On 1 March 2024, New York Governor Hochul signed into law the amended LLC Transparency Act (“Act“). Enacted on 23 December 2023, the Act underwent significant revisions as a result of the agreement between the Governor and the legislators. The Act requires that all limited liability companies (LLCs) formed under the New York Limited Liability Company Act (“LLC Act“) or seeking authorization to do (or doing) business in New York State disclose information about certain of their beneficial owners, or submit a statement that the entity qualifies for an exemption from this requirement. All LLCs in existence prior to 1 January 2026 must comply with the Act before 1 January 2027. LLCs that are established after 1 January 2026 must comply with the Act within 30 days of establishment.

In depth

The Act in many respects is based on the federal Corporate Transparency Act (CTA), which was enacted in 2021. Specifically, the definitions of “beneficial owner,” “reporting company,” “exempt company”, and “applicant” are the same as the definitions of these terms in the CTA. For more detail on the definitions of “beneficial owner”, “reporting company”, “exempt company”, and “applicant”, please refer to our client alert, Corporate Transparency Act – Three Months In. However, unlike the CTA, which applies to all types of entities that are formed or registered to do business in a US state, the Act applies only to LLCs.

The Act provides that an LLC qualifying for an exemption under the Act must submit a statement indicating the provisions of the CTA that exclude it from the definition of a reporting company. In addition, the exempt company shall still be required to file an annual statement confirming that they continue to be exempt under the Act. In contrast, the CTA does not require any submissions from the entities exempt from reporting.

The information required to be disclosed by non-exempt LLCs under the Act includes, with respect to each beneficial owner:

  • Full legal name
  • Date of birth
  • Current home or business street address
  • 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

Under the Act, all reporting companies are required to file an annual statement confirming or updating:

  • Their beneficial ownership disclosure information
  • The street address of its principal executive office
  • Its status as an exempt company

Under the CTA, reporting companies are required to file additional statements only if there are any changes to the previously reported information.

If a New York LLC is not exempt, it must file a beneficial ownership disclosure required by the Act within 30 days of filing its articles of organization. A non-exempt foreign LLC is required to file a beneficial ownership disclosure under the Act within 30 days of filing an application for authority to do business in New York State. Under section 102(k) of the LLC Act, “foreign LLC” is defined as an unincorporated organization formed under the laws of any jurisdiction, including any foreign country, other than the laws of New York State (i) that is not authorized to do business in New York State under any other of its laws and (ii) of which some or all of the persons who are entitled (A) to receive a distribution of the assets thereof upon the dissolution of the organization or otherwise or (B) to exercise voting rights with respect to an interest in the organization have, or are entitled or authorized to have, under the laws of such other jurisdiction, limited liability for the contractual obligations or other liabilities of the organization.

The LLC Act does not define what constitutes “doing business” in New York State. Rather, section 803 of the LLC Act provides a non-exclusive list of activities that do not amount to doing business in New York, such as maintaining or defending an action in New York, holding meetings in New York, maintaining a bank account in New York, or maintaining an office in New York for the transfer of membership interests. Certain ownership of real estate requires registering to do business in New York. Planning opportunities may be available to structure the activities of a foreign LLC in a way not requiring registration in New York.

The Act provides that a reporting LLC which failed to provide its beneficial ownership disclosure, attestation of exemption, or annual statement for a period exceeding thirty days will be shown to be past due on the records of the New York Department of State until the date the beneficial ownership disclosure is filed. The attorney general may assess a fine of up to $500 for each day the company has been past due. If no reporting is made within two years, the LLC will be shown to be delinquent on the records of the New York Department of State. Once the disclosure is filed and the LLC pays a civil penalty in the amount of $250, such delinquency will be removed from the record. Importantly there are no criminal penalties for the failure to provide the beneficial ownership information under the Act. A reporting company that fails to file its beneficial ownership disclosure, attestation of exemption or annual statement shall be deemed to be suspended and may not conduct business in New York until such filing has been made. Additionally, the attorney general may bring an action to dissolve, cancel, or annul authorization to do business for delinquent entities.

The penalty structure under the Act is different from the CTA, which imposes civil and criminal penalties, including a potential prison term, upon a showing that the failure to disclose was willful. The Act, however, provides that it shall be unlawful to knowingly provide, or attempt to provide, false or fraudulent beneficial ownership information to the New York Department of State. It is unclear whether criminal penalties are contemplated in the case of intentional misrepresentation, and hopefully the regulations would clarify this point.

Under the Act, all information relating to beneficial owners who are natural persons collected by the department of state will be maintained in a secure database and will be confidential except:

  • Pursuant to the written request of or by voluntary written consent of the beneficial owner
  • By court order
  • To officers or employees of another federal, state or local government agency where disclosure is necessary for the agency to perform its official duties; or
  • For a valid law enforcement purpose

Any beneficial ownership information so disclosed may not be further disclosed by a recipient except as otherwise authorized in law. Prior drafts of the legislation contemplated maintaining the beneficial ownership information in a database available to the public.

The Act will become effective as of 1 January 2026, and compliance with the Act is required by 1 January 2027. The adoption of the Act may result in a reduction of LLCs formed or registered to do business in New York. The existing entities are well advised to analyze their activities in New York as well as discuss with their counsel whether they may be restructured to qualify for an exemption from reporting under the Act.

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Author

Glenn G. Fox is a partner of Baker McKenzie's Wealth Management and Tax Practice Groups in New York and a member of the firm’s Global Tax Wealth Management Steering Committee. He is a domestic and international tax, estate planning, and tax-exempt (charitable) organizations lawyer with vast experience working with closely held businesses, families and charitable organizations from the US and overseas. Glenn is a member of the American College of Trust and Estate Counsel and of the Society of Trust and Estate Practitioners and has been recognized for fourteen consecutive years (2007-2020) as a "New York Super Lawyer" by the New York Times.

Author

Lyubomir Georgiev has practiced law since 2003 in the United States and Switzerland. He has assisted banks, insurance companies, fiduciaries, family offices, asset managers, and high net worth individuals. Lyubomir participated in the negotiations of the special arrangements between the Government of the Principality of Liechtenstein and the UK on voluntary disclosure, tax compliance certification and tax information exchange. He heads the International Tax and Global Wealth Management practice in Zurich. Lyubomir has worked in Washington, DC and New York. Previously he was a member of the EMEA Wealth Management Steering Committee and Knowledge Management & Training head. Lyubomir is admitted to practice in Washington, DC, US Tax Court, England and Wales, and Switzerland as a foreign-qualified solicitor. He has been ranked in Chambers Global since 2012 as a foreign expert in practice areas such as UK tax and private clients, US private clients, and Liechtenstein tax and general business law.

Author

Olga Sanders is an associate in the International Tax and Global Wealth Management practice groups of Baker McKenzie New York. She is a domestic and international tax and estate planning lawyer.

Author

Mathew Slootsky is a member of Baker McKenzie's North America Practice Group in the Miami office and practices in the area of international and M&A tax as well as wealth management.

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