New York to Require Disclosure of LLC Ownership for Law Enforcement, Regulators

Law enforcement and regulatory officials in New York will soon have access to information on the ownership behind limited liability corporations (LLCs).

Governor Kathy Hochul called the LLC Transparency Act (S.995B/A.3484) a compromise agreement with the legislature that will allow law enforcement and regulators to uncover misconduct, while still addressing legitimate privacy concerns.

This bill, which goes into effect 365 days from signing, aims to end the practice of anonymous ownership of domestic and foreign limited liability companies in the state.

Supporters of the measure maintain that permitting anonymous LLCs was a “public policy mistake” that has “contributed to numerous problems” and needs to be corrected. They maintain that anonymous shell companies are used to bypass sanctions, avoid taxes, circumvent wage laws, fund terrorist organizations, support organized crime, and launder money from drug and human trafficking. Also, according to their critics, anonymous LLCs leasing real property are correlated with more numerous code violations, higher rents, and more evictions compared to non-corporate owners.

“For far too long, bad actors have been protected by the loose disclosure requirements of LLC ownership,” Hochul said. “Wage theft, money laundering, tenant mistreatment and other unlawful activity has been masked by the opaque ownership structure of an LLC.”

State Senator Brad Hoylman-Sigal, a sponsor, said the LLC information is “crucial for regulators and prosecutors” in order to crack down on tax cheats, bad landlords, and employers engaged in wage theft.

State, federal and local government law enforcement will have access to the database, except where LLCs have been approved for a waiver.

Existing and new LLCs will be required to include a list of beneficial owners along with the other documents they submit to the state. The database will include, among other things, the name of the business entity, the current business street address and county associated with each business street address, and the full names of all beneficial owners.

Some LLCs are exempt from the requirement and others may apply for waivers to keep their information confidential.

The bill tracks with the reporting requirements under the new federal Corporate Transparency Act, which goes into effect on January 1. 2024. In fact, the state law permits an LLC to file an identical copy of the report it files with the U.S. Treasury Department to comply with the federal act with the New York in order to satisfy state reporting requirements.

Also, the same 23 types of entities are exempt from the ownership reporting requirement under both measures. Among those exempt are banks, insurance companies and producers, credit unions, securities brokers, accounting firms, venture capital firms, public utilities and others.

The New York Secretary of State has a year to establish rules and regulations.

The UK, European Union, Australia, New Zealand, Canada, and more than 100 countries worldwide are creating registries of the beneficial owners of corporate and legal entities, many of them public.

Topics New York Law Enforcement