On December 22, 2023, New York governor Kathy Hochul signed the New York LLC Transparency Act (LLCTA) into law. The LLCTA is based in large part on the federal Corporate Transparency Act (CTA), which recently went into effect on January 1, 2024, except that the LLCTA only applies to limited liability companies (LLCs). For more information on the CTA, please see our previous client alerts on the topic: Corporate Transparency Act and Its Reporting Requirements, and Update on the Corporate Transparency Act.  

The LLCTA will require that LLCs provide the New York Department of State (NYDOS) with certain beneficial ownership information (BOI). Given that the LLCTA is so similar to the CTA, this client alert will focus on the key differences between the LLCTA and the CTA. The LLCTA goes into effect on December 21, 2024.

Reporting Companies – Which Entities Must Disclose BOI?

The LLCTA states that “reporting company” shall have the same meaning as defined” in the CTA, “but shall only include limited liability companies and foreign limited liability companies.” The LLCTA covers both New York domestic LLCs (LLCs formed and organized under the laws of the state of New York), and registered foreign LLCs (LLCs formed and organized under the laws of a state other than New York that are registered to do business in New York). Notably, the LLCTA does not specifically address foreign LLCs that are required to register to do business in New York (via an application of authority) but do not register. Thus, it is unclear whether a foreign LLC that is required to register to do business in New York but does not do so will be in violation of the beneficial ownership disclosure requirements of the LLCTA. By incorporating the CTA’s definition of reporting company, the LLCTA also incorporates the CTA’s 23 exemptions from being considered a reporting company. However, unlike the CTA, the LLCTA requires that an exempt LLC provide a statement signed by a member or manager that indicates which exemption the exempt LLC is relying on.

BOI Disclosure – What BOI has to be Disclosed and When?

The LLCTA requires that a reporting company disclose the following information on its “beneficial owners” (as defined by the CTA): “(1) full legal name; (2) date of birth; (3) current business street address; and (4) a unique identifying number from an ‘acceptable identification document’” (as defined by the CTA). There are two differences in the BOI disclosed under the LLCTA compared to the BOI reported under the CTA. First, a beneficial owner under the LLCTA must disclose its current business street address, whereas the beneficial owner under the CTA must report its current residential address. Second, the CTA requires that a beneficial owner provide a copy of the acceptable identification document, whereas the LLCTA does not require a copy, just the unique identifying number.

Another key difference between the LLCTA and the CTA is the timing of the BOI disclosure. The CTA requires that a BOI report be submitted to the Financial Crimes Enforcement Network of the Department of the Treasury (FinCEN) within 90 days of formation or registration for a reporting company formed or registered in 2024, by January 1, 2025 for entities in existence prior to January 1, 2024, or within 30 days of formation for a reporting company formed or registered on or after January 1, 2025. On the other hand, the LLCTA requires that the BOI be disclosed with the LLCs articles of organization (for domestic LLCs) or the LLC’s application of authority (for foreign LLCs). Although the LLCTA states that a BOI report filed with FinCEN pursuant to the CTA can be submitted to the NYDOS to meet the reporting company’s disclosure requirements under the LLCTA, there is a key timing difference. The CTA gives a reporting company a window of time after the filing to submit its FinCEN report, whereas the LLCTA requires that a reporting company make its BOI disclosure at the same time as the filing that creates the LLC.

Reporting companies under the LLCTA formed, or registered in the case of foreign LLCs, on or before December 21, 2024 must disclose the BOI to the NYDOS no later than January 1, 2025. Exempt LLCs under the LLCTA formed, or registered in the case of foreign LLCs, on or before December 21, 2024 must file a statement indicating the exemption being relied upon with the NYDOS no later than January 1, 2025.

The LLCTA does not require reporting companies to disclose any information regarding the company applicant (as defined in the CTA).

Changes to Previously Filed BOI Disclosure – When to Correct BOI Disclosure?

The LLCTA amended Section 211 of the LLC law to require that a certificate of amendment must be filed to amend a domestic LLC’s articles of organization within 90 days of any change in the BOI required to be disclosed pursuant to the LLCTA. Similarly, the LLCTA amended Section 804 of the LLC law to require that a foreign LLC that is also a reporting company under the LLCTA must amend its application for authority upon any change in the BOI required to be disclosed pursuant to the LLCTA.

What Will Happen if a Reporting Company does not Comply with the LLCTA Reporting Requirements?

Unlike the CTA, there are no criminal penalties for noncompliance with the LLCTA. However, the LLCTA states that a reporting company that has failed to file the BOI disclosure as required by the LLCTA (including any required amendments) for a period exceeding 30 days will be listed as past due on the records of the NYDOS and will be listed as such until the BOI disclosure is filed. Further, a reporting company that has failed to file the BOI disclosure as required by the LLCTA (including any required amendments) for a period exceeding two years shall be shown to be delinquent on the records of the NYDOS after a notice of delinquency has been mailed to the last known business address of such reporting company and such company has failed to file such information within sixty days of the mailing of such notice. The LLCTA states that such delinquency shall be removed from the records of the NYDOS upon the filing of the BOI disclosure (including any required amendments) and the payment of a civil penalty of $250.

Business Entity Database

The LLCTA also establishes a publicly available database, the Business Entity Database, for each business entity (not just LLCs) organized in New York and each foreign business entity with authority to do business in the state. The Business Entity Database will include the following information: (a) the name of the business entity; (b) the filing history of such name and changes to such name, where applicable; (c) the current business street address and the county associated with such business street address; (d) the duration or date of dissolution of the business entity, where applicable; (e) where the business entity is a limited liability company, the date of initial filing of the articles of organization, or where the business entity is a foreign limited liability company, the application for authority; (f) the date of the most recent filing; (g) the filing history associated with such entity; and (h) any other information pertaining to such business entity as may be determined by the secretary of state and in accordance with applicable state and federal laws, rules, and regulations. Further, the Business Entity Database will also include the names of the beneficial owners of LLCs that are reporting companies under the LLCTA. However, the LLCTA provides that “all personal or identifying information of beneficial owners provided to the department of state [under the LLCTA] not required to be included in the business entity database… shall be kept confidential except for the purposes of law enforcement, or as otherwise required to be disclosed pursuant to a court order.”

Constitutional Challenges to the CTA

On March 1, 2024, the U.S. District Court for the Northern District of Alabama in National Small Business United d/b/a National Small Business Association v. Yellen held that the CTA is unconstitutional (for more information on the court’s decision in this case, please see our client alert, The Corporate Transparency Act After the National Small Business United v. Yellen Decision. The crux of the court’s decision rested on federalism grounds, with the court explaining that, historically, the act of incorporation or formation of an entity was legislated under state law and the CTA exceeds Congress’s power to legislate under the Constitution. Please note however, that the LLCTA was passed by New York’s legislature, and therefore the same federalism arguments that applied to the court finding that the CTA is unconstitutional would not apply to the LLCTA (although if the CTA does not remain in effect, the definitional reliance of the LLCTA on the CTA may be problematic). In short, the decision in National Small Business United d/b/a National Small Business Association v. Yellen will not impact the fundamental premise of the LLCTA.

The CTA will face its second constitutional challenge in the Western District of Michigan, where the Small Business Association of Michigan, the Chaldean American Chamber of Commerce and other plaintiffs filed a complaint on March 26, 2024. It is too early to tell whether this new case in the Western District of Michigan will impact the CTA, however, similar to National Small Business United d/b/a National Small Business Association v. Yellen, this new case likely will not have an impact on the NYLLCTA.

Conclusion

The BOI disclosure requirements of the LLCTA will apply to most LLCs formed in or registered to do business in New York. Although the future of the CTA has been brought into question by constitutional challenges such as the challenge in National Small Business United d/b/a National Small Business Association v. Yellen, there have been no such challenges to the LLCTA to date.