New York LLC Transparency Act: Shedding Light on Corporate Ownership

The demand for corporate transparency is on the rise — hence the passage of the Corporate Transparency Act and the New York LLC Transparency Act. Almost half of small business owners have never heard of the Corporate Transparency Act, according to the Chairman of the House Committee on Small Business. It's safe to say many are not aware of the New York law either. Yet both are part of a sweeping movement of transparency and accountability in the corporate world. This article will explain how limited liability companies (LLCs) must comply with New York's law and why an LLC lawyer is advised.

What Is the New York LLC Transparency Act?

The New York LLC Transparency Act is a new law that requires all non-exempt LLCs in New York to divulge personal information about their beneficial owners and applicants starting January 1, 2026. Its passage signals a new era of corporate transparency and heightened scrutiny of corporate operations. If you are interested in how to start an LLC in NY, know that the Act substantially changes many aspects of LLC business and operations, specifically in the areas of transparency and accountability.

Who Must Comply with the New York LLC Transparency Act?

Generally speaking, most LLCs that have been registered as such in the State of New York are considered reporting companies and must comply with the Act. Additionally, LLCs registered to operate or otherwise do business within New York must also comply with the Act.

The Act is unique at the state level. New York is the first state to institute a transparency law for corporations, although the feds have recently enacted a corporate transparency law of their own known as the Corporate Transparency Act. New York's version is specifically directed at LLCs, however, while the federal law includes other types of corporations.

Under New York's law, an LLC deemed to be a reporting company must report the personal information of all beneficial owners of an LLC, such as owners, members, and parties with significant control over the LLC.

The LLC's liability protection and simple structure make it an ideal entity for many small businesses, freelancers, and independent contractors across various industries. The LLC entity is also popular for short-term artistic ventures, such as movies. These ventures and sectors should expect to see heightened scrutiny of their operations.

Key Provisions of the Act

Under the NY LLCTA, LLCs must regularly report certain disclosures relating to the LLC and in-depth beneficial ownership information or face penalties from the state attorney general.

Set yourself up for success with the NY LLCTA by retaining an attorney to guide you and ensure your compliance.

1. Disclosure Requirements for LLCs

LLCs are required to disclose various details relating to their name, location, and formation. Information about beneficial owners and applicants must also be included, such as:

• Legal names
• Dates of birth
• Current addresses, which may be business addresses
• A number from an unexpired government ID

Authorized government IDs include passports and state driver's licenses but not a FinCEN identifier. This means less privacy and more transparency about individual owners and applicants.

LLCs must be aware that these disclosures must be made before January 1, 2026. Prompt attention to this deadline and the details of your application will help your LLC beat the deadline and avoid penalties.

2. Beneficial Ownership Reporting

Beneficial ownership reporting requirements will make known the personal identities of beneficial owners and applicants of LLCs. The passage of the NY LLCTA makes it clear that New York is serious about corporate transparency by requiring the identities and addresses of those with a significant benefit or hand in LLC affairs in New York.

Before 2026 begins, identifying information will be required of key players of LLCs but only of beneficial owners who have at least 25% ownership or substantial control over an LLC. Noncompliance by 2026, including inaccurate or incomplete filings, can lead to business interruption, fines, and more.

3. Penalties for Non-Compliance

Failure to comply with the Transparency Act's provisions can lead to various penalties, including fines of up to $500 per day. Upon failure to meet the reporting deadline, an LLC will receive a 30-day notice, which will turn into a suspension if the matter is not handled in time. A suspension means the LLC's status is past due and it is no longer authorized to do business in the state.

If an LLC fails to comply with reporting requirements for more than two years, the LLC's status will change to delinquent. While delinquent, the org is in danger of NYS LLC dissolution by the Attorney General.

Implications for Businesses

LLCS need to prepare themselves for the regular reporting of information relating to beneficial owners and applicants. This will most certainly implicate privacy and compliance concerns.

If your LLC is preparing for compliance, you can effectively apply the information in this guide to help you approach the unique challenges in your LLC.

1. Compliance Challenges

Compliance challenges will arise for many LLCs, including issues related to costs, deadlines for filings, and the specific reporting requirements themselves.

Regarding the reporting requirements, LLCs must now report the identities and addresses of their major owners and controllers. This new rule requires that many LLCs gather and handle sensitive information that may be subject to abuse or theft.

Compliance requirements also place a new and heavy burden on LLCs, requiring the gathering and management of detailed membership and application information. LLCs should expect to devote at least moderate resources to ensure compliance with these requirements.

Developing and instituting a compliance plan long before reporting deadlines is an effective way to avoid the penalties and consequences associated with NY LLCTA violations. Last-minute scrambling for compliance must be avoided.

2. Impact on Privacy

Beneficial owners and applicants should be prepared to divulge personal and identifying information for NY LLCTA compliance.

For some, waivers may be available. The Act allows LLCs to petition for a waiver to avoid divulging personal information if significant privacy concerns are in play. When a waiver is not available, the private information must be gathered and transmitted. Following proven protocols and best practices can keep information secure. In many cases, it is standard to hire outside professionals to safeguard sensitive business information.

Ultimately, the push toward transparency is meant to prevent illegality in the marketplace. Although this is a valid concern, the privacy rights of individuals and businesses remain intact. Fortunately, this information is ultimately stored in a database and is not accessible to the public.

3. Business Strategy Adjustments

The impact of the NY LLCTA may require some LLCs to adjust their business strategies. As mentioned, compliance with the Act and the management of sensitive information will need resources. LLCs should immediately plan on devoting the appropriate capital and personnel to fulfill the LLCTA requirements.

Because the LLCTA applies only to LLCs, some LLCs may find it beneficial to explore other corporate structures. Ownership agreements can also be used strategically to avoid these reporting requirements. For example, capping a member's ownership at 24% could mean no reporting of personal information for that member.

Overall, long-term and regular transparent compliance is the goal. LLCs do well to factor transparency considerations into every aspect of their business operations.

Comparison with Similar Legislation

New York is the first state to implement an LLC transparency law, but it won't be the last. California and Massachusetts also have LLC transparency laws in the works. California's is set to become law by August 31 and includes many similar provisions to the NY LLCTA. However, there are various material differences between the two, and they also differ from developing legislation in other jurisdictions, such as Maryland and the District of Columbia.

For instance, California will allow public access to the database of beneficial owners and applicants, while New York currently does not. The existence of reporting requirements is frightening enough for investors, but the thought of a public database chills the water for many. For them, New York's law is more inviting when it comes to privacy.

The states that successfully balance transparency with the privacy rights of beneficial owners and applicants will prevail in the long run. New York is on the right track with a non-public database and limiting its provisions to LLCs.

Steps for Ensuring Compliance

The first step in complying with the LLCTA is to identify all beneficial owners and relevant applicants. You will need documentation of:

• The beneficial ownership disclosure information
• The address of the principal executive office of the LLC
• The exempt status of the LLC if filing an exemption
• Any other information required by the New York Department of State

Before collecting this information, you should have effective protocols in place to protect the transmission and storage of sensitive information. Although the information will be on a non-public database, it still will be transmitted and stored in various locations outside of the database.

The next step is to ensure ongoing compliance by infusing every part of your LLC with transparency initiatives and being diligent with reporting requirements. Annual reporting is required, but you must also report when a substantial ownership or related material change occurs.

Various entries are exempt from the LLC Transparency Act's provisions. LLCs should closely review their entity structures to determine whether they must comply with the reporting requirements.

Detailed provisions provide 23 exemptions but saddle other LLCs with disclosure requirements or penalties. LLCs need legal counsel to effectively navigate the waters of LLCTA compliance.

Being Prepared for LLC Transparency

The New York LLC Transparency Act is a giant legislative step in the move toward LLC transparency. LLCs in the state have a window of time to comply with its mandates and keep operations flowing smoothly, which will bring a measure of peace to stakeholders watching this transition.

If you are associated with an LLC in New York, it's crucial to stay on top of regulatory developments and to always be guided by transparency. Lawyer For Business will work diligently to keep your operations in compliance and up to date. Contact us today.