On December 23, 2024, New York Governor Kathy Hochul signed the LLC Transparency Act (LLCTA) into law, but not without a considerable compromise relative to its original form. The LLCTA was initially passed by the New York State Senate on June 6, 2023, and by the New York State Assembly on June 20, 2023, with a section that created a public business entity database on the New York Department of State (NYDOS) website. The version signed by Governor Hochul contained a chapter amendment that removed the public nature of the database, instead limiting its access to "government agencies and law enforcement." This modification brought the New York law more in line with its federal inspiration, the Corporate Transparency Act (CTA), which became effective as of January 1, 2024.
Similar to the CTA, the LLCTA was passed with a view to requiring reporting companies to disclose certain beneficial ownership information (BOI) to the requisite government agency and to impede the anonymous ownership of limited liability companies (LLCs). The two acts even share vocabulary, with the LLCTA terms "beneficial owner," "reporting company," and "exempt company" coming straight from the CTA.[1] Both also contain the same list of 23 exempt entities. However, the CTA never intended that information collected would become publicly available, unlike the original LLCTA; it was not until the amendment was added to the LLCTA as a compromise that it became more of a facsimile of the CTA. Upon its enactment on January 21, 2021, the CTA mandated that the Financial Crimes Enforcement Network (FinCEN), the bureau of the U.S. Department of the Treasury in charge of the BOI federal database, could disclose the information only to law enforcement, national security agencies, and financial institutions. The differences between the LLCTA and CTA did not stop there.
The most obvious difference between the LLCTA and the CTA is that the LLCTA applies only to domestic LLCs and foreign LLCs, while the CTA applies to corporations, LLCs, or any other, similar entity "created by the filing of a document with a secretary of state or similar office."[2] Other differences between the two statutes include the timing and type of information submitted to the requisite governing body. The LLCTA requires BOI to be submitted to NYDOS concurrently with the articles of organization or with the initial application for authority for foreign LLCs; the CTA requires BOI be provided no later than 90 days after the date of formation through 2024, decreasing that number to 30 days commencing on January 1, 2025. Even if an entity believes it falls into one of the declared exemptions of both laws, the LLCTA requires the company to provide an affirmative assertion of the exemption relied on to the NYDOS, while the CTA does not require any report from the exempted entity. If an entity eventually becomes exempt, it only needs to file an updated BOI report under the CTA in which it (1) identifies itself and (2) checks a box noting its newly exempt status without declaring which precise exemption it is relying on.
However, there are two differences between the LLCTA and CTA where the LLCTA is less severe. First, the LLCTA does not require disclosure surrounding "company applicants." In addition to BOI, the CTA requires that any reporting company created or registered on or after January 1, 2024 report information with respect to up to two company applicants. Company applicants include (1) the person who directly caused the creation or first registration document for the new entity to be filed with the secretary of state's office (or similar) and (2) the person primarily responsible for overseeing the formation of such entity, if a different person than the former. Second, the repercussions for violating the LLCTA are much milder than those for violating the CTA. If an entity is found to violate the LLCTA by not disclosing BOI, the NYDOS will mail a notice of delinquency to its last known business address, giving the entity 60 days to file; if the entity still fails to do so, the civil penalty is $250. If any individual is found to violate the CTA, that person faces civil penalties of up to $500 per day (up to $10,000) and up to two years in federal prison.[3]
While it is too early to assess the full impact of the CTA, the LLCTA foreshadows that this could be the beginning of copycat legislation throughout the United States. In 2023, California, Maryland, and Massachusetts introduced bills into their state legislatures requiring BOI reporting by domestic and foreign entities, but none of them have gone further than their respective state legislatures. Outside of the United States, however, there is a continuing trend toward more transparency and less privacy. The European Union was one of the first to initiate the corporate transparency movement with its 5th Anti-Money Laundering Directive (5AMLD), adopted by the European Parliament on May 30, 2018, requiring EU member states to use public registers to unmask anonymous beneficial owners of companies. Many European countries and countries beyond Europe have complied with that Directive.
[1] 31 U.S.C. § 5336(a)(11)(A).
[2] 31 U.S.C. § 5336(a)(11)(A).
[3] 31 U.S.C. § 5336(h)(3)(A).