Two Legislative Actions Applicable to NY in 2024
The Federal Corporate Transparency Act (CTA), effective January 1, 2024
The Federal Corporate Transparency Act (CTA) was enacted in 2021 with an effective date of January 1, 2024. See, 31 U.S.C. 5336, Beneficial ownership information (BOI) reporting requirement; see also, 31 CFR 1010.380, excerpt from BOI Reporting Requirements Final Rule. To ensure compliance with the federal CTA, the Financial Crimes Enforcement Network (FinCEN) launched fincen.gov on January 21, 2024, which allows companies to review the CTA reporting requirements and exclusions and to file the necessary BOI report.
The purpose of CTA is to “create[s] a new beneficial ownership information reporting requirement as part of the U.S. government’s efforts to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures.” See, General Questions, A.2 at www.fincen.gov/boi-faqs. Access to the database will permit “Federal, State, local and Tribal officials, as well as certain foreign officials who submit a request through a U.S. Federal government agency, to obtain beneficial ownership information for authorized activities related to national security, intelligence, and law enforcement. Financial institutions will have access to beneficial ownership information in certain circumstances, with the consent of the reporting company." Id. at General Questions, A.3.
As of January 1, 2024, “reporting companies” defined as domestic or foreign entities including corporations, limited liability companies and any other entity created by the filing of a document with a secretary of state or any similar office in the United States must report personally identifiable BOI for the entity and its individual owners, including names, tradenames, residential addresses, ownership percentages, taxpayer identification numbers, dates of birth, driver license and passport information. Id. at General Questions, C.1, C.2, F.2, F.3. Not all business entities are required to report CTA as the legislation provides for approximately 23 limited exemptions for certain business entities and professions. Id.
Consequently, as of January 1, 2024, all entities except for those that may be exempt must report BOI by visiting the FinCEN website discussed above. Entities formed prior to January 1, 2024 must file the requested information by January 1, 2025. Entities formed in 2024 will have 90 calendar days to file after receiving notice that its creation or registration is effective. Entities formed on or after January 1, 2025, must report within 30 days following receipt of actual or public notice that its creation or registration is effective. Id. at General Questions B.1.
The FinCEN CTA website claims to be a user-friendly website that does not require retention of an attorney or accountant in order to meet compliance obligations. The website does include a comprehensive and orderly question and answer section defining CTA, how to comply with CTA, what happens if you don’t comply with CTA, who will have access to BOI, and how BOI can be used, along with a valuable guide to Small Entity Compliance.
New York’s LLC Transparency Act (NYLTA), effective December 21, 2024
On December 22, 2023, Governor Hochul signed Senate Bill 995B/Assembly Bill 3484A, effective December 21, 2024 enacting the New York LLC Transparency Act (NYLTA). See, New York Corporate Transparency Act, Senate Bill 995B/3484A. This act is in addition to the compulsory reporting requirement already in effect pursuant to the Federal CTA discussed above.
A December 23, 2023 Governor’s Office press release states “Governor Secured Compromise to Crack Down on Unlawful Conduct While Protecting Privacy.” See, governor.ny.gov/news/governor-hochul-signs-llctransparency-act. This compromise is important because as initially proposed, NYLTA intended to allow publication of personally identifiable information to third parties, not limited to governmental or law enforcement agencies. In reaching the compromise, NYLTA is now in line with the Federal CTA in that NYLTA will release information ONLY to governmental and law enforcement agencies or by court order. See, NYLTA at Section 215(b).
There is one distinct difference between the Federal CTA and NY’s Transparency Act in that New York limited those entities required to report to domestic and foreign limited liability companies only. See, NYLTA Section 2(kk). As stated in the Governor’s press release linked above:
“[f]or far too long, bad actors have been protected by the loose disclosure requirements of LLC ownership . . . [w]age theft, money laundering, tenant mistreatment and other unlawful activity has been masked by the opaque ownership structure of an LLC. The new LLC Transparency Act will give law enforcement and State regulators the tools they need to hold bad actors accountable.”
Take away: NYLTA contains a provision amending Section 810 of New York’s Limited Liability Company Law requiring that upon filing the articles of organization, a “reporting company shall file with the department of state a beneficial ownership disclosure” Id. This additional filing requirement means that it is not enough to file articles of organization as part of the LLC formation process, but also, the formation process will require a beneficial ownership disclosure to be submitted to the Department of State. See, NYLTA 100-b. As such, pursuant to NYLTA, there is a new step required to ensure the proper formation of a New York LLC company.
As we move closer to the December 21, 2024 NYLTA compulsory reporting requirements date, we will roll out some additional practitioner tips with respect to compliance. Recall however, that the mandatory BOI reporting requirements under the Federal CTA are in effect as of January 1, 2024 for all business organizations not benefitted by an exemption from reporting.