LLC Transparency Act would require disclosure of business owners

A New York State bill would require greater transparency from limited liability companies if Gov. Kathy Hochul signs it into law.

The LLC Transparency Act, which was passed by the State Legislature in late June, requires LLCs to disclose the identity of their beneficial owners when they register the company with the New York Department of State. That information would become publicly available in a searchable database.

One goal of the legislation is to make it easier to discover bad actors using LLCs in criminal activities, such as wage theft, campaign finance violations and money laundering.

Assemb. Emily Gallagher (D-Brooklyn), the lead sponsor of the bill in the Assembly, said the legislation arose after she received input from housing advocates that thousands of landlords in New York City were unreachable, which posed problems for tenants whose apartments were in disrepair and regulators enforcing building codes. That also made it harder for the state to deliver Emergency Rental Assistance Program rent checks if they couldn’t reach landlords, Gallagher said.

“This is something at the root of so many travesties,” she said.

The law would be effective one year after it is signed.

Darren Stakey, a real estate attorney at Certilman Balin in East Meadow, said LLCs were previously required to disclose certain information, such as their addresses, when they register or renew their business licenses with the New York Department of State. This adds the disclosure of the names of the LLC’s beneficial owners and creates a state database.

“On the one hand this can be seen as a laudable effort to increase business transparency,” Stakey said. “ … What is for sure is that some clients will push back on that because they really desire anonymity. It’s not necessarily for nefarious purposes."

The law allows for businesses to apply for waivers for privacy reasons.

LLCs that fail to disclose their beneficial owners for a period of two years will be considered delinquent. If they continue to refuse to disclose after receiving a delinquency notice from the state, they can face a penalty of $250.

While the fine is small, the state could use other options to enforce the law. LLCs that don’t comply might not be able to operate lawfully without the disclosure, Stakey said, noting further analysis of the final version of the law would be needed to determine how it might be enforced.

Assemb. Fred Thiele Jr., a Democrat from Sag Harbor who signed on as a co-sponsor of the bill, said he supported it because he believes it could bring more transparency to decisions around land use and zoning.

Thiele said he noticed the pervasiveness of LLCs during his time in local government and as village attorney in Sag Harbor. For example, he estimated that LLCs represented at least three-quarters of applicants seeking a wetlands permit from the village’s Harbor Committee, which must approve building on property near protected wetlands.

The Community Preservation Fund, which buys land on the East End for conservation, would also benefit from the transparency offered by the bill, Thiele said. The fund, established in 1998 through voter referendum, has collected about $2 billion from a 2% real estate transfer tax.

“You’re acquiring land from LLCs in a lot of cases, and you don’t know who they are. It raises some issues for local government in terms of potential conflicts of interest,” he said. “The public wants to know where its money is going and what’s behind these transactions.”

CORRECTION: A bill passed by the State Legislature would require limited liability companies to disclose their beneficial owners. The expanded form of the acronym LLC was incorrect in an earlier version of this article. 

By Jonathan LaMantia

jonathan.lamantia@newsday.com@jonlamantia

Jonathan LaMantia covers residential real estate and other business news on Long Island. He previously covered the business of health care for Crain's New York Business.