NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A3484A
SPONSOR: Gallagher TITLE OF BILL:
An act to amend the limited liability company law and the executive law,
in relation to the disclosure of beneficial owners of limited liability
companies
PURPOSE OR GENERAL IDEA OF BILL:
This bill aims to end the practice of anonymous ownership of limited
liability companies in New York by defining beneficial ownership,
requiring the disclosure of the identities of beneficial owners upon
company formation or registration, and publishing beneficial owners of
limited liability companies in New York's publicly searchable business
entity database.
SUMMARY OF SPECIFIC PROVISIONS:
Section one is the short title.
Section two amends section 102 of the limited liability company (LLC)
law to define beneficial owner, initial report, reporting company and
exempt. company.
Section three amends section 203 of the LLC law to require that LLCs
include an initial report, including a list of beneficial owners, with
the documents submitted to the Department of State when organizing an
LLC in New York State. Exempt companies must indicate which exemption(s)
they are claiming against their obligation to file such initial report.
The exemptions that may be claimed are identical to those promulgated by
the federal Treasury Department through regulation.
Section four amends section 211 of the LLC law to require that updates
and corrections to information required in an initial report are filed
with the Department of State.
Section five amends the LLC law to create a new section, 215, that
enumerates the information that must be disclosed by an LLC when identi-
fying one of its beneficial owners. The list of items is identical to
the information that must be disclosed to the Treasury Department pursu-
ant to federal law. Section 215 also permits an LLC to file an identical
copy of the report it filed with the Treasury Department with the New
York Department of State in order to satisfy state reporting require-
ments.
Sections six, seven, and eight make the same changes as sections three,
four, and five above, but as applied to foreign limited liability compa-
nies, by amending sections 802 and 804 of the LLC law and adding a new
section, 810.
Section nine requires that the secretary of state maintain a publicly
available database on its website for each business entity organized in
New York. The data base must include, among other things, the name of
the business entity, the current business street address and county
associated with each business street addreSs, and the full name(s) of
each beneficial owner. The Secretary of 'State is required to establish
rules and regulations to allow beneficial owners to apply for confiden-
tiality waivers.
Section ten is the effective date.
JUSTIFICATION:
Limited liability is a legal privilege conferred upon an individual by
the state, and the receipt of such privilege should be conditioned on
the identification of the individual benefiting from it. Permitting
anonymous limited liability companies to do business in New York was a
public policy mistake that deserves correction. Anonymous corporate
ownership has proliferated since the 1990s and has contributed to numer-
ous problems. Anonymous shell companies are used to bypass sanctions,
avoid taxes, fund terrorist organizations and organized crime, and laun-
der money. Anonymous LLCs leasing real property are correlated with more
numerous code violations, higher rents, and more evictions compared to
non-corporate owners. Drug and human traffickers use anonymous shell
companies like LLCs to launder the proceeds of their criminal activities
and evade detection. Deed theft, campaign finance violations, and bid
rigging can be facilitated by anonymous LLCs. Anonymous LLCs hamper
routine code enforcement, burdening local governments. Meanwhile, the
anonymous ownership of a significant portion of real estate in New York
hampers policy-making and upends centuries of precedent by obscuring the
answer to the question: who owns what?
In response to exposes such as the Panama Papers and the Pandora Papers,
which highlighted the massive, global nature of illicit activity
fostered by anonymous shell companies like LLCs, the UK, European Union,
Australia, New Zealand, Canada, and over 100 countries worldwide are
creating registries of the beneficial owners of corporate and legal
entities, many of them public. In 2021, the federal government passed
the Corporate Transparency Act, which requires the Treasury Department
to collect beneficial ownership information from corporations in a
private, government database. Unfortunately, the inaccessible nature of
the new federal database means that this information will serve no use
for civil society or local government in New York, denying New Yorkers
the many benefits that beneficial ownership transparency offers.
This bill builds on previous efforts to require the disclosure of LLC
members and managers involved in real estate transactions in New York.
The bill adopts the same standards promulgated by the Treasury Depart-
ment pursuant to the Corporate Transparency Act and requires that the
same information also be filed with New York's Department of State.
Companies subject to the federal government's reporting requirements may
submit a copy of their federal registration to New York's Department of
State in order to minimize the burden of such reporting. To protect
genuine privacy interests that some individuals may have, a waiver proc-
ess is created, with specific protections for whistleblowers using LLCs
to file false claims act lawsuits and individuals participating in an
address confidentiality program.
PRIOR LEGISLATIVE HISTORY:
A9415 / S8439 (2022) - died on third reading.
FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:
To be determined.
EFFECTIVE DATE:
This bill is effective 365 days after becoming law, provided however
that the repeal, amendment, or enactment of any rule or regulation
necessary to effectuate the meaning or purpose of this law on its effec-
tive date is authorized to be made or completed before its effective
date.
