NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A9415C
SPONSOR: Gallagher TITLE OF BILL:
An act to amend the limited liability company law, in relation to the
disclosure of beneficial owners of limited liability companies
PURPOSE OR GENERAL IDEA OF BILL:
This bill aims to provide full transparency for the beneficial owners of
limited liability companies in New York by defining beneficial owner-
ship, requiring the disclosure of beneficial owners.
SUMMARY OF SPECIFIC PROVISIONS:
Section one is the short title.
Section two amends the LLC law to define beneficial ownership, exclude
certain individuals from qualifying as beneficial owners, and capture
indirect forms of beneficial ownership, including through trusts and
intermediaries.
Section three amends the LLC law to require that a document identifying
the beneficial owners of an LLC be included with the documents necessary
to organize an LLC in New York State.
Section four amends the LLC law to require an amendment to the documents
necessary to organize an LLC in New York State if there is a change to
the beneficial owners of the LLC.
Section five amends the LLC law to create a new section requiring the
disclosure of beneficial ownership and permits the LLC to file a copy of
the same form they file with the federal government.
Section six amends the LLC law to require that a document identifying
the beneficial owners of an LLC be included with the documents necessary
to organize a foreign LLC in New York State.
Section seven amends the LLC law, pertaining to foreign LLCS, to require
an amendment to the documents necessary to organize a foreign LLC in New
York State if there is a change to the beneficial owners of the foreign
LLC.
Section eight amends the LLC law, pertaining to foreign LLCS, to create
a new section requiring the disclosure of beneficial ownership and
permits the foreign LLC to file a copy of the same form they file with
the federal government.
Section nine is the effective date.
JUSTIFICATION:
Anonymous shell companies have been exploited as vehicles for money
laundering, tax evasion, organized crime, terrorist financing, and other
forms of corruption for decades. In the United States, the most common
form of a shell corporation is the limited liability company ("LLC"). To
form an LLC, a person needs less personal information than is required
to obtain a library card. The true owners of LLCs can be concealed even
further through trusts and nesting layers of corporate intermediaries,
facilitating money laundering, crime, and tax avoidance as assets become
washed through anonymous legal entities. Billions of dollars from the
illicit gains of international kleptocrats have been washed through LLCs
in the United States, becoming nearly impossible to trace without
tremendous effort. These phenomena have been thoroughly documented by
leaks and investigations such as the Panama Papers in 2016 and Pandora
Papers in 2021.
Anonymous LLCs have also been vehicles for narcotics and human traffick-
ers to launder their illicit profits and escape accountability. The
sociologist Adam Travis has documented an "LLC effect" in housing
markets, which is a statistically significant
landlords caused by the combination of anonymity and limited liability
protections. This effect was demonstrated by a 2019 Senate investigation
into housing code violations in the Hudson Valley. Anonymous LLCs have
also continued to facilitate campaign finance violations despite recent
legislation prohibiting this practice.
Beneficial ownership transparency, which includes disclosure and public
reporting, is the internationally recognized gold standard for combating
these forms of crime and corruption. This bill would make New York a
national leader in terms of addressing the public policy problems
created by anonymous shell corporations. This legislation would be a
significant deterrent to corruption, fraud, and organized crime. It
would ease the investigative burden on law enforcement authorities pros-
ecuting financial crimes and the regulatory burden imposed on businesses
required to report the beneficial owners of their customers pursuant to
federal law, such as title agencies and financial institutions. Tenants
would be able to know who their landlord is, researchers and policymak-
ers would be better able to understand business and investment patterns
otherwise made opaque by LLCs, and the government would be able to veri-
fy the beneficial owners of LLCs involved in procurement processes.
PRIOR LEGISLATIVE HISTORY:
This is a new bill.
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.
STATE OF NEW YORK
________________________________________________________________________
9415--C
Cal. No. 628
IN ASSEMBLY
March 7, 2022
___________
Introduced by M. of A. GALLAGHER, MITAYNES, GONZALEZ-ROJAS, L. ROSEN-
THAL, EPSTEIN, KIM, THIELE, GALEF, GOTTFRIED, MAMDANI, SIMON, DAVILA,
FORREST -- read once and referred to the Committee on Corporations,
Authorities and Commissions -- committee discharged, bill amended,
ordered reprinted as amended and recommitted to said committee --
again reported from said committee with amendments, ordered reprinted
as amended and recommitted to said committee -- reported from commit-
tee, advanced to a third reading, amended and ordered reprinted,
retaining its place on the order of third reading
AN ACT to amend the limited liability company law, in relation to the
disclosure of beneficial owners of limited liability companies
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. Short title. This act shall be known and may be cited as
2 the "LLC transparency act".
3 § 2. Section 102 of the limited liability company law is amended by
4 adding a new subdivision (ii) to read as follows:
5 (ii) (1) "Beneficial owner" means a natural person who, directly or
6 indirectly, (A) holds a membership interest in a limited liability
7 company; (B) exercises substantial control over the decisions of a
8 membership interest in a limited liability company; or (C) has been
9 assigned a membership interest in a limited liability company. For the
10 purposes of this subdivision and for any references to beneficial owners
11 of any limited liability company, the term "limited liability company"
12 shall include, where applicable, foreign limited liability companies and
13 authorized foreign limited liability companies.
14 (2) The term "beneficial owner" shall not include: (A) a minor child;
15 (B) a person acting as a nominee, intermediary, custodian, or agent on
16 behalf of another person; (C) a person acting solely as an employee of a
17 limited liability company and whose control over or economic benefits
18 from the limited liability company derives solely from the employment
19 status of the person; (D) a person whose only interest in a limited
20 liability company is through a right of inheritance, unless the person
21 also meets the requirements of paragraph one of this subdivision; (E) a
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD13266-17-2
A. 9415--C 2
1 creditor of a limited liability company, unless the creditor also meets
2 the requirements of paragraph one of this subdivision; or (F) any
3 natural person whose membership interest in a limited liability company
4 derives solely from his or her employment by such limited liability
5 company and such limited liability company's organization as an employ-
6 ee-owned business or worker cooperative, as evidenced by such limited
7 liability company's by-laws or articles of organization.
8 (3) If a beneficial owner of a limited liability company indirectly
9 meets the requirements of subparagraph (A), (B), or (C) of paragraph one
10 of this subdivision, and such company is required to disclose its bene-
11 ficial owners to the department of state or department of taxation and
12 finance, such beneficial owner shall identify each and every entity or
13 person linking such beneficial owner to the limited liability company,
14 including by identifying every intermediary by name and explaining the
15 nature of the legal or economic relationship of the beneficial owner to
16 each such intermediary and how each such intermediary is linked to every
17 other intermediary and to the limited liability company. The beneficial
18 owner may be permitted or required to provide a diagram to meet this
19 disclosure requirement. If indirect beneficial ownership is exercised
20 through a publicly traded entity, a REIT, a UPREIT, or a mutual fund,
21 the requirements of this paragraph shall only apply to beneficial owners
22 holding or controlling twenty-five percent or more of the equity in such
23 limited liability company. This subdivision shall apply until full
24 disclosure of beneficial ownership by natural persons is achieved.
25 (4) If indirect beneficial ownership is exercised through a trust or
26 similar arrangement which holds or controls, directly or indirectly,
27 twenty-five percent or more of the equity in the limited liability
28 company or exercises substantial control over such company, the limited
29 liability company shall identify as a beneficial owner each natural
30 person serving as: (A) a trustee of the trust, a trust protector, or any
31 other individual with authority, directly or indirectly, to dispose of
32 trust income, assets, or principal; (B) a trust beneficiary with the
33 right, directly or indirectly, to receive, demand, or withdraw any trust
34 income, assets, or principal; and (C) a grantor or settlor with the
35 right, directly or indirectly, to revoke the trust or to receive,
36 demand, or withdraw trust income, assets or principal.
37 § 3. Paragraphs 6 and 7 of subdivision (e) of section 203 of the
38 limited liability company law, as added by chapter 470 of the laws of
39 1997, are amended to read as follows:
40 (6) if all or specified members are to be liable in their capacity as
41 members for all or specified debts, obligations or liabilities of the
42 limited liability company as authorized pursuant to section six hundred
43 nine of this chapter, a statement that all or specified members are so
44 liable for such debts, obligations or liabilities in their capacity as
45 members of the limited liability company as authorized pursuant to
46 section six hundred nine of this chapter; [and]
47 (7) a document identifying the beneficial owners of the limited
48 liability company in accordance with subdivision (a) of section two
49 hundred fifteen of this article; and
50 (8) any other provisions, not inconsistent with law, that the members
51 elect to include in the articles [or] of organization for the regulation
52 of the internal affairs of the limited liability company, including, but
53 not limited to, (A) the business purpose for which the limited liability
54 company is formed, (B) a statement of whether there are limitations on
55 the authority of members or managers or a class or classes thereof to
56 bind the limited liability company and (C) any provisions that are
A. 9415--C 3
1 required or permitted to be included in the operating agreement of the
2 limited liability company pursuant to section four hundred seventeen of
3 this chapter.
4 § 4. Paragraphs 8, 9 and 10 of subdivision (d) of section 211 of the
5 limited liability company law, paragraph 10 as added by section 18 of
6 part KK of chapter 56 of the laws of 2021, are amended and a new para-
7 graph 11 is added to read as follows:
8 (8) the discovery of a materially false or inaccurate statement in the
9 articles of organization; [and]
10 (9) the decision to change any other statement in the articles of
11 organization[.];
12 (10) to specify, change or delete the email address to which the
13 secretary of state shall email a notice of the fact that process against
14 the limited liability company has been electronically served upon him or
15 her[.]; and
16 (11) a change in the beneficial owners of such limited liability
17 company or the information required to be provided relating to each
18 beneficial owner pursuant to section two hundred three of this article.
19 § 5. The limited liability company law is amended by adding a new
20 section 215 to read as follows:
21 § 215. Beneficial ownership disclosure. (a) A limited liability
22 company, when disclosing its beneficial owners, shall identify each
23 beneficial owner by: (1) name; (2) date of birth; (3) current residen-
24 tial or business street address; (4) a unique identifying number from a
25 non-expired passport issued by the United States or a non-expired driv-
26 er's license or identification card issued by this or another state
27 or, if none, a legible and credible copy of the pages of a non-expired
28 foreign passport bearing a photograph, date of birth, and unique iden-
29 tifying information for the beneficial owner; (5) a federal or state
30 taxpayer identification number or, if none, a legal entity identifier
31 issued by the Global Legal Entity Identifier Foundation.
32 (b) A limited liability company, when disclosing its beneficial owners
33 to the department of state or department of taxation and finance, may
34 submit a copy of the beneficial ownership information such company
35 submitted to the federal government pursuant to 31 U.S.C. section 5336
36 in order to satisfy state disclosure requirements, provided that such
37 federal registration is current and contains all information required by
38 state law.
39 (c) The identification and disclosure of the name, business address,
40 and year of birth of a beneficial owner shall not be deemed an unwar-
41 ranted invasion of personal privacy pursuant to article six of the
42 public officers law. All other personal or identifying information of
43 such beneficial owner shall be deemed confidential except for the
44 purposes of law enforcement. If confidential information associated with
45 a beneficial owner is held electronically, such records shall be
46 encrypted.
47 § 6. Paragraphs 7 and 8 of subdivision (a) of section 802 of the
48 limited liability company law are amended and a new paragraph 9 is added
49 to read as follows:
50 (7) a statement that the foreign limited liability company is in
51 existence in the jurisdiction of its formation at the time of the filing
52 of such application; [and]
53 (8) the name and address of the authorized officer in the jurisdiction
54 of its formation where a copy of its articles of organization is filed
55 or, if no public filing of its articles of organization is required by
56 the law of the jurisdiction of formation, a statement that the foreign
A. 9415--C 4
1 limited liability company shall provide, on request, a copy thereof with
2 all amendments thereto (if such documents are in a foreign language, a
3 translation in English thereof under oath of the translator shall be
4 attached thereto), and the name and post office address of the person
5 responsible for providing such copies[.]; and
6 (9) a document identifying the beneficial owners of the foreign limit-
7 ed liability company in accordance with subdivision (a) of section eight
8 hundred ten of this article.
9 § 7. Section 804 of the limited liability company law is amended by
10 adding a new subdivision (c) to read as follows:
11 (c) Every foreign limited liability company that has received a filing
12 receipt entitled "Certificate of authority of .... (name of foreign
13 limited liability company) under section eight hundred five of the
14 Limited Liability Company Law," evidencing authority as provided herein
15 shall amend its application for authority upon a change in beneficial
16 ownership or the information required to be provided relating to each
17 beneficial owner pursuant to section eight hundred two of this
18 article within ninety days of such change.
19 § 8. The limited liability company law is amended by adding a new
20 section 810 to read as follows:
21 § 810. Beneficial ownership disclosure. (a) A foreign limited liabil-
22 ity company, when disclosing its beneficial owners, shall identify each
23 beneficial owner by: (1) name; (2) date of birth; (3) current residen-
24 tial or business street address; (4) a unique identifying number from a
25 non-expired passport issued by the United States or a non-expired driv-
26 er's license or identification card issued by this or another state
27 or, if none, a legible and credible copy of the pages of a non-expired
28 foreign passport bearing a photograph, date of birth, and unique iden-
29 tifying information for the beneficial owner; (5) a federal or state
30 taxpayer identification number or, if none, a legal entity identifier
31 issued by the Global Legal Entity Identifier Foundation.
32 (b) A foreign limited liability company, when disclosing its benefi-
33 cial owners to the department of state or department of taxation and
34 finance, may submit a copy of the beneficial ownership information such
35 company submitted to the federal government pursuant to 31 U.S.C.
36 section 5336 in order to satisfy state disclosure requirements, provided
37 that such federal registration is current and contains all information
38 required by state law.
39 (c) The identification and disclosure of the name, business address,
40 and year of birth of a beneficial owner shall not be deemed an unwar-
41 ranted invasion of personal privacy pursuant to article six of the
42 public officers law. All other personal or identifying information of
43 such beneficial owner shall be deemed confidential except for the
44 purposes of law enforcement. If confidential information associated with
45 a beneficial owner is held electronically, such records shall be
46 encrypted.
47 § 9. This act shall take effect on the three hundred sixty-fifth day
48 after it shall have become a law; provided further, however, that if
49 part KK of chapter 56 of the laws of 2021 shall not have taken effect on
50 or before such date then section four of this act shall take effect on
51 the same date and in the same manner as such part of such chapter of the
52 laws of 2021 takes effect. Effective immediately, the addition, amend-
53 ment and/or repeal of any rule or regulation necessary for the implemen-
54 tation of this act on its effective date are authorized to be made and
55 completed on or before such effective date.
