Corporate Transparency Act (“CTA”)
A new disclosure law called the Corporate Transparency Act (“CTA”) has been enacted at the federal level to putatively combat money laundering and other maladies. The deadline for compliance is around the corner. Starting January 1, 2024, corporations, LLC’s, LLP’s, trusts, and other entities filed with the Secretary of a State will be required to file reports with FinCEN disclosing information relating to the entity’s beneficial owners. All entities formed on or after January 1, 2024 will need to file reports within 30 days of formation of the entity. Existing entities will need to file before January 1, 2025.
Under the CTA, “beneficial owner” is ownership of not less than a 25% equity interest in the company or the ability to exercise “substantial control” over the company which includes, regardless of office or title, the ability to direct, determine, decide, or exercise substantial influence over important matters affecting the company. By way of example, a senior officer, manager or managing member would be considered parties exercising “substantial control” over the company for the purpose of the CTA and, thus beneficial owners regardless of their equity ownership.
Notably, certain companies are exempt from the CTA reporting requirements provided such companies:
- employ more than 20 full-time employees in the United States;
- have an operating presence at a physical office in the United States; and
- filed a federal income tax return or information return for the prior year reporting more than $5 million in gross receipts or sales, excluding gross receipts or sales outside the United States.
Proposed New York LLC Transparency Act
Additionally, just as the deadline for compliance with the CTA fast approaches, proposed legislation at the New York level goes further and will likely be a severe blow, if not the death knell, to the ability to remain an anonymous beneficial owner of substantial or controlling interests in a limited liability company (LLC). The bill (A03484A) has been passed by the New York State Legislature and is sitting on the Governor’s desk for signature, which has not been done yet. The proposed legislation requires that LLC’s doing business in New York disclose the identity of any “beneficial owner” as defined in the CTA. The main difference between the proposed New York legislation and the CTA is that the identity and address of beneficial owners of LLCs will become available to the public through a database maintained by New York’s Secretary of State.
Effective one year after the act is signed into law, newly formed LLC’s doing business in New York will be required to report the identities of beneficial owners and other information relating to the LLC within 30 days of formation. Existing LLC’s will have until January 1, 2025 to report this information.
Under the proposed legislation, a waiver is available under certain circumstances. The Secretary of State will be required to promulgate regulations for those with “significant privacy interests” seeking a waiver to keep their name and address confidential. Such parties include whistleblowers using LLC’s to file false claim act lawsuits and individuals participating in an address confidentiality program.
If a party required to file a report fails to do so for a period of thirty days after the filing deadline, the Secretary of State will indicate on its entity database that the filing is past due. If the filing is not made within two years of the due date, the Secretary of State is to send a sixty day notice to file the beneficial ownership disclosure report. If a party fails to do so, it would be recorded as delinquent in the records of the Secretary of State. A $250 civil penalty and filing would be required to remove the delinquency.
This proposed legislation could have a serious impact on New York’s real estate community. If signed into law, the legislation will make public the names of individuals who purchased through LLCs—including those individuals who may have done so in an effort to avoid public disclosure of their ownership.
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If you have questions relating to the Corporate Transparency Act or the New York State LLC Transparency Act, how they might affect your entity or potential planning opportunities, contact your BBG attorney of record or click here to submit a question.