LLC Transparency (New York) and the CTA (Federal) Compliance becomes reality and potentially expensive.

Corporate Compliance UPDATE—(January 10, 2024).

LLCs have been a favored entity for real estate for many years in New York.  Times are changing.  For those of you who own a beneficial interest in a New York Limited Liability Company, you need to contact your attorney.  Effective January 1, 2024, LLCs must comply with New York’s new LLC Transparency Act, which will create a database of the beneficial owners of Limited Liability Corporations that is accessible to government agencies and law enforcement.   According to our Governor,

“For far too long, bad actors have been protected by the loose disclosure requirements of LLC ownership.  Wage 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.”

Legislation S.995B/A.3484 creates a “beneficial ownership” database that can be accessed by Federal, State and local government law enforcement across New York State the tools to investigate criminal activity. Individuals who set up, or already have ownership of LLCs and meet the requirements for disclosure, will be required to identify the names of the beneficial owner(s) in the filing.

The Federal Law

New York’s law was formulated in response to the Federal Government passing the Corporate Transparency Act (the “CTA”) (effective January 1, 2024).   Now, under federal law, certain “reporting companies” are required to disclose information regarding its “beneficial owners,” to the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”).

 What is a “Reporting Company”

Reporting companies include both domestic and foreign entities like corporations, LLPs, or other that are created by the filing of a document with a secretary of state (i.e., New York State).  There are certain “exempted entities,” but many small and mid-sized entities are going to have to comply by providing detailed information about their owners.

What is a “Beneficial Owner”

A beneficial owner of a reporting company is an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise (i) exercises “Substantial Control” over the entity; or (ii) owns or controls at least 25% of the equity interests of the entity.   Even if you don’t own the entity you may need to report if you have “Substantial Control” over important decisions within the company.

What Information will be Gathered?

As if the entity’s federal and state tax returns are not enough for the Federal Government, reporting companies will have to provide: (i) full legal name; (ii) trade names or d/b/a names; (iii) address of the entity; (iv) the jurisdiction of formation or registration; and (5) the federal taxpayer identification number.  For each person: (i) full legal name; (ii) birthdate; (iii) home address; (iv) an identifying number from a driver’s license, passport, or other approved documents; and (v) an image of the approved document that contains the identifying number. In lieu of (iv) and (v), an individual can apply for a FinCEN identifier number, after which the individual is permitted to use the identifier number on subsequent filings.

When must you apply for your FinCEN number?

By January 1, 2025 if the reporting company already exists on or before January 1, 2024; and newly-formed reporting companies created after January 1, 2024, must file their initial reports 90 days after receiving notice of their creation or registration.  After the initial filing, there is no annual or quarterly filing requirement; however, reporting companies have 30 days to amend their report to include updated information. Additionally, reporting companies must correct inaccurate information previously filed within 30 days of discovering the error.  FinCEN’s website is already accepting applications and reporting.

What to do?

Call Klose & Associates to help you ease the process of compliance with New York’s LLC Transparency Law and the CTA.

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