The limited liability company, or LLC, is a popular legal format because, unlike a sole proprietorship, it gives the owners some protection from liability for the company’s debts. And, compared to a corporation, starting and managing an LLC entails fewer legal formalities and requires fewer public disclosures.
However, federal and state governments have grown concerned over the lack of disclosures for LLCs. Some regulators and law enforcement agencies say that a lack of public disclosures makes it easy for owners to hide their identities behind LLCs for nefarious reasons. In particular, they fear that criminals are using LLCs in the real estate industry as a way to launder money from illegal activities in order to give it the appearance of legality.
Federal and state laws
At the beginning of 2024, a new federal law known as the Corporate Transparency Act went into effect. Passed along with a package of national security and financial crime legislation, the CTA requires to corporate entities in the United States to disclose their beneficial owners.
In March 2024, New York Gov. Kathy Hochul signed into law the LLC Transparency Act, which imposes some of the same requirements for LLCs doing business in New York. The law becomes effective in 2026.
In some ways, the New York law is stricter than the federal CTA. The CTA lists 23 types of entities considered exempt from the law’s disclosure requirements. These include governmental organizations and certain other entities.
By contrast, the New York Transparency Act requires disclosures from both exempt and non-exempt entities. Exempt entities must file paperwork stating how they are exempt. Non-exempt companies just file certain identifying information about the owners. They must recertify this information every year.
Those who own an LLC should consult with professionals to learn more about their obligations under the new laws.