By: Ted Sutton, Esq.
Marissa was an aspiring barista who lived in New York City. After she graduated high school, she started her own coffee shop in Brooklyn. She properly formed a New York LLC. However, she forgot to report her beneficial ownership information to FinCen and the New York Department of State (NYDS).
After two years of making coffee, her business took off. Her new coffee shop became the top gathering place in her Brooklyn neighborhood. Everyone raved about not only the coffee, but also the shop’s ambience.
Although Marissa’s coffee shop was successful, she was hit with legal trouble. Because she failed to report her information to FinCen, she was slapped with a $10,000 fine. On top of this, she faced a separate $250 fine from NYDS for failing to report the same information to them.
The New York LLC Transparency Act
As many of you may know, the Corporate Transparency Act (CTA) requires companies and their owners to report certain information to the Financial Crimes and Enforcement Network (or Fincen) under the Department of the Treasury. You can read a separate article covering these requirements here.
However, some states will require you to report this same information to them a second time. New York Assembly Bill 3484A, also known as the “LLC Transparency Act,” will require New York LLCs to report the same beneficial ownership information to the NYDS. This bill requires LLC owners to disclose a list of beneficial owners, and any formation and registration documents.
Just when you think that wasn’t enough. This new LLC Transparency Act is even more transparent than the CTA. While the FinCen database is only available to governmental authorities and financial institutions, the LLC Transparency Act requires the NYDS to maintain a publicly searchable business entity database on their website. With this database, anyone can view the entity name, business street address, the county where the business is located, and the full names of each beneficial owner. However, beneficial owners may be able to apply for confidentiality waivers in limited circumstances.
Because Marissa failed to report any of this information, she faced fines from both the State of New York and the federal government. If she doesn’t cough up the $10,250 worth of fines, she could face jail time. Once she properly registers with the NYDS, her private information will be made available to the public.
Could other states follow suit and pass similar legislation? Only time will tell. This is why business owners must be on the lookout. If they don’t, they could end up like Marissa.