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LLCs might soon have to list their owners. Should New Yorkers get a look?

Gov. Kathy Hochul will soon have to decide on a bill that would allow the public to know the true owners behind limited liability companies in New York — a measure that is spurring a lobbying battle among some of her biggest campaign supporters.

In June, Democrats in the state Legislature approved the LLC Transparency Act, a bill largely mirroring a soon-to-take-effect federal law requiring LLCs to reveal the name of their “beneficial owners” — the people who control the company.

But the New York bill goes a significant step further than the federal law.

While the federal law only requires LLCs to reveal their owners to the government, the New York legislation would require the state to create a publicly accessible database that includes the names of the owners anytime an LLC is created or reorganized.

Now, Hochul has until the end of the year to sign or veto the bill — which is pitting the state’s largest business interests and labor unions against one another as they try to convince her to see things their way.

“We’re actively in contact with the governor’s office on this and we continue to have conversations,” said Chelsea Lemon, director of government relations for the Business Council, the state’s largest business lobby. “Where she comes out on it? I’m not quite sure.”

A spokesperson for Hochul did not say which way the governor is leaning, and instead pointed to previous comments about the hundreds of bills before her.

At least 20 different organizations have reported lobbying on the bill since the start of the year, according to state records.

Supporting the measure are tenant advocates, good-government organizations and — crucially — labor unions, including the AFL-CIO, which provided key, on-the-ground support to Hochul during her successful bid for a full term last year. They said the bill — and particularly, the public database — could help root out money laundering and other types of fraud sometimes associated with anonymous LLCs across several industries, including in the New York City real estate market.

The bill also has support from several district attorneys — including Manhattan’s Alvin Bragg, the Bronx’s Darcel Clark and Brooklyn’s Eric Gonzalez, who said it will help with local law-enforcement investigations.

“Sunlight is the best disinfectant,” said state Sen. Brad Hoylman-Sigal, a Manhattan Democrat who sponsored the bill. “And we’ve seen examples of money laundering, wage theft, abuses by bad landlords and terrorism that demand full transparency of these entities.”

Opposing the bill are the state Bar Association, The Business Council and the Real Estate Board of New York, which represents major real-estate owners who helped fund Hochul’s campaign. Opponents claim it will lead to privacy concerns and dilute the benefits of LLCs, which are meant to shield company owners from certain personal liabilities.

As it stands, individuals or businesses in New York can form an LLC without having to attach their name to it, usually by having an attorney file the paperwork on their behalf. There are certain exceptions, including a 2019 state law requiring LLCs to list their members when they purchase smaller residential real estate with one to four units.

Starting in February, LLCs and certain other corporate entities will have to reveal their beneficial owners to the federal government under a 2021 federal law known as the Corporate Transparency Act. That information will be filed with the Treasury’s Financial Crimes Enforcement Network, or FinCEN, which will have it on file for law-enforcement purposes but won’t make it available to the public.

The New York bill would require LLCs to provide that same information to the state. From there, the names of the beneficial owners and their business addresses would be added to a public database.

Zach Steinberg, the Real Estate Board of New York’s senior vice president of policy, said his organization isn’t opposed to providing the state with the same information LLCs will have to file with the federal government. But he said it’s crucial that information be kept confidential.

The “legislation passed in New York takes the unnecessary and harmful step of creating a publicly available database which creates privacy and identity theft risks for New Yorkers and risks weakening New York’s economy,” Steinberg said.

Lemon, of the Business Council, said the public database could make it easier to sue the owners of small businesses who chose to organize as an LLC, which is what LLC rules are supposed to prevent.

“When you have this information available to the public, you’re exposing them to a variety of different liabilities,” she said. “New York state, we certainly lead the nation in terms of frivolous lawsuits. And so what would stop someone from not only suing an LLC, but then going after the beneficial owners?”

Hoylman-Sigal pointed to a provision in the bill that would allow certain LLC owners to remain private, such as if they’re in the witness protection program. The bill gives the New York Department of State latitude to decide when to grant privacy exemptions.

Assemblymember Emily Gallagher, a Brooklyn Democrat, sponsored the measure in the Assembly. She said she took interest in the issue even before entering office in 2021, when she attended a rally where tenants spoke about their struggles to figure out who is accountable for code violations in their building.

About 12% of properties in New York City — and 37% in Manhattan — are owned by LLCs, according to an estimate from Reinvent Albany, a good-government organization that supports the bill.

But Gallagher said she soon learned LLC anonymity has caused issues across a broad swath of industries — from LLC-owned nursing homes, to contractors hiding behind anonymity when locked in battles over unpaid wages or injuries on the job.

“Unfortunately, LLCs have become a shortcut to having a business that has very little accountability … when it comes to what they’re doing,” Gallagher said. “So this is something that we are seeing across the spectrum and we have tons of support for our bill because of that.”

Several influential labor unions are also backing the measure, including the 1199SEIU labor union, which represents health care workers.

Dennis Short, a senior policy analyst for 1199, said unmasking corporate entities was “critically important” for workers to get a better understanding of their employers, which often comprise various related companies. .

Short described an Albany-area nursing home that he said started spending less money on patient care and more money on rent to a new LLC owner. He said 1199 later learned the LLC and nursing home operator were owned by the same people.

“The owner of the business bought it and is essentially paying themselves,” Short said.

New York Attorney General Letitia James has sued nursing homes for allegedly engaging in what she termed “collusive related party transactions.”

Supporters of the bill also said the legislation could help bolster another recent piece of legislation intended to prevent deed theft that Hochul signed last week. Speculators who acquire deeds through fraud, deception or outright forgery often shift the properties through multiple LLCs to complicate the chain of title and obscure the true ownership.

Scott Kohanowski, general counsel for the Center for New York City Neighborhoods, said the measure is a step in the right direction but cautioned that the potential penalties — a $250 fine, plus the loss of its liability protections — were too light to deter bad actors who can earn hundreds of thousands of dollars flipping stolen homes. He suggested the state prevent LLCs not in compliance with the proposed rules from filing lawsuits, including eviction cases, or from registering their deeds.

“Stiffen penalties and make the consequences of noncompliance greater,” he said.

So far, Hochul hasn’t tipped her hand on the current version of the bill.

The measure was one of 896 bills approved by both houses of the Legislature this year. Of those, Hochul hasn’t yet signed or vetoed 167 of them — including the LLC measure.

“We literally have meetings every single day for an hour or two — daily, seven days a week — to try and get through nearly 900 bills, 500 of which were passed in about a week-and-a-half at the end of session,” Hochul said earlier this month.

She continued: “All will be known by the stroke of midnight on Dec. 31.”

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