Bill to Expose LLC Owners Passes New York State Senate
By Mark Hallum June 21, 2023 1:00 pm
reprints
Liability will be significantly less limited for LLCs if this bill passes.
A bill that will require new limited liability companies to disclose the beneficial owner, initial reporting company and tax-exempt company with New York State and the federal government made it past its first real hurdle Tuesday night.
The “LLC Transparency Act,” introduced by Assembly member Emily Gallagher of Brooklyn, was passed by the New York State Assembly and the Senate on June 6 and will now head to Gov. Kathy Hochul for a signature. State Sen. Brad Hoylman sponsored the bill in the Senate.
The bill could remove obstacles from finding out the true owners of buildings for newly created LLCs and create a public database with the information. It can help expose wrong-doers LLCs to avoid accountability and legal repercussions, proponents of the bill said.
“Part of the problem is that the worst actors in New York’s real estate market hide behind anonymity, frequently through the use of anonymous shell companies. When bad actors are allowed to hide, the whole industry takes the blame because the true culprits cannot be identified,” Gallagher said in a statement. “In a system of property ownership dependent on clear public title, we should be able to answer the question ‘who owns what?’ and that was the case for hundreds of years through an inquiry with the county clerk’s office. I’m hoping that this bill is a step towards restoring that important precedent.”
“This bill ensures that unscrupulous contractors are no longer able to hide behind anonymous LLCs, and that publicly searchable databases are set up for those doing business with the state,” New York City District Council of Carpenters’ Joseph Geiger said in a statement. “As the bill heads to Gov. Hochul’s desk, we urge her to stand for fairness, and to remind unscrupulous contractors that nobody can hide from the law.”
A recent lawsuit regarding abuse in the use of LLCs to protect owners from liability came out of one of the more high-profile real estate transactions in recent years: the auction of the Flatiron Building.
In March, Jacob Garlick and his Abraham Trust allegedly created an LLC in order to bid on the historic Manhattan building and drove the price to $190 million in an auction, frustrating the efforts of GFP Real Estate’s Jeff Gural to maintain ownership of the property for him and his partners.
Garlick failed to provide the $19 million deposit within two days, and the building returned to auction. Gural and his partners claimed in a lawsuit that Garlick knowingly bid without having the funds and used an LLC to protect himself from damages.
The bill follows a set of 2021 recommendations from the U.S. Treasury Department that forces the beneficial owners to make their identities known to the public and government agencies would cut off avenues to money laundering, Medicaid fraud and drug trafficking.
Mark Hallum can be reached at mhallum@commercialobserver.com.
