In mid-2016, the “Panama Papers” were leaked to a consortium of news organizations. This cache of 11.5 million documents, leaked from the Panamanian law firm Mossack Fonseca, revealed a web of tens of thousands of shell companies set up in tax havens, most of which were used to conceal assets or avoid taxes. The disclosures included links to over 3,500 known criminals, then-British prime minister David Cameron, other national leaders and — not surprisingly — associates of Vladimir Putin, leading to the resignations of Iceland’s prime ministers and several other prominent government ministers and secretaries. The documents also revealed that the Panamanian firm had set up more than a thousand companies in the United States, mostly limited liability companies in Nevada and Wyoming.
While commentators have remarked that there are so few American names in the Panama Papers, the United States has long been a haven for laundered money and a safe harbor for those looking to park money removed from another country. Just look at the market for high end residential real estate in New York over the past decade.
All of which brings us to New York’s pointless LLC publication requirement. New York requires that any LLC formed in the state must publish notices in two newspapers in the county in which it is formed. These notices, published in one paper weekly and one paper daily for six consecutive weeks, must include the name of the LLC, the date it was formed, the county in which it was formed, where process can be served, the name of any registered agent, the business purpose (if any) of the LLC, and its designated date of dissolution of the LLC (if there is one). Doesn’t this seem to be useful information? LLC’s do not have disclose the members of the company, information which is difficult, if not impossible, for the public to find.
The only penalty for failing to comply with the publication requirement is that the violator cannot file a lawsuit in state court. While New York’s LLC law specifically states that failure to publish on time shall result in a suspension of the LLC’s authority to conduct business in the state, it goes on to specifically state that such a failure “shall not limit or impair the validity of any contract or act of such limited liability company, or any right or remedy of any other party under or by virtue of any contract, act or omission of such limited liability company”. So, in effect, the only detriment for a non-compliant LLC is that it cannot sue in state court.
New York enacted the publication requirement in 1994 when it first authorized the limited liability company form of business. Now the Department of State publishes all of this information — except for the business purpose and dissolution date — on its website for free. There is no valid government purpose for the publication requirement — it is effectively a business tax that props up newspapers. It does not promote transparency, it does not inform the public, and it serves no valid governmental purpose. Tellingly, corporations formed in New York do not have to publish notices of formation. Why should only LLC’s have to incur these hefty publication fees?
The LLC publication requirement serves only to transfer money from business owners to newspapers, adding to New York’s well-deserved reputation as an unfriendly state for businesses. The legislature should eliminate the requirement. Contact your representative.
