Introduction
On February 3, 2006, New York State enacted Senate Bill No. 85-A (the "Amendment"), which amends publication requirements pertaining to (1) domestic and foreign limited liability companies, (2) domestic and foreign professional service limited liability companies, (3) domestic and foreign limited partnerships and (4) domestic and foreign limited liability partnerships (together, the "Affected Entities").
The Amendment modifies current notice publication requirements and increases the penalties for failing to comply with such new requirements. Of particular significance, the Amendment requires the publication of information regarding the ownership of Affected Entities. However, an exemption will limit the impact of this new provision on those Affected Entities engaged in primarily investment and investment advisory activities.
The effective date of the Amendment is June 1, 2006. Other sources indicate that the Governor and the legislature might amend the Amendment further before it becomes effective. One proposal would replace the suspension penalty discussed below with a new penalty that would strip an Affected Entity of its limited liability status while it is in non-compliance.
The full text of the Amendment can be found at http://www.nationalcorp.com/-pdfs/NY_Chapt_767.pdf.
New Requirements
As of the effective date of the Amendment,Affected Entities will have 120 days after their initial articles of organization are deemed effective to publish certain information and file proof of such publication. Publication must take place over four consecutive weeks in both a daily and a weekly newspaper published in the county where the Affected Entity’s office is located.1
Following such publication, the Affected Entity must file proof of publication, consisting of a certificate of publication, as well as an affidavit of publication from each of the employed newspapers with the New York Department of State. Previously, the statute did not require the Affected Entity to file a certificate of publication.
The Amendment requires Affected Entities to publish the following information in addition to the currently required information:2
- The specific address where the office of the Affected Entity will be located.3
- The names of the 10 persons with the most valuable ownership interests in such entity and who are "actively engaged in the business and affairs" of the entity.
The most valuable ownership interests may be determined on the basis of rights to share in profits and losses, rights to receive distributions or, in the case of a limited liability company, the rights to vote or participate in management. The Amendment does not require republication of such an ownership list if the ownership of interests changes after the first week’s publication.
Exempted Entities
Certain Affected Entities are exempted from the requirement of publishing the 10 most valuable interestholders. These entities include: (1) an investment adviser as defined by the Investment Advisers Act of 1940, (2) a commodity pool operator or a commodity trading adviser as defined by the Commodity Exchange Act or (3) a collective investment vehicle or any direct or indirect subsidiary and affiliates thereof sponsored, advised or managed by an investment adviser, a commodity pool operator or a commodity trading advisor. These Affected Entities will still be subject to the new certification of publication and specific address requirements as well as the new penalties described above.
Grandfather Clause
Affected Entities formed prior to the effective date that are in compliance with the current law are not required to take further action in response to the Amendment.All Affected Entities formed prior to January 1, 1999 shall be deemed to be in compliance with the current law. Affected Entities formed on or after January 1, 1999 but prior to the effective date shall be deemed to be in compliance with the current law if they have filed at least one affidavit of publication of a newspaper with the New York Department of State prior to the effective date.
Those Affected Entities formed prior to the effective date that are not in compliance with the prior law are provided with an 18 month grace period to comply with the Amendment’s new requirements, including the publication of ownership interests before they are subject to the penalties described below.
Penalties
Under the existing statute, failure to comply with the publication requirements prevented an Affected Entity from employing the New York State courts. The Amendment will suspend the authority of an entity to carry on, conduct or transact business in New York.The suspension applies automatically if the entity fails to comply with its publication requirements in the applicable time frame.
Such suspension shall not impair the validity of any contract or act if the Affected Entity or any right or remedy of any other party against the Affected Entity. An Affected Entity may annul a suspension by complying with the four week publication requirement and the filing of the certificate and affidavit of publication with the New York Department of State.
1 The existing law required six weeks of continuous publication.
2 The current requirements include publication of: (1) the name of the entity, (2) the date of the filing of the articles of organization, (3) the county where the entity’s office is located, (4) a statement that the secretary of state has been designated as the entity’s agent upon whom process may be served and the post office address to which the secretary of state shall mail a copy of any process served against the entity, (5) any specific date of dissolution and (6) the character or business of such entity.
3 If a specific address has yet to be determined, the following statement may be included in the published notice,"The street address of the limited liability company’s (or other applicable entity type) office has not yet been determined."
Sidley Austin LLP, a Delaware limited liability partnership, operates in affiliation with other partnerships, including Sidley Austin LLP, an Illinois limited liability partnership, Sidley Austin, an English general partnership (through which the London office operates) and Sidley Austin, a New York general partnership (through which the Hong Kong office operates). The affiliated partnerships are referred to herein collectively as Sidley Austin, Sidley or the firm.
This article has been prepared by Sidley Austin LLP for informational purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Readers should not act upon this without seeking professional counsel.
