New Law Requires Immediate Action by
Many Limited Liability Entities

By William A. Ubert, Esq.


A change in New York Law requires immediate action by many limited liability companies and limited liability partnerships.  All individuals conducting business as a limited liability entity are urged to contact their legal counsel to discuss the amended law immediately.

Effective June 1, 2006, the publication requirements for foreign and domestic limited liability companies (including PLLC’s), limited partnerships, and limited liability partnerships will change dramatically.  Note that these new requirements apply to foreign limited liability entities (entities formed outside of New York State) conducting business in the State of New York.  On February 3, 2006, New York State Governor Pataki signed into law Senate Bill 85-A (now known as Chapter 767 of 2005) which governs the publication requirements for limited liability entities. 

One of the most controversial changes effected by this change in the law is the requirement that entities disclose the names of the ten persons who are most actively engaged in the business and affairs of the limited liability entity and who have the most valuable membership interests.  The law provides several ways to determine which members hold the most valuable interest but generally the language is vague so as to allow for a degree of interpretation.  While publication of an individual’s name does not affect his or her personal liability yet (see below), it does put the person’s name into the public view and may result in the assertion of baseless personal claims.  Under existing law, limited liability entities are not required to disclose the names of any individuals associated with the entity and are frequently formed by the attorney or someone working with the attorney.

A second and more dramatic change in the law is the penalty for failure to comply with the publication requirements.  Under existing law, failure to publish merely results in an inability to initiate and maintain a lawsuit until publication has been accomplished.  While the existing publication requirement has been viewed as costly and annoying, there were no significant consequences for non-compliance.  As a result, many clients did not feel compelled to suffer the expense of publication unless and until necessary.  It has now become necessary.  The amended law provides that failure to publish within one hundred and twenty (120) days of formation will result in suspension of an entity’s authority to conduct business.  Although the legal significance of such a suspension is not clear, at a minimum, it will become a problem for any attorney to render a clean legal opinion – a requirement for virtually all significant business transactions. 

Scholars and professionals have considered the effects of the suspension of business under the amended law.  Some have gone as far as to speculate that suspension may result in personal liability for all members.  Along these lines, there is a bill pending in Albany that explicitly provides that failure to satisfy the publication requirements strips the limited liability shield from an entity for so long as it is delinquent in its publishing obligation.  How this would work is not at all clear, as the lost protection would be reinstated upon successful publication.  Needless to say, disregarding the publication requirements is no longer a risk worth taking.  

The bill pending in Albany would repeal and amend certain provisions of the recently adopted law but until the bill is adopted, all companies must consider Chapter 767 of 2005 as governing law.  Because of the effects of the amended law and the potential for additional amendments in the very near future, individuals conducting business in New York as a limited liability entity should be in regular contact with legal counsel.

Pre-existing entities that have not satisfied the publication requirements must comply before December 1, 2007.  Note that this retroactive reach of the statute only affects pre-existing entities that did not comply with the old law.  There is no requirement that an entity, which properly published under the existing law, republish in order to satisfy the requirements of the amended law. 

All limited liability entities should review their files to determine if they have satisfied the publication requirements.  Because of certain exceptions in the amended law, all limited liability entities should contact legal counsel to determine the affects of the amended law on their entity and to discuss steps that should be taken.  Quick and thoughtful action now will avoid personal liability and permit for smooth continuity of business. 

William A. Ubert, Esq. is a partner and member of Ruskin Moscou Faltischek’s Corporate and Securities Department.  He can be reached at (516) 663-6514 or wubert@rmfpc.com.