- New Publication Requirements for New York Limited Liability Entities
- September 28, 2006
- Law Firm: Duane Morris LLP - Philadelphia Office
Limited liability entities, whether organized in New York or organized in other states and qualified to do business in New York, will face new publication requirements under recently adopted amendments to the New York law governing such entities. Failure to comply with the new publication provisions will result in the suspension of such entity's authority to conduct business in New York. While the new law became effective on June 1, 2006, certain aspects are applicable to entities organized prior to that date.
The new publication provisions cover limited liability companies, limited partnerships, limited liability partnerships and professional service limited liability companies. The provisions apply to both domestic companies (i.e., limited liability entities organized under the laws of New York) as well as foreign companies (i.e., limited liability entities organized under the laws of a state other than New York) that conduct business in New York and therefore have qualified (or are required to qualify) to do business in New York.
A limited liability entity formed after June 1, 2006, generally will have 120 days after the filing of its articles of organization for a domestic entity, or its application for authority in the case of a foreign entity, to publish a notice containing the substance of the articles of organization or application for authority once a week for six consecutive weeks in one daily and one weekly newspaper in the county where the company intends to be located. Proof of publication must be filed by the company with the New York Department of State. While the general requirements to publish a notice and to file proof of such publication are substantially unchanged from the prior law, the amendments contain a new requirement for the limited liability entity to file a certificate of publication that must be accompanied by an affidavit of publication from each newspaper.
Penalty for Failure to Satisfy Publication Requirement
Failure to comply with the publication requirement or to submit the proof of publication within the 120-day period will result in the suspension of the entity's authority to "carry on, conduct, or transact any business" in New York. While a number of commentators criticized the ambiguity of the penalty in the proposed sanctions for failure to publish, the state legislature chose not to clarify it, so it remains unclear what the practical ramifications of a suspension will be, other than barring a suspended entity from maintaining an action in New York courts, which was the sanction for failure to publish under the law prior to the amendment.
Any limited liability entity that has its authority to conduct business in New York suspended due to noncompliance with the publication requirements may have such suspension annulled by filing the certificate and affidavits of publication in substantial compliance with the new provisions.
Interestingly, the amendment provides that suspension "shall not limit or impair the validity of any contract or act of such [limited liability entity], or any right or remedy of any other party under or by virtue of any contract, act or omission of such [limited liability entity], or the right of any other party to maintain any action or special proceeding on any such contract, act or omission, or right of such [limited liability entity] to defend any action or special proceeding in this state, or result in any member, manager or agent of such [limited liability entity] becoming liable for the contractual obligations or other liabilities of the [limited liability entity]." This is noteworthy, as an earlier proposal had provided for the imposition of personal liability on every member for all of the debts, obligations and liabilities of the business entity incurred or arising at any time before or after the entity's failure to comply with the publication requirements in lieu of the suspension of authority to do business. Interestingly, shareholders and officers of New York corporations may not have similar protection, as there is case law in New York that holds an officer-shareholder personally liable for the obligations of a corporation that entered into a contract after the time such corporation was dissolved for failure to pay annual franchise tax, even though the corporation was later reinstated.
Retroactive Effect on Entitles Formed Before June 1, 2006
The new publication requirements also affect entities formed before June 1, 2006, to varying degrees.
- A limited liability entity formed prior to January 1, 1999, is automatically deemed in compliance with the new publication requirements.
- A limited liability entity formed on or after January 1, 1999, but before June 1, 2006, that complied with the then-applicable publication requirements is considered to be in compliance with the new rules and has no new publication requirements.
- A limited liability entity formed on or after January 1, 1999, but prior to June 1, 2006, that did not comply with the then-applicable publication requirements has until January 1, 2007, to cure such noncompliance by the new notice and proof of publication. Failure to cure the noncompliance will subject the limited liability entity to suspension in the same manner and with the same limitations as a limited liability entity formed after June 1, 2006.
Limited liability entities organized or qualified to do business in New York on or after January 1, 1999, may want to review their files to determine if they are in compliance with applicable publication requirements and may want to seek legal counsel to assist in determining if New York Department of State records reflect compliance with the publication requirements and, if they do not, in ensuring compliance with them now in a timely manner.