A new state law will impose severe penalties upon newly formed limited liability entities such as limited liability companies, limited partnerships, registered limited liability partnerships, and professional service limited liability companies (referred to collectively here as “LLEs”) that do not comply with New York State’s publication requirements.

New York is one of only a few states that requires LLEs to publish legal notices. Specifically, New York requires publication for six consecutive weeks in two newspapers and filing affidavits of publication with the secretary of state within 120 days of the formation of the LLE.

Some LLEs chose not to comply with the publication requirements because the cost can be high—ranging from $200 in upstate areas to over $2,000 in New York City, excluding legal and filing service fees—and the consequences for noncompliance were not severe. Noncompliance did not impact the validity of contracts or invalidate the formation of the LLE and could easily be rectified at any time.

However, a new law, Chapter 44 of the Laws of 2006 (“Chapter 44”), effective June 1, 2006, has expanded the publication requirements and imposes severe penalties upon LLEs that do not comply with these requirements. The new requirements will impact businesses in two significant ways.

First, Chapter 44 requires the notice be published for six successive weeks in two periodicals, one printed weekly and one printed daily. Publication in the daily newspaper need only be weekly and not appear daily during the six-week publication period. Regardless, the cost of publication in a daily periodical may be significantly greater than the cost of publication in a weekly publication.

Second, Chapter 44 dramatically heightens the consequences for failing to publish within 120 days of formation by suspending the LLE’s “authority to carry on, conduct, or transact business” in New York. The new law does not define what it means to be suspended, although it does make clear that suspension does not limit or impair the validity of the LLE’s contracts or the rights of other parties dealing with the LLE. This uncertainty leaves LLEs in New York exposed to a sufficient level of risk to force businesses to comply with the costly publication requirements.

Chapter 44 impacts LLEs formed after June 1, 2006 and also impacts certain LLEs formed on or after January 1, 1999. LLEs that have not complied with the current publication requirements have a 120-day period after June 1, 2006 in which to come into compliance. LLEs formed prior to June 1, 2006 can become compliant by meeting the publication requirements in effect prior to June 1, 2006.

If an LLE does not come into compliance with the publication requirements within the 120-day period, its authority to carry on, conduct, and transact business in New York will be suspended. An LLE that has been suspended can have the suspension annulled only by complying with the new requirements imposed by Chapter 44. Prudent business owners should ensure that all LLEs formed prior to June 1, 2006, have complied with the proper LLE publication requirements in order to avoid suspension in the future.

Chapter 44 will single-handedly add to the cost of starting and doing business in New York and is likely to disproportionately impact small businesses, which account for a significant percentage of all employment in the state and typically form LLEs because of their favorable tax and corporate characteristics. Businesses are strongly encouraged to consult with their lawyers and carefully analyze these new provisions and consider the impact upon entities they form. The LLE publication requirements, once viewed as a hassle and an unnecessary expense, have suddenly become central to the choice-of-entity decision-making process.

For more information, please contact:

John J. Zak 716.848.1253 jzak@hodgsonruss.com

Robert J. Oliveri 716.848.1244 roliveri@hodgsonruss.com

Bethany J. Gilbert 716.848.1554 bgilbert@hodgsonruss.com