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20 • 2019

An Unintended Consequence of County Shopping to Avoid the High Cost of New York’s LLC Publication Requirement

We have written a number of articles about New York’s so-called “publication requirement.”[1] In essence, the New York Limited Liability Company Law (the “LLC Law”) requires both newly formed domestic limited liability companies and foreign LLCs applying for authority to do business in New York to publish a notice containing certain specified information about the company in two newspapers—one weekly and one daily—“of the county” in which “the office” of the company is located, as designated by the county clerk.[2] The requirement is widely reviled for the significant expense it adds to forming a domestic LLC, or qualifying a foreign LLC to do business, in New York.

There is, however, a wide disparity in the cost of publishing notice, depending what county is involved. In New York County, for example, it may cost between $1,050 and $1,800 for a domestic LLC to publish notice, while a foreign LLC may expect to pay somewhere between $1,700 and $2,800.[3] In Albany County, by contrast, the publication fees charged to a domestic LLC may run from $325 to 375, and only $50 more than that for a foreign LLC.[4]

Not surprisingly, then, some business owners have sought to minimize the high cost of complying with New York’s publication requirement. For example, many companies use a registered agent for service of process[5] that is located in Albany, then, in effect, pretend that they have an office in Albany, so that they can publish notice in Albany County and pay the much lower fees there.[6] But there are two problems with this scheme.

First, its legality is highly questionable. A newly formed domestic LLC must file articles of organization setting forth, among other things, the county in New York “in which the office of the limited liability company is to be located or if the limited liability company shall maintain more than one office in this state, the county in which the principal office of the limited liability company is to be located.”[7] A foreign corporation seeking to do business in New York must similarly file an application for authority stating the county in New York in which “the office” of the LLC is to be located or, if the LLC is going to have more than one office in New York, the county in which the company’s “principal office” is to be located.[8] The provisions of the LLC Law regarding the publication requirement are less clear, stating only that notice must be published in two newspapers of the county in which “the office” of the LLC is located, and that the notice must include the New York county in which “the office” of the LLC is located, as well as the street address of the company’s principal business location.[9] One commentator has read the LLC Law as requiring that a company comply with the publication requirement “in the county in which an office of the LLC is located.”[10] But New York courts have indicated that section 206 of the LLC Law requires LLCs “to publish their articles of organization or comparable specified information for six successive weeks in two local newspapers designated by the clerk of the county where the limited liability company has its principal office.”[11] In other words, notice should be published in the county where the LLC’s principal office is located, which should match the principal office identified in the LLC’s articles of organization or application for authority. If notice is not published properly, then the LLC’s authority to conduct business in New York “shall be suspended.”[12]

Second, publishing in the wrong county may lock the LLC into litigating any lawsuits involving the company in that county. For purposes of establishing venue for actions involving a domestic company, or a foreign company authorized to transact business in New York, the company “shall be deemed a resident of the county in which its principal office is located.”[13] If the LLC designates a particular county as being where its principal office is located in its filings with the New York Secretary of State, then that county constitutes the LLC’s residence for venue purposes, even if the company does not actually maintain an office in that county.[14] So, for example, a company actually located in New York City uses Albany County for the location of its principal office in its organization papers, then publishes notice in Albany County to save some money on publication fees. But if the company gets sued in Albany County, venue is proper there, and the company will have to defend in Albany County, which will likely cost the company more than it saved by satisfying the publication requirement in Albany County rather than in New York County, where the company is actually located. In the end, it simply proves to be a bad idea to avoid the requirements of the publication statute (as misbegotten as they are) by concocting a fake office elsewhere in the state.

[1] See, e.g., Everything You Need to Know about New York’s LLC Publication Requirement.

[2] See N.Y. Ltd. Liab. Co. Law §§ 206(a) (domestic LLC), 802(b)(i) (foreign LLC).

[3] See Infographic: The Insane New York Publication Fee.

[4] See id.

[5] See N.Y. Ltd. Liab. Co. Law § 302(a).

[6] See Matthew J. Moisan, A Look at the Publication Requirement in New York Limited Liability Company Law, 31 Touro L. Rev. 465, 474 (2015). Business owners may justify this scheme to avoid paying higher publication fees by noting that they pay an annual fee to the corporation located in Albany that is acting as their registered agent for service of process, then characterize the fee as rent, “and just like that, the LLC has an office in Albany.” Id.

[7] See N.Y. Lim. Liab. Co. Law § 203(e)(2).

[8] See id. § 802(a)(3).

[9] See id. §§ 206(a), 802(b)(i).

[10] See Moisan, supra note 1, 31 Touro L. Rev. at 474 (emphasis added).

[11] Small Step Day Care, LLC v. Broadway Bushwick Builders, L.P., 137 A.D.3d 1102, 1103, 26 N.Y.S.3d 872, 873 (2d Dep’t 2016) (emphasis added); accord Barklee Realty Co., LLC v. Pataki, 309 A.D.2d 310, 311, 765 N.Y.S.2d 599, 601-02 (1st Dep’t 2003), appeal dismissed, 1 N.Y.3d 622 (2004), appeal denied, 2 N.Y.3d 707 (2004); see also Anthony Q. Fletcher, Publish or Perish: The New York Limited Liability Company Law Publication Requirement the Fundamental Flaw of an Otherwise Flawless Law, 1 N.Y.U. J.L. & Bus. 139, 145 (2004) (“Section 206 contemplates that the county clerk is charged with selecting the two newspapers, one of which must be located in the city or town where the LLC’s principal office is to be located[.]”).

[12] See N.Y. Lim. Liab. Co. Law §§ 206(a), 802(b)(i). The suspension can, however, be annulled by complying with the publication requirement after the fact.

[13] See N.Y. C.P.L.R. § 503(c).

[14] See, e.g., Janis v. Janson Supermarkets LLC, 161 A.D.3d 480, 73 N.Y.S.3d 419 (1st Dep’t 2018); Biaggi & Biaggi v. 175 Med. Vision Props., LLC, 70 A.D.3d 880, 880, 896 N.Y.S.2d 372, 372-73 (2d Dep’t 2010); Shetty v. Volvo Cars of N. Am., LLC, 38 A.D.3d 202, 202-03, 830 N.Y.S.2d 554, 554-55 (2007).