What Happens if You Ignore New York’s LLC Publication Requirement?
This article has been updated here: All You Need to Know About New York’s LLC Publication Requirement
Our last post about New York’s LLC publication requirement drew some heated comments from small business owners who are frustrated by this anachronistic requirement. Although we advise our clients to comply with the requirement, we know that many do not do so. We decided to investigate whether non-compliance has any practical consequences.
A Brief Refresher
In New York, §206 of the Limited Liability Company Law requires an LLC to publish, within 120 days of its formation, a notice in two general-circulation newspapers (one daily, one weekly) in the county where the LLC was formed. The notice must run once a week for six weeks and include a number of facts concerning the company and its formation. If an LLC doesn’t fulfill the publication requirements, the company’s authority to do business in New York can be suspended. The costs of publication vary widely from county to county, ranging from around $300 in some upstate counties to over $1,600 in New York County (Manhattan).
The LLCs That Have Been “Caught” Haven’t Suffered Any Negative Consequences
In re Equities Capital Corp., is recent bankruptcy case involving the publication requirement. In that case, a foreign LLC (which is subject to publication requirements that are nearly identical to those applicable to New York LLCs) sought to retain a contract deposit after the debtor (Equities Capital) failed to close on a transaction involving an option contract. The debtor argued that the foreign LLC—which did not fulfill the publication requirement within 120 days of qualifying to do business in New York—couldn’t recover for breach of the option contract because: (1) it didn’t have the authority to enter into the option contract in the first place; and (2) therefore couldn’t sue to keep the deposit. The court rejected the debtor’s argument on two grounds.
First, the court noted that §802 of the Limited Liability Company Law (which is substantially identical to §206) explicitly says that the failure to comply with the publication requirement “shall not limit or impair the validity of any contract or act of such . . . limited liability company, or any right or remedy or any other party under or by virtue of any contract, act or omission of such . . . limited liability company.”
Second, the court pointed out that, under the same statute, when an LLC files documentation of its substantial compliance with the publication requirement, the previous suspension of its authority to do business in New York is annulled. Since the debtor complied with the publication requirement after the litigation over the deposit commenced, the suspension was revoked, retroactive to the date the LLC started doing business in New York; in other words, it was as if the suspension had never happened.
A handful of New York state courts have been faced with similar arguments in cases involving New York LLCs, and all have reached the same conclusion. Thus, an LLC that wishes to enforce a contract doesn’t even have to wait until publication is complete to sue for breach of contract: it can cure its failure to publish even after it files a lawsuit.
So, while we can’t advise you to ignore the law, we can tell you that our legal research hasn’t revealed a single case in which an LLC suffered any negative consequences because it failed to comply with the New York LLC publication requirement.
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