As many of you undoubtedly know, after filing for a New York LLC, you have to fulfill the expensive and wholly unnecessary publication requirement. This means you have to arrange for a notice of the formation in two New York newspapers for six weeks each. People have tried fighting this requirement in court and lost. It is still alive and well. I wrote more about how to actually effect the publication here.
Consequences of Failure to Publish LLC
So you may wonder, what happens if I don’t file the newspaper ads? Is the only issue that I lose the ability to do business in NY?
Yes, if you fail to publish and file the certificate of publication in the required time frame (120 days after formation), the LLC’s authority to carry on, conduct, or transact business in New York will be automatically suspended (see Section 206(a) of the New York Limited Liability Company law). That sounds scary, but what does it actually mean?
What does suspension mean in practical terms?
It is unclear. The law was amended in June of 2006 and the part about “carry on, conduct, or transact business” is new. Would have been a nice gesture by the law makers to leave us some pointers, but no such luck.
At a minimum, this follows from failure to publish:
The LLC will not be able to sue in New York State courts (Federal courts in New York don’t seem to care one way or the other), but can still be sued. But even when non-published LLCs sue, New York courts have allowed them to fulfill the publication requirement and then continue with the law suit. No harm done. There is one case where a complaint by an “unpublished” LLC was actually dismissed: Small Step Day Care, LLC v. Broadway Brunswick Builders.
In order to find out whether an LLC is published or not, one has to order a good standing certificate from the Department of State. You won’t find that information on the online business entity search page.
Failure to Publish does not destroy the liability shield of the LLC or its ability to actually do business
But, you can be sure of the following:
The members (owners) of the LLC will still be protected by the limited liability shield of the LLC.
Any contract between the LLC and any other party does not become invalid, because the LLC failed to publish. You can still technically carry on business.
Can I “cure” the failure to publish at a later point in time (when I saved up enough money)?
Once the LLC takes care of the publication requirement, the law provides that the LLC regains its authority to “carry on, conduct, or transact business in New York.” The suspension is considered “annulled”.