SACRAMENTO, California — A California lawmaker wants to require business owners and landlords to reveal their identities under legislation aimed at cracking down on opaque ownership structures that have allowed some companies to skirt state laws without facing consequences.
Limited liability companies and similar businesses in the United States are often formed to protect a business owner’s personal assets. In California, the world’s fifth-largest economy, such companies are already required to register with the secretary of state and share information including the company’s name, address and the names of its executives or representatives.
But Democratic Sen. Maria Elana Durazo said that’s not enough. She also wants the public to know who the actual owner of the company is. Her bill would require these companies to include anyone who owns at least 25% of the company’s assets when registering with the state. It would apply to all LLCs and similar companies, regardless of size.
Durazo said the lack of that crucial information has allowed people to set up corporate structures where one company owns property in the name of another, all to protect their identities from the public, government officials and even law enforcement agencies. In many cases, local and state officials must spend significant time and resources tracking down the owners before they can sue or cite the company for violating state laws, if they can find them at all.
“Some owners may abuse LLCs to protect not only their assets but also their identities,” Durazo said during a hearing Wednesday. “This is a good governance law.”
With support from labor, housing and environmental groups, her bill cleared a key legislative committee on Wednesday. There was no debate. It will require a second committee vote before it reaches the Senate.
A similar proposal did not survive the legislature’s adjournment last year, a mysterious process in which lawmakers decide — without explanation — whether bills should move forward or not.
The legislation is fiercely opposed by a number of business groups, including landlords. They argue that LLCs already have to share a lot of information with the government, noting that they must disclose ownership to a department of the U.S. Treasury Department by 2025.
They also point out the costs. Last year, the Secretary of State estimated that implementing the new disclosure requirement would cost $9 million, and an additional $3.4 million per year in subsequent years to hire 28 support staff.
“It really doesn’t make sense for us.” said Debra Carlton, a director of the California Apartment Association. “Why should we pass on these costs to the state,” she asked, “when we are already facing financial problems?”
The practice of anonymous business is common in many industries in California, supporters of the bill said. In Oakland, after city officials condemned a dilapidated building rented to low-income immigrant families, the city attorney’s office spent more than a year investigating and sifting through hundreds of city code enforcement records to find the building’s owners , said Suzie Dershowitz. who was working on the case at the time. The city eventually found and successfully sued the landlords, who owned more than 130 properties in the city through a network of LLCs and corporations. The investigation would have taken half a day of work if Durazo’s bill was law at the time, she added.
“As a government agency, I had access to a lot of information,” said Dershowitz, who now works for Public Advocates, an advocacy group sponsoring the bill. “But the lack of transparency about company ownership really hindered our investigation.”
Some employers also rely on this practice to avoid labor violations and cheat workers out of wages, according to employment attorney Ruth Silver-Taube. She pointed to a case in San Jose where a hotel worker was fired for filing a wage theft claim with the state. The state was unable to track down the business owners and had to name 14 different companies, some of which no longer exist, in the lawsuit before the owners agreed to a settlement, she said. The agreement came nine years after the employee first filed the complaint.
“Justice delayed is justice denied,” Silver-Taube said.
By hiding behind an anonymous LLC, the Silicon Valley billionaires managed to shield their identities during a secret $800 million land purchase in rural Northern California, despite years of local scrutiny.
Others have managed to avoid legal consequences and responsibilities entirely through the practice, says Haley Ehlers of the climate watchdog organization Climate First: Replacing Oil. & Gas. The group has for years advocated for the removal of orphaned and unused wells left behind by defunct oil operations. Orphaned wells are often sold to private, faceless shell companies designed to fail to help oil company owners avoid legal responsibility to clean up the site, leaving taxpayers to bear the costs, she said.
“If we had more transparency about the owners, bad actors wouldn’t be able to hide behind a new empty company name,” Ehlers said.
The federal reporting requirement was passed by Congress in 2021. The legislation requires companies to report owners to an agency called the Financial Crimes Enforcement Network, which aims to reduce the number of shell companies and money laundering. But currently, only law enforcement and government officials – and not the public – have access to the information.
A federal court ruled the law unconstitutional and exempted more than 65,000 members of a small business association in Alabama. The Ministry of Justice is now appealing the ruling.
New York also passed a proposal last December that mirrors federal law and would require disclosure from owners, but the information is only available to some government and law enforcement agencies.