California Lawmaker Proposes Disclosure Requirement for Business Owners and Landlords

In an attempt to bring more transparency and accountability to business ownership, California State Senator Maria Elana Durazo is proposing a new bill that would require business owners and landlords to disclose their identities under legislation aimed at cracking down on opaque ownership structures that have enabled some companies to skirt state laws without facing consequences.

Limited liability companies and similar corporations in the United States are already required to register with the Secretary of State and share information including the name of the business, its address and the names of its executives or representatives. However, Senator Durazo's bill would go a step further by requiring these companies to list anyone who owns at least 25% of the company's assets on its registration with the state.

This proposed change would apply to all LLCs and similar corporations regardless of their size. The bill aims to address the lack of crucial information that has allowed people to set up business structures where one company is owned in the name of another, all to shield their identities from the public, government officials, and even law enforcement agencies.

The bill has received support from labor, housing, and environmental groups and it passed a key legislative committee without debate. However, it still requires a second committee vote before reaching the Senate floor.

On the other hand, the legislation faces fierce opposition from several business groups, including those representing landlords. They argue that LLCs already share a lot of information with the government and point out the costs associated with the proposed changes.

Impact in California Industries

Proponents of the bill highlighted the prevalent practice of operating businesses anonymously in many California industries. They cited examples such as the City of Oakland's investigation into a dilapidated building rented out to low-income immigrant families, where it took more than a year to find and successfully sue the landlords who owned more than 130 properties in the city through a network of LLCs and corporations.

Additionally, the bill aims to address cases where employers rely on the practice to dodge labor violations and cheat workers out of their pay. The lack of transparency in corporate ownership has hampered investigations and resulted in delayed justice in various cases, including a wage theft claim filed in San Jose.

The proposed California bill mirrors the federal reporting requirement passed by Congress in 2021, which requires businesses to report owners to an agency called the Financial Crimes Enforcement Network, aiming to cut down on shell corporations and money laundering. However, currently, only law enforcement and government officials — not the public — have access to the information.

Furthermore, New York passed a proposal last December, mirroring the federal legislation to require the disclosure of owners, but the information is only available to some government and law enforcement agencies.

It's worth noting that the federal reporting requirement faced a legal challenge, with a federal court ruling it unconstitutional and exempting over 65,000 members of a small business association in Alabama. The Justice Department is currently appealing the ruling.

As the debate on business ownership transparency continues, California's proposed bill is poised to make significant changes to the disclosure requirements for businesses, potentially setting a new standard for transparency in the state and beyond.