Who owns businesses in California? A lawmaker wants the public to know

SACRAMENTO, California – A California lawmaker plans to require business owners and landlords to disclose 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 corporations 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, its address and the names of its officers or representatives.

But Democratic state Sen. Maria Elana Durazo said that’s not enough. She also wants the public to know who really owns the company. Her bill would require these companies to list anyone who owns at least 25% of the company’s assets on their state registration. This would apply to all LLCs and similar businesses, regardless of size.

Durazo said the lack of this crucial information has allowed people to create business structures where one company is owned 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 authorities must spend significant time and resources locating the owners before they can charge or prosecute the company for violating state laws, if they can find them at all.

“Some owners may abuse the LLC to protect not only their assets but also their identities,” Durazo said at a hearing Wednesday. “This is a good governance bill.”

With support from labor, housing and environmental groups, his project was approved by a key legislative committee on Wednesday. There was no debate. A second vote in the committee is necessary before reaching the Senate plenary.

A similar proposal last year did not survive the Legislature’s suspense file, a mysterious process where lawmakers decide — without explanation — whether bills should advance or not.

The legislation faces strong opposition from several business groups, including those representing property owners. They argue that LLCs already must share a lot of information with the government and note that they will be required to disclose ownership to a branch of the U.S. Treasury Department by 2025.

They also point to costs. Last year, the Secretary of State estimated that the new disclosure requirement would cost $9 million to implement and an additional $3.4 million annually in subsequent years to employ 28 support workers.

“It really doesn’t make sense to us.” said Debra Carlton, executive of the California Apartment Association. “Why add these costs to the State,” she asked, “when we are already facing financial challenges?”

The practice of operating businesses anonymously is prevalent in many California industries, the bill’s proponents 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 combing through hundreds of city code enforcement records to find the building’s owners, it said. Suzie Dershowitz, who was working on the case at the time. The city ended up finding and successfully suing the owners, who owned more than 130 properties in the city through a network of LLCs and corporations. The investigation would have taken half a day’s work if Durazo’s bill had been 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 in corporate ownership really hampered our investigation.”

Some employers also rely on the practice to avoid labor violations and cheat workers out of paying their wages, said employment lawyer Ruth Silver-Taube. She pointed to a case in San Jose where a hotel employee was fired from his job for filing a wage theft claim with the state. The state was unable to locate the business owners and had to name 14 different businesses, some of which were defunct, in its lawsuit before the owners agreed to settle, she said. The settlement came nine years after the worker filed the initial complaint.

“Justice delayed is justice denied,” Silver-Taube said.

By hiding behind an anonymous LLC, Silicon Valley billionaires managed to protect their identities in a secret $800 million land-buying spree in rural Northern California, despite years of local scrutiny.

Others have managed to avoid legal ramifications and liabilities through the practice, said Haley Ehlers of the climate watchdog Climate First: Replacing Oil. & Gas. The group spent years advocating for the removal of orphaned and idle wells left behind by defunct oil operations. Orphan wells are often sold to private, anonymous shell companies designed to go bankrupt to help oil company owners escape legal responsibility for cleaning up the site, leaving taxpayers to foot the costs, she said.

“If we had more transparency among owners, bad actors wouldn’t be able to hide behind a new shell 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 shell companies and money laundering. But currently, only law enforcement and government officials – not the public – have access to the information.

A federal court ruled that the law is unconstitutional and exempted more than 65,000 members of an Alabama small business association. The Justice Department is now appealing the decision.

New York last December also approved a proposal that mirrors federal legislation to require disclosure from property owners, but the information is only available to some government and law enforcement agencies.