Existing law requires a person who is directly or indirectly the beneficial owner of more than 10% of any class of stock of a domestic insurer to file in the office of the Insurance Commissioner within 10 days after that person becomes a beneficial owner a statement, in a form prescribed by the commissioner, of the amount of all stock of that insurer of which the person is the beneficial owner, as specified. The General Corporation Law (GCL) requires a domestic corporation and a foreign corporation to file annually, as prescribed, with the Secretary of State, a statement containing certain information, including the names and complete business or residence addresses of its chief executive officer, secretary, and chief financial officer. The GCL requires a domestic corporation to certify that the information it provides in that statement is true and correct.

This bill would would, by January 1, 2026, additionally require those corporations to include in the statement described above the names and complete business or residence addresses of any beneficial owner, as defined. By expanding the scope of the crime of perjury, this bill would impose a state-mandated local program.

Existing law, the California Revised Uniform Limited Liability Company Act, requires a limited liability company, and a foreign limited liability company registered to transact intrastate business in this state, to file biennially, as specified, with the Secretary of State, a statement containing certain information, including the name and complete business or residence addresses of any manager or managers and the chief executive officer, if any, appointed or elected in accordance with the articles of organization or operating agreement or, if a manager has not been so elected or appointed, the name and business or residence address of each member.

This bill would would, by January 1, 2026 additionally require those limited liability companies to include in the statement described above the name and complete business or residence addresses of any beneficial owner, as defined.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law requires a person who is directly or indirectly the beneficial owner of more than 10% of any class of stock of a domestic insurer to file in the office of the Insurance Commissioner within 10 days after that person becomes a beneficial owner a statement, in a form prescribed by the commissioner, of the amount of all stock of that insurer of which the person is the beneficial owner, as specified. The General Corporation Law (GCL) requires a domestic corporation and a foreign corporation to file annually, as prescribed, with the Secretary of State, a statement containing certain information, including the names and complete business or residence addresses of its chief executive officer, secretary, and chief financial officer. The GCL requires a domestic corporation to certify that the information it provides in that statement is true and correct.

This bill would additionally require those corporations to include in the statement described above the names and complete business or residence addresses of any beneficial owner, as defined. By expanding the scope of the crime of perjury, this bill would impose a state-mandated local program.

Existing law, the California Revised Uniform Limited Liability Company Act, requires a limited liability company, and a foreign limited liability company registered to transact intrastate business in this state, to file biennially, as specified, with the Secretary of State, a statement containing certain information, including the name and complete business or residence addresses of any manager or managers and the chief executive officer, if any, appointed or elected in accordance with the articles of organization or operating agreement or, if a manager has not been so elected or appointed, the name and business or residence address of each member.

This bill would additionally require those limited liability companies to include in the statement described above the name and complete business or residence addresses of any beneficial owner, as defined.

Existing law authorizes an unincorporated association to file with the Secretary of State, on a form prescribed by the Secretary of State, a statement containing either of certain information, including a designation of the location and complete street address of the unincorporated associations principal office in California.

This bill would require a real estate investment trust, as defined, to file with the Secretary of State a statement containing the name and complete business or residence address of any beneficial owner, as defined.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

 THIRD READING  

Bill No: SB 1201

Author: Durazo (D), et al.

Amended: 5/16/24

Vote: 21

SENATE JUDICIARY COMMITTEE: 9-1, 4/2/24

AYES: Umberg, Wilk, Allen, Caballero, Durazo, Laird, Min, Stern, Wahab

NOES: Niello

NO VOTE RECORDED: Ashby

SENATE BANKING & F.I. COMMITTEE: 5-2, 4/17/24

AYES: Limón, Bradford, Caballero, Min, Portantino

NOES: Niello, Nguyen

SENATE APPROPRIATIONS COMMITTEE: 5-2, 5/16/24

AYES: Caballero, Ashby, Becker, Bradford, Wahab

NOES: Jones, Seyarto

SUBJECT: Beneficial owners

SOURCE: Public Advocates

Rise Economy

DIGEST:

This bill requires corporations and domestic and foreign limited liability companies (LLCs), beginning January 1, 2026, to report information about their beneficial owners, as specified, on periodic reports that those business entities are required to file with the Secretary of State and that are made available to the public; and authorizes the Secretary of State to collect additional fees as needed to support the collection of the beneficial ownership information without treating those fees as “additional excess fees” that must be transferred to the General Fund.

ANALYSIS:

Existing federal law:

1. Establishes the Corporate Transparency Act, which requires corporations, LLCs, and other similar entities created under the laws of a state or a foreign country, with certain exceptions, to deliver, within 30 days of their creation and on a biannual basis, a report to FinCEN that:
   1. Identifies each beneficial owner of the company;
   2. Provides, for each beneficial owner, their full legal name, date of birth, residential or business street address, and a unique identification number from specified documents (e.g., a passport number or state-issued identification document) or a FinCEN identifier; and
   3. Includes specified information about the entity, including the jurisdiction under whose laws it is formed and its complete address. (31 U.S.C. § 5336; 31 C.F.R. § 1010.380(a), (b).)
2. Defines, for purposes of 1), “beneficial owner” to mean, with respect to an entity, an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise (a) exercises substantial control over the entity, or (b) owns or controls not less than 25 percent of the ownership interests of the entity. (31 U.S.C. § 5336(a)(3); 31 C.F.R. § 1010.380(d).)
3. Provides that the information submitted under 1) shall be confidential and shall not be disclosed unless FinCEN receives a valid request from an authorized entity for an authorized purpose, including law enforcement conducting investigations or a financial institution conducting legally required due diligence activities. (31 U.S.C. § 5336(c) & 31 C.F.R. § 1010.955(b)-(d).)

Existing state law:

1. Establishes the General Corporation Law, which sets forth rules governing domestic and foreign corporations authorized to do business in California. (See generally Corp. Code, tit. 1, div. 1, §§ 100 et seq.)
2. Requires a corporation incorporated under the laws of this state, or incorporated under the laws of a different jurisdiction and qualified to transact business in this state, to file, within 90 days after the filing of its original articles and annually thereafter, on a form prescribed by the Secretary of State, a statement containing specified information, including:
   1. The name of the corporation and the Secretary of State’s file number.
   2. The names and complete business or residence address of its incumbent directors.
   3. The names and complete business or residence addresses of its chief executive officer, secretary, and chief financial officer.
   4. The street address of its principal executive office, the mailing address (if different from the principal executive office), and, if the principal executive office is not in this state, the street address of its principal business office in this state, if any. (Corp. Code, §§ 1502, 2117.)
3. Establishes the California Revised Uniform Limited Liability Company Act, which sets forth rules governing domestic LLCs and foreign LLCs authorized to do business in this state. (Corp. Code, tit. 2.6, art. 1, §§ 17701.01 et seq.)
4. Requires every domestic LLC and every foreign LLC registered to transact intrastate business in this state to deliver to the Secretary of State for filing, 90 days after filing its original articles of organization or registering to transact business in this state and biannually thereafter, a statement of information including:
   1. The LLC’s name and file number and, for a foreign LLC, the name under which the foreign LLC is authorized to transact intrastate business in the state and the state or other jurisdiction in which it is organized.
   2. The name and street address of the agent designated for service of process.
   3. The street address of the LLC’s principal office and, if any, the street address of its principal office in this state.
   4. The name and complete business or residential addresses (1) of any manager or managers and the chief executive officer, if any, or (2) if no manager has been so elected or appointed, of each member. (Corp. Code, § 17702.09(a).)
5. Provides that, if the statement of information delivered to the Secretary of State under 5) does not contain the information required, the Secretary of State shall promptly return the statement to the reporting LLC for correction. (Corp. Code, § 17702.09(e).)

This bill:

1. Requires a domestic corporation, a foreign corporation, a limited liability company, or a foreign limited liability company to include in specified periodic filings with the Secretary of State the name and complete business or residence address of any beneficial owner.
2. Defines “beneficial owner,” for purposes of 1), as a natural person for whom, directly or indirectly and through any contract arrangement, understanding, relationship, or otherwise, either of the following applies with respect to the business entity:
   1. The person exercises substantial control over the entity.
   2. The person owns 25 percent or more of the equity interest in the entity.
3. Defines “substantial control,” for purposes of 2)(a), to have the same meaning as in Section 1010.380 of Title 31 of the Code of Federal Regulations, which is set forth in Item 3)(b) of the “Existing federal law” section.
4. Provides that 1)-3) shall become operative on January 1, 2026.
5. Requires a limited liability company or a foreign limited liability company to include in specified periodic filings with the Secretary of State the name and complete business or residence address of any manager or managers and the chief executive officer, if any, or, if no manager has been elected or appointed, the name and business or residence address of each member.
6. Provides that the amount of fees collected by the Secretary of State that are increased as a result of the obligations in 1)-3) shall be used to support the Secretary of State’s regulatory activities imposed by those obligations and shall not be considered “additional excess fees” that must be transferred to the General Fund.

Comments

Current law requires certain business entities, including corporations and LLCs, organized under the laws of this state or authorized to transact business in this state to periodically file certain information with the Secretary of State. These filings require only minimal information about an entity’s identity (e.g., where it is located, what it does, etc.) and about the people running the business (the identities of CEOs, managers, and the like). The Secretary of State makes the filings public but does not verify the information contained therein.

This bill adds, for corporations and domestic and foreign LLCs, a requirement that they disclose the names and addresses of their beneficial owners, defined as natural persons who own 25 percent or more of the entity’s equity interest or exercise “substantial control” over the corporation, as defined. The beneficial ownership information would be published by the Secretary of State along with the rest of the information in the entity’s filings. These obligations will take effect on January 1, 2026. The bill also permits the Secretary of State to retain any additional regulatory fees it charges in order to comply with these new obligations, rather than requiring the fees to be transferred to the General Fund at the end of each fiscal year.

At a federal level, Congress recently enacted the Corporate Transparency Act, which requires specified entities, including corporations and LLCs, to provide beneficial ownership information to the U.S. Treasury Department’s Financial Crimes Enforcement Network, with strict confidentiality requirements for the information received. The author and sponsors wish to move beyond the Corporate Transparency Act and give the public information about the actual human beings behind the entities that operate in California. They argue that this bill will be particularly useful for learning the identities of repeat labor violators and the persons buying up real estate for large investment companies under the guise of small local businesses.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

According to the Senate Appropriations Committee, this bill presents the following fiscal impact:

• Unknown, potentially significant costs ranging into the millions of dollars for the SOS to collect and publish the expanded scope of information that business entities will be required to provide.
• Unknown increased fee revenue to be deposited into the SOS’s Business Fees Fund, which may offset the SOS’s administrative costs to some extent.

SUPPORT: (Verified 5/16/24)

Public Advocates (co-source)

Rise Economy (co-source)

AFSCME CA

Alliance of Californians for Community Empowerment

Anti-Eviction Mapping Project

ASIAN, Inc.

Barbara J. Parker, City Attorney, City of Oakland

BASTA, Inc.

Bay Area Business Roundtable

Bay Area Community Land Trust

Bay Area Legal Aid

Berkeley Rent Board

Beverly-Vermont Community Land Trust

CA Community Land Trust Network

California Coalition for Worker Power

California Community Economic Development Association

California Continuing Care Residents Association

California Democratic Renters Council

California Dream Alliance

California Employment Lawyers Association

California Green New Deal Coalition
California Housing Partnership

California Immigrant Policy Center

California Labor Federation

California Latinas for Reproductive Justice

California Low Income Consumer Coalition

California Rural Legal Assistance Foundation

Californians for Safety and Justice

Canal Alliance

Center for Community Advocacy

Central Valley Urban Institute

Centro Legal de la Raza

Climate First: Replacing Oil & Gas

Coalition for Economic Survival

Community Financial Resources

Community Legal Services in East Palo Alto

Community Vision Capital and Consulting

Congregations Organized for Prophetic Engagement

Consumer Advocates Against Reverse Mortgage Abuse

Consumers for Auto Reliability and Safety

Contra Costa Senior Legal Services

Courage California

Disability Rights Education and Defense Fund

East Bay Housing Organizations

East LA Community Corporation

Elder Law and Advocacy

Esperanza Community Housing

Fair Housing Advocates of Northern California

Fair Housing Council of Orange County

Fair Housing Council of the San Fernando Valley

Faith in Action Bay Area

Faith in the Valley

Family Violence Appellate Project

First Unitarian Church of Los Angeles

Fresno Native American & Business Development Center

Genesis LA

Greater Napa Valley Fair Housing Center

Haven Services Inc. dba Haven Neighborhood Services

Housing and Economic Rights Advocates

Housing Equity & Advocacy Resource Team

Housing Land Trust of the North Bay

Housing Now!

Housing Rights Center

Housing Rights Committee of San Francisco

Human Impact Partners

ICA Fund

Inclusive Action for the City

Indivisible CA: StateStrong

Inland Equity Community Land Trust

Inner City Law Center

K3 Tenant Council

KIWA

LA Forward

Latino Health Access

Legal Aid at Work

Legal Aid Foundation of Los Angeles

Legal Aid of Marin

Legal Aid of Sonoma County

Logan Heights CDC

Long Beach Forward

Los Angeles Alliance for a New Economy

Low Income Investment

LTSC Community Development Corporation

Mara W. Elliott, City Attorney, City of San Diego

MH Action

Microenterprise Collaborative of Inland Southern California

Montebello Housing Development Corporation

Monterey County Renters United

Mt. Tam Community Land Trust

Multicultural Real Estate Alliance for Urban Change

National Council of Jewish Women Los Angeles

National Housing Law Project

Natural Resources Defense Council

Neighborhood Housing Services of Los Angeles County

North Bay Organizing Project

PICO California

PolicyLink

Pomona United for Stable Housing (PUSH)

Power CA Action

PowerSwitch Action

Public Council

Public Interest Law Project

Renaissance Entrepreneurship Center

Sacramento Environmental Justice Coalition

Sacramento Homeless Union

Sacramento Tenants Union

Salinas/Monterey County Homeless Union

San Diego Tenants Union

San Francisco Community Land Trust

Santa Clara County Wage Theft Coalition

SEIU California

Social Justice Learning Institute

Sonoma County Tenants Union

Strategic Actions for a Just Economy (SAJE)

Sustainable Economies Law Center

T.R.U.S.T. South LA

TechEquity Collaborative

T.R.U.S.T. South LA

Tenants Together

Tenderloin Housing Clinic

Thai Community Development Center

The Academy of Financial Education

The Central Valley Urban Institute

The Children’s Partnership

The Sidewalk Project

Transparency International U.S.

UC Berkeley Department of City & Regional Planning

UFCW Western States Council

UNITE HERE! Local 11

Uplift San Bernardino at the Making Hope Happen Foundation

Urban Habitat

Ventura County Community Development Corporation

Warehouse Worker Resource Center

Western Center on Law and Poverty

Working Partnerships USA

Worksafe

OPPOSITION: (Verified 5/16/24)

Building Owners and Managers Association of California

California Apartment Association

California Association of Realtors

California Building Properties Association

California Chamber of Commerce

Institute of Real Estate Management

NAIOP of California

ARGUMENTS IN SUPPORT: According to a coalition of the sponsors and over 130 other organizations:

The ability to abuse LLCs to maintain anonymity enables unscrupulous and, in some cases, illegal practices. For instance, layers of anonymous LLCs are widespread among employers that skirt worker protection laws. These employers use LLCs to avoid responsibility for underpaying workers, violating meal and rest break rules, and ignoring occupational health and safety regulations. When a business is found responsible for violations, the owners dissolve the LLC and create a new one, leaving nobody to pay back wages or address safety issues. In addition, the lack of owner transparency makes it harder to remedy substandard housing. Property owners hide behind LLCs to avoid accountability, leaving tenants in unsafe conditions. It can take years for enforcement entities to connect the dots to show that a single person is responsible for repeated violations across multiple LLCs, allowing abuses to continue largely unimpeded.

The use of anonymous LLCs also hides the extent to which California’s housing stock is increasingly concentrated in the hands of large corporations. These sophisticated entities use numerous LLCs to create the impression that they are small “mom and pop” investors when in fact they own hundreds, if not thousands, of units. They aggressively outbid families and true small landlords, crowding out first-time homebuyers and limiting wealth-building opportunities in many California communities.

ARGUMENTS IN OPPOSITION: According to the coalition of opponents:

There is no rational reason to mandate disclosure of a “beneficial owner(s).” Corporations and limited liability companies already file with the federal government and with Secretary of State an extensive amount of information. Those filings provide everything that the general public needs to know about the entity in order to send notices or file lawsuits against them. The bill appears to be a veiled attempt to provide contact information for owners already legally reporting and doing business in the state without any rational reason given as to how this information is valuable to the public.

At a time when California is grappling with an enormous budget deficit, SB 1201 will cost the state additional dollars to update the filing requirements mandated by the bill. Notably, last year’s equivalent bill (SB 594) had estimated general fund costs of approximately $9 million in the first year of implementation, with ongoing costs of around $3 million in subsequent years for necessary staff positions. Considering today’s economic climate, this would not be a prudent use of state funds.

Prepared by: Allison Whitt Meredith / JUD. / (916) 651-4113

5/19/24 8:59:59

**** END ****

SENATE COMMITTEE ON

Senator Anna Caballero, Chair

2023 - 2024 Regular Session

SB 1201 (Durazo) - Beneficial owners

Bill Summary:

SB 1201 requires corporations, limited liability companies (LLCs), and real estate investment trusts to report information about their beneficial owners, as specified, on periodic reports that those business entities are required to file with the Secretary of State (SOS) and that are made available to the public.

*********** ANALYSIS ADDENDUM – SUSPENSE FILE ***********

The following information is revised to reflect amendments

adopted by the committee on May 16, 2024

Fiscal Impact:

• Unknown, potentially significant costs ranging into the millions of dollars for the SOS to collect and publish the expanded scope of information that business entities will be required to provide.
• Unknown increased fee revenue to be deposited into the SOS’s Business Fees Fund, which may offset the SOS’s administrative costs to some extent.

Author Amendments:

• Provide a one year delayed implementation.
• Strike real estate investment trust provisions.
• Authorize the SOS to increase specified fees by regulation.
• Add coauthors.

-- END --

SENATE COMMITTEE ON

Senator Anna Caballero, Chair

2023 - 2024 Regular Session

SB 1201 (Durazo) - Beneficial owners

Bill Summary:

SB 1201 requires corporations, limited liability companies (LLCs), and real estate investment trusts to report information about their beneficial owners, as specified, on periodic reports that those business entities are required to file with the Secretary of State (SOS) and that are made available to the public.

Fiscal Impact:

The SOS reports the following significant costs to collect and publish, in on online database, the expanded scope of information that business entities will be required to provide:

• Total cost of approximately $9,281,602 General Fund in the first year of implementation broken down as follows:
  • IT project costs: $3,000,000
  • One-time facility costs: $766,800
  • Printing costs: $534,339
  • Mailing costs: $2,142,513
  • 24 additional positions, multiple classifications: $2,837,950
• Ongoing costs of $2,990,587 for printing and mailing costs, as well as 24 staff positions.

Background:

California, and all other states, offer natural persons (i.e., living human beings) the ability to organize their business activities under separate legal entities – the corporation and the LLC being two entity types. Generally, a person may establish a corporation or LLC under the laws of any state by filing the required paperwork, irrespective of the business’s physical location(s) or the state(s) of residence of the business owners. For example, this means that a business that is 100% owned by California residents, that has physical locations only in California, and that conducts all of its business activities within California may choose another state to incorporate its business.

Corporations and LLCs that transact business within California are required to provide periodic statements with specified information to the SOS, whether the business is organized under California law (i.e., a domestic corporation or limited liability company) or under the laws of another state or jurisdiction (i.e., a foreign corporation or foreign limited liability company). The information required to be disclosed in these statements is meager, including, but not limited to, the name and address of the business, the names and business or residence addresses of key personnel, and the general type of business that constitutes the principal business activity of the corporation or LLC, such as, for example, manufacturer of aircraft, wholesale liquor distributor, or retail department store. After being filed with the SOS, these statements are made publicly available through a free online database.

Neither in the initial articles of incorporation or articles of organization of an LLC, nor in the subsequent statements described in the preceding paragraph, is a business required to disclose the identities of its beneficial owners. The term “beneficial owner” does not have a common definition across various contexts or laws, but the concept is used to describe the true owner of an asset that is under a different legal name. The lack of information about a business’s beneficial owner(s) can obfuscate the relationship between property ownership, business-related liabilities, and natural persons.

Proposed Law:

• Requires a domestic corporation, a foreign corporation, a limited liability company, a foreign limited liability company, or a real estate investment trust to include in specified periodic filings with the Secretary of State the name and complete business or residence address of any beneficial owner.
• Defines “beneficial owner” as a natural person for whom, directly or indirectly and through any contract arrangement, understanding, relationship, or otherwise, either of the following applies with respect to the business entity:
  • The person exercises substantial control, as defined in a specified federal regulation, over the entity.
  • The person owns 25 percent or more of the equity interest of an entity.

Related Legislation:

SB 594 (Durazo, 2023) was identical to this bill. SB 594 was held on the Suspense File in this committee.

Staff Comments:

While SOS did not provide context for their anticipated costs at the time of this analysis, the SOS previously noted implementation concerns for SB 594 to review, investigate, and verify the veracity of information related to beneficial owners within existing budgetary resources and legal authorities as well as modify its existing online filing systems. To the extent that these challenges remain and impact the SOS’s ability to implement the requirements of this bill, there may be associated fiscal impacts that affect the SOS’s staff resource needs and operating costs.

-- END --

SENATE COMMITTEE ON

BANKING AND FINANCIAL INSTITUTIONS

Senator Monique Limón, Chair

2023 - 2024 Regular

Bill No: SB 1201 Hearing Date: April 17, 2024

Subject: Beneficial owners

SUMMARY

This bill requires corporations, limited liability companies, and real estate investment trusts to report information about their beneficial owners, as specified, on periodic reports that those business entities are required to file with the Secretary of State and that are made available to the public.

EXISTING FEDERAL LAW

1. Provides the Corporate Transparency Act (CTA) which establishes uniform beneficial ownership information reporting requirements for certain types of corporations, limited liability companies, and other similar entities created in or registered to do business in the United States. Authorizes FinCEN to collect that information and disclose it to authorized government authorities and financial institutions, subject to effective safeguards and control. (31 U.S.C. Section 5336)
2. Provides implementing regulations of the CTA that:
   1. Require certain entities to file with FinCEN reports that identify two categories of individuals: the beneficial owners of the entity and individuals who have filed an application with specified governmental authorities to create the entity or register it to do business. The regulations describe who must file a report, what information must be provided, and when a report is due. These requirements are intended to help prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity, while minimizing the burden on entities doing business in the United States.
   2. Prescribe the circumstances under which beneficial ownership information reported to FinCEN may be disclosed to authorized recipients and how it must be protected. Pursuant to the CTA, authorized recipients include Federal agencies engaged in national security, intelligence, or law enforcement activity; State, local, and Tribal law enforcement agencies with court authorization; foreign law enforcement agencies, judges, prosecutors, and other authorities that meet specific criteria; financial institutions with customer due diligence requirements and regulators supervising them for compliance with such requirements; and U.S. Department of the Treasury officers and employees. Each category of authorized recipients is subject to security and confidentiality protocols aligned with applicable access and use provisions. (31 CFR 1010)

EXISTING STATE LAW

1. Provides the following definitions, among others:
   1. “Domestic corporation” means a corporation formed under the laws of this state. (Corporations Code Section 167)
   2. “Foreign corporation” means any corporation other than a domestic corporation. (Corporations Code Section 171)
   3. “Foreign limited liability company” means an unincorporated entity formed under the law of a jurisdiction other than this state and denominated by that law as a limited liability company. (Corporations Code Section 17701.02(j))
   4. “Limited liability company” means a domestic entity formed under the California Revised Uniform Limited Liability Company Act. (Corporations Code Section 17701.02(k))
   5. “Real estate investment trust” means an unincorporated association or trust formed to engage in business and managed by, or under the direction of, one or more trustees for the benefit of the holders or owners of transferable shared of beneficial interest in the trust estate and that meets specified criteria related to doing business as a real estate investment trust under the Corporate Securities Law of 1968.
2. Provides incorporation requirements for domestic corporations and registration requirements for foreign corporations under the General Corporation Law, administered by the Secretary of State. (Title 1, Division 1, commencing with Section 100 et seq. of the Corporations Code)
3. Provides organization requirements for limited liability companies and registration requirements for foreign limited liability companies, administered by the Secretary of State. (Title 2.6, commencing with Section 17701.01 et seq. of the Corporations Code)
4. Requires a domestic corporation to file, within 90 days after the filing of its original articles and annually thereafter during the applicable filing period, on a form prescribed by the Secretary of State, a statement containing specified information, including, but not limited to, the following:
   1. The name of the corporation and the Secretary of State’s file number.
   2. The names and complete business or residence addresses of its incumbent directors.
   3. The names and complete business or residence addresses of its chief executive officer, secretary, and chief financial officer.
   4. The street address of its principal executive office. (Corporations Code Section 1502)
5. Requires a foreign corporation qualified to transact intrastate business to file, within 90 days after its original statement and designation of foreign corporation and annually thereafter during the applicable filing period, on a form prescribed by the Secretary of State, a statement containing specified information, including, but not limited to, the following:
   1. The name of the corporation as registered in California and the Secretary of State’s file number.
   2. The names and complete business or residence addresses of its chief executive officer, secretary, and chief financial officer.
   3. The street address of its principal executive office. (Corporations Code Section 2117)
6. Requires a limited liability company or a foreign limited liability company to file, within 90 days after the filing of its original articles of organization or registering to transact intrastate business and biennially thereafter, on a form prescribed by the Secretary of State, a statement containing specified information, including, but not limited to, the following:
   1. The name of the limited liability company and the Secretary of State’s file number and, in the case of a foreign limited liability company, the name under which the foreign limited liability company is authorized to transact intrastate business in this state and the state or other jurisdiction under the laws of which it is organized.
   2. The street address of its principal office, as specified.
   3. The name and complete business or residence addresses of any manager or managers and the chief executive officer, if any, appointed or elected in accordance with the articles of organization or operating agreement or, if no manager has been so elected or appointed, the name and business or residence address of each member. (Corporations Code Section 17702.09)
7. Authorizes an unincorporated association to file a statement with the Secretary of State containing information about the address of the unincorporated association’s principal office and the unincorporated association’s agent of process. The statement expires five years from December 31 following the date it was filed, unless previously superseded by the filing of a new statement.

THIS BILL

1. Requires a domestic corporation, a foreign corporation, a limited liability company, a foreign limited liability company, or a real estate investment trust to include in specified periodic filings with the Secretary of State the name and complete business or residence address of any beneficial owner.
2. Defines “beneficial owner” as a natural person for whom, directly or indirectly and through any contract arrangement, understanding, relationship, or otherwise, either of the following applies with respect to the business entity:
   1. The person exercises substantial control, as defined in a specified federal regulation, over the entity.
   2. The person owns 25 percent or more of the equity interest of an entity.

COMMENTS

1. PURPOSE

According to the author:

SB 1201 will establish transparency in the ownership of limited liability companies (LLCs) and similar corporate entities by requiring each entity to disclose the name of each person with substantial control over the entity both upon creation and upon submitting their required biennial business filings.

Without owner transparency, policymakers, enforcement agencies, and the public lack critical information. The lack of public transparency allows continued patterns of abuse among those who deliberately shield their activities from public scrutiny behind a wall of LLCs, frustrates attempts to ensure accountability, and makes it challenging to make informed policy decisions.

1. BACKGROUND

This bill is substantially similar to SB 594 (Durazo) of this legislative session. Last year, SB 594 passed out of this committee on a 5-2 vote but was later held on the Senate Appropriation Committee suspense file. Compared to the analysis provided for SB 594, this analysis adds updates reflecting the author’s removal of a provision requiring information be provided for every member of an LLC, a summary of the federal government’s progress in implementing the Corporate Transparency Act, and a comparison of this bill and recent legislation enacted by the state of New York related to beneficial owners of LLCs.

California, and all other states, offer natural persons (i.e., living human beings) the ability to organize their business activities under separate legal entities – the corporation and the limited liability company (LLC) being the two entity types that are the focus of this bill.^[1] Generally, a person may establish a corporation or LLC under the laws of any state by filing the required paperwork, irrespective of the business’s physical location(s) or the state(s) of residence of the business owners. For example, this means that a business that is 100% owned by California residents, that has physical locations only in California, and that conducts all of its business activities within California may choose another state, like Delaware, to incorporate its business.^[2]

Corporations and LLCs that transact business within California are required to provide periodic statements with specified information to the Secretary of State (SOS), whether the business is organized under California law (i.e., a domestic corporation or limited liability company) or under the laws of another state or jurisdiction (i.e., a foreign corporation or foreign limited liability company). The information required to be disclosed in these statements is meager, including, but not limited to, the name and address of the business, the names and business or residence addresses of key personnel, and the general type of business that constitutes the principal business activity of the corporation or LLC, such as, for example, manufacturer of aircraft, wholesale liquor distributor, or retail department store. After being filed with the SOS, these statements are made publicly available through a free online database.

Neither in the initial articles of incorporation or articles of organization of an LLC, nor in the subsequent statements described in the preceding paragraph, is a business required to disclose the identities of its beneficial owners. The term “beneficial owner” does not have a common definition across various contexts or laws, but the concept is used to describe the true owner of an asset that is held under a different legal name. The lack of information about a business’s beneficial owner(s) can obfuscate the relationship between property ownership, business-related liabilities, and natural persons. For example, Bob is the single member of Plain Vanilla LLC that owns real property located at 123 Main Street. While the deed to the property shows the owner to be Plain Vanilla LLC, the beneficial owner – the natural person who receives the benefit of owning 123 Main Street – is Bob. Under current California law, Bob can legally structure Plain Vanilla LLC and file all associated paperwork with the SOS without revealing to the public that Bob is the beneficial owner of Plain Vanilla LLC, thus disassociating himself in the public eye from any assets or liabilities of Plain Vanilla LLC.

1. OVERVIEW OF THE FEDERAL CORPORATE TRANSPARENCY ACT

Federal lawmakers recently passed legislation requiring the reporting of beneficial owner information by business entities nationwide. In early 2021, Congress passed the Corporate Transparency Act (CTA), enacted into law as part of the National Defense Authorization Act for Fiscal Year 2021.^[3] The CTA establishes uniform beneficial ownership information (BOI) reporting requirements for certain types of corporations, limited liability companies, and other similar entities created in or registered to do business in the United States. The law will primarily be implemented by FinCEN, a bureau of U.S. Treasury that collects and analyzes information about financial transactions in order to combat domestic and international money laundering, terrorist financing, and other financial crime. The law authorizes FinCEN to collect beneficial ownership information and disclose it to authorized government authorities and financial institutions, subject to effective safeguards and control.

FinCEN is in the process of implementing the CTA through three rulemakings. The first rulemaking covers reporting provisions, including who must file a BOI report, what information must be reported, and when a report is due. This first rulemaking was finalized in September 2022. The second rulemaking covers who can access the BOI information, including the terms of access by government officials, banks, and others to confidential BOI data, and discusses aspects of the secure IT system that FinCEN is building to store BOI and manage disclosures and its legal safeguards. The second rulemaking was finalized in Decebmer 2023. The third rule will revise FinCEN’s customer due diligence rule to update financial institutions’ responsibilities that are enhanced by the CTA.

In enacting the law, Congress stated its rationale for requiring the disclosure and collection of beneficial ownership information by first recognizing that more than 2 million corporations and LLCs are created every year under the laws of the states and that “most or all States do not require information about the beneficial owners” of these businesses. Congress went on to describe the problematic consequence of such anonymity:

[M]align actors seek to conceal their ownership of corporations, limited liability companies, or other similar entities in the United States to facilitate illicit activity, including money laundering, the financing of terrorism, proliferation financing, serious tax fraud, human and drug trafficking, counterfeiting, piracy, securities fraud, financial fraud, and acts of foreign corruption, harming the national security interests of the United States and allies of the United States.

[M]oney launderers and others involved in commercial activity intentionally conduct transactions through corporate structures in order to evade detection, and may layer such structures, much like Russian nesting ‘‘Matryoshka’’ dolls, across various secretive jurisdictions such that each time an investigator obtains ownership records for a domestic or foreign entity, the newly identified entity is yet another corporate entity, necessitating a repeat of the same process.^[4]

In crafting the CTA, Congress acknowledged that BOI collected under the act “is sensitive information and will be directly available only to authorized government authorities, subject to effective safeguards and controls” and requires the data be stored “using information security methods and techniques that are appropriate to protect nonclassified information systems at the highest security level.”^[5]

Pursuant to the CTA, FinCEN will make BOI available to state, local, and tribal law enforcement agencies if a court of competent jurisdiction has authorized the law enforcement agency to seek the information in a criminal or civil investigation. The specifics of how this provision will be implemented are provided by the second rulemaking that was finalized in December 2023. The rule provides that these law enforcement agencies must certify that a court of competent jurisdiction has authorized the agency to seek the information in a criminal or civil investigation and that the requested information is relevant to the criminal or civil investigation. Such users must also provide a description of the information the court has authorized the agency to seek. FinCEN will take a phased approach to providing access to the beneficial information IT system, with certain federal agencies gaining access in earlier phases, while state and local agencies will be required to wait for subsequent stages of the rollout.

On March 1, 2024, a U.S. District Court judge in Alabama issued an opinion declaring the CTA unconstitutional.^[6] The judge enjoined the federal government from enforcing the CTA against the prevailing plaintiffs in that case, which includes the 65,000 members of the National Small Business Association. The federal government has appealed the decision and will continue implementing the law with regards to businesses that are not covered by the injunction. Notably, the court’s decision does not cover any state laws, such as a CTA-inspired law recently enacted by the state of New York.

1. NEW YORK LLC TRANSPARENCY ACT

Last year, New York became the first state to enact beneficial ownership requirements modeled after the federal CTA. The New York LLC Transparency Act (NYLTA) was recently amended to reflect the terms of an agreement between the governor and legislature, a condition that secured the governor’s signature on the 2023 legislation. While somewhat similar in spirit to this bill, the New York law differs in the following significant ways:

• Stated intent: Similar to the federal CTA, the NYLTA was enacted primarily to decrease the use of LLCs for financial crimes, such as tax evasion, money laundering, and other unlawful activities. The stated intents for this bill, as discussed in the following comment, are related to more effective private and public enforcement of housing and labor laws, as well as publicly revealing data about ownership of real property.
• Privacy: Similar to the federal CTA, the NYLTA aims to keep private all beneficial owner information, releasing information only for specified government and law enforcement purposes. This bill would make public the names and addresses of all beneficial owners.
• Scope: The NYLTA covers LLCs organized under or qualified to do business in New York, but notably exempts large operating companies with at least 20 employees and $5 million of revenue. This bill covers corporations and LLCs incorporated, organized, or otherwise qualified to do business in this state.
• Enforcement: The NYLTA provides monetary penalties for non-compliance and provides the attorney general with authority to bring an action to dissolve or cancel an LLC if an LLC does not comply with the law or knowingly provides false or fraudulent beneficial owner information. This bill provides no enforcement mechanisms.

1. MOTIVATION FOR THIS BILL

In spite of the ongoing implementation of the CTA, the author and sponsors bring this bill forward primarily to ensure that certain beneficial ownership information is made publicly available, rather than limited to specified government authorities and financial institutions as required by the CTA. To that end, this bill requires the name and business or residence address of the following persons to be disclosed by any corporation or LLC that conducts business in California and made publicly available by the Secretary of State:

• 1. Any person who exercises substantial control over a corporation or LLC. The definition of “substantial control” relies on that definition in the regulations implementing the federal Corporate Transparency Act, which covers senior officers, persons with authority of the appointment or removal of a senior officer or a majority of the board of directors, and persons who direct, determine, or have substantial influence over important decisions of the company.
  2. Any person who owns 25% or more of the equity interest of a corporation or LLC.

The author’s office cites the following justifications for requiring the disclosure of such information and making that information available to the public via an online database:

The use of anonymous LLCs hides the extent to which California’s housing stock is increasingly concentrated in the hands of large corporations. These sophisticated entities use numerous LLCs to create the impression that they are small mom and pop investors when in fact they own hundreds, if not thousands of units. They aggressively outbid families and true small landlords, crowding out first-time homebuyers and limiting wealth-building opportunities in many California communities.

Layers of anonymous LLCs are widespread among employers that skirt laws meant to protect workers. Owners can use LLCs to circumvent local cost thresholds beyond which a project must use a project labor agreement (PLA) in order to avoid paying their workers higher wages. Employers can also use LLCs to avoid responsibility for underpaying workers, violating meal and rest break rules, and ignoring occupational health and safety regulations. By the time a business is found responsible for violations, the owners have dissolved the LLC and created a new one, leaving nobody to pay back wages or address safety issues. It can take years for justice departments and labor representatives to connect the dots to show that a single person is responsible for repeated violations, allowing abuses to continue largely unimpeded. This makes compliance extremely difficult, allowing for more unenforceable wage theft.

The lack of owner transparency also provides an avenue to skirt responsibility for substandard housing. Property owners hide behind LLCs to avoid accountability, leaving tenants living in unsafe conditions. When local enforcement agencies close in, they simply switch LLCs, creating substantial delays in the ability of regulators to compel repairs.

1. IMPLEMENTATION CHALLENGES

This bill faces substantial implementation challenges in achieving the author’s intended outcomes. The most significant implementation challenge is the inability of the Secretary of State’s Office (SOS) to review, investigate, and verify information related to beneficial owners with existing budgetary resources and legal authorities. This bill does not require the SOS to conduct any investigations or audits related to this information, nor does the bill provide any enforcement mechanisms, such as fines or penalties, to incentivize compliance by businesses required to file statements. Even without any such limitations, there is no independent source of information or verification process by which the SOS could determine the beneficial ownership of any entity. Without mechanisms to ensure the adequacy and completeness of the beneficial ownership information provided by the filing entity, there is significant risk of the information being incorrect and misleading. Given these constraints, no person, including law enforcement officials, could reasonably rely on the information provided on these statements. The Secretary of State’s primary duty is to ensure that business formation documents are filed according to procedures set forth in statute and does not have authority or resources to conduct investigation or enforcement after a business filing is processed.

Another significant, but more surmountable, implementation concern is related to updating state IT systems. The SOS receives 1.6 million filings annually related to business entities.^[7] To process and store these filings, the SOS recently finished an 11-year project called California Business Connect (CBC), which transformed business filings processes from a paper-based system to a digital and online system, at a cost of more than $70 million since FY2016-17. The new information required by this bill to be disclosed in periodic statements would likely require costly modifications to the online filing systems created by CBC that may take years to implement.

Another implementation concern is the ability of sophisticated corporate structures to undermine the intent of this bill. One of the author’s stated motivations is to reveal “the extent to which California’s housing stock is increasingly concentrated in the hands of large corporations.” A common way for large entities to purchase real estate is to form an LLC that purchases and holds the deed to a small number of properties. Multiplying this strategy across its portfolio, a large investor could, for example, create many distinct LLCs, each holding a few properties. A corporate parent entity could then layer additional, out-of-state LLCs between itself and the LLCs that hold the properties. These out-of-state LLCs would not be required to report information to the California Secretary of State, which breaks the reporting chain that this bill hopes to create and keeps the ownership interests of the parent corporation out of the public eye.

1. POLICY QUESTIONS RAISED BY THIS BILL

The primary policy question raised by this bill is whether a person’s right to privacy – in this case, their interests in keeping their ownership of property or businesses out of the public eye – outweighs the potential public benefits of making such information public. This Committee and the author may consider the following questions and associated context as the bill is deliberated:

• 1. If beneficial ownership and LLC membership must be disclosed to the SOS, should that information be redacted in filings that are available to the public? – Instead of making information publicly available, this bill could require that beneficial ownership information and LLC membership be reported to the SOS and made available only to state and local law enforcement engaged in criminal or civil investigations. This approach would align more closely with federal policy under the Corporate Transparency Act, similar policy recently adopted by the state of New York, and would mitigate privacy concerns. In consideration of the author’s intent to enhance certain law enforcement efforts, access to the information could be extended to administrative enforcement of local ordinances, such as building code enforcement, and to private attorneys pursuing cases related to labor law violations or tenant protections, upon a proper showing of harm and a reasonable basis for requesting the information.
  2. Are there policy alternatives to improve state and local governments’ effectiveness in the enforcement of existing laws? – The author raises concerns of enforcement challenges related to people who violate labor and housing laws, but it is unclear how this bill will surmount those challenges or if alternative policies would be more effective. Compelling a business entity to disclose information about its beneficial owners or members should already be discoverable in a court action or law enforcement investigation, making it unclear how this bill solves enforcement problems. Furthermore, if local ordinances are not structured to effectively hold scofflaws accountable for their actions, the more direct policy solution may be to amend and strengthen those local ordinances.
  3. How valuable is the desired information related to institutional ownership of residential real estate? – A stated goal of the author is to reveal corporate ownership of residential property. Institutional ownership of residential real estate has attracted ire from the public, especially in the aftermath of the Great Financial Crisis.^[8] But the effects of institutional ownership on outcomes for tenants, existing homeowners, prospective homeowners, communities, and the housing stock are not conclusive in determining that institutional ownership is a net positive or net negative for society.^[9] While the effects of institutional ownership are not agreed upon, researchers widely agree that institutional investors own a small share of the total housing stock, likely in the low single-digit percentages. Additionally, analysis by the National Association of Realtors finds that institutional buyers comprised 9% of California home purchases in 2021, materially below the national average of 13%.^[10] Given the information already available about institutional ownership of residential real estate, it is unclear how much benefit could be gleaned from the reporting required by this bill, especially in light of the implementation challenges discussed in Comment #6.

1. ARGUMENTS IN SUPPORT

Rise Economy and Public Advocates write, as sponsors:

Existing law allows for the creation of LLCs and other similar entities to provide legal protection for assets not owned by the LLC. This structure can, for example, protect an owner’s family home from liquidation during a business bankruptcy. However, some owners abuse LLCs to shield not only their assets, but also their identities. Compounding the issue, many LLCs are owned in the name of another LLC, creating additional layers of anonymity. None of this is necessary to achieve the legal and financial protection afforded by forming an LLC…

Without owner transparency, policymakers, enforcement agencies, and the public lack critical information. The lack of accessible ownership information allows continued patterns of abuse among those who deliberately shield their activities from public scrutiny behind a wall of LLCs, frustrates attempts to ensure accountability, and makes it challenging to make informed policy decisions that are responsive to the changing needs of Californians. SB 1201 would make it easier to enforce existing laws to protect the people who live and work in our communities across the state, increase government efficiency, and ultimately save taxpayer dollars.

1. ARGUMENTS IN OPPOSITION

A coalition of real estate industry groups, such as the California Apartment Association, write in opposition:

There is no rational reason to mandate disclosure of a “beneficial owner(s).” Corporations and limited liability companies already file with the federal government and with Secretary of State an extensive amount of information. Those filings provide everything that the general public needs to know about the entity in order to send notices or file lawsuits against them. The bill appears to be a veiled attempt to provide contact information for owners already legally reporting and doing business in the state without any rational reason given as to how this information is valuable to the public.

1. DOUBLE-REFERRAL

This bill was first heard by the Committee on Judiciary on April 2, 2024, where it passed out of committee on a 9-1 vote.

1. PRIOR AND RELATED LEGISLATION

SB 594 (Durazo) of this legislative session was substantially similar to this bill when it was held by the Senate Appropriations Committee on the suspense file.

SB 738 (Hurtado) of this legislative session would have established the Corporate Transparency Act, requiring foreign corporations and foreign LLCs to disclose certain information with respect to any beneficial owner, as specified. The bill died in the Senate Banking and Financial Institutions Committee, where it did not receive a hearing.

AB 889 (Gipson, 2021) would have required landlords who hold rental property in the name of a corporation or limited liability company to report the identity of the beneficial owners of the property to the Secretary of State. The bill failed passage in the Senate Judiciary Committee.

AB 3075 (Gonzalez, Chapter 357, Statutes of 2020) requires corporations (including foreign and domestic and limited liability corporations) to include an attestation in their articles of incorporation or articles of organization signed by the filers that no filer has an outstanding final judgment issued by the Department of Labor Standards Enforcement for a violation of a wage order or the labor code.

LIST OF REGISTERED SUPPORT/OPPOSITION

Support

Acce Action (alliance of Californians for Community Empowerment)
Afscme CA
Alameda County Democratic Party
Anti-eviction Mapping Project
Asian, INC.
Basta, INC.
Bay Area Community Land Trust
Bay Area Legal Aid
Beverly-vermont Community Land Trust
California Coalition for Worker Power
California Community Economic Development Association (CCEDA)
California Community Land Trust Network
California Continuing Care Residents Association
California Continuing Care Residents Association (CALCRA)
California Democratic Party Renters Council
California Employment Lawyers Association
California Housing Partnership Corporation
California Immigrant Policy Center
California Labor Federation, Afl-cio
California Latinas for Reproductive Justice
California Rural Legal Assistance Foundation (crla Foundation)
California State Council of Service Employees International Union (seiu California)
Californians for Safety and Justice
Canal Alliance
Center for Community Advocacy
Centro Legal De LA Raza
City of Oakland - City Attorney's Office
Climate First: Replacing Oil & Gas (CFROG)
Coalition for Economic Survival (CES)
Community Financial Resources
Community Legal Services in East Palo Alto
Community Vision Capital and Consulting
Congregations Organized for Prophetic Engagement (COPE)
Consumer Advocates Against Reverse Mortgage Abuse
Consumers for Auto Reliability & Safety
Contra Costa Senior Legal Services
Courage California
Disability Rights Education & Defense Fund (DREDF)
East Bay Housing Organizations
East LA Community Corporation
Esperanza Community Housing Corp
Fair Housing Advocates of Northern California
Fair Housing Council of San Fernando Valley
Faith in Action Bay Area
Faith in The Valley
Family Violence Appellate Project
First Unitarian Church of Los Angeles
Greater Napa Valley Fair Housing Center
Haven Neighborhood Services
Housing and Economic Rights Advocates (HERA)
Housing California
Housing Equity & Advocacy Resource Team (HEART)
Housing Now!
Housing Rights Center
Housing Rights Committee of San Francisco
Human Impact Partners
Ica Fund
Inclusive Action for The City
Indivisible CA Statestrong
Inland Equity Community Land Trusts
Inner City Law Center
Kiwa
LA Forward
Laane (los Angeles Alliance for A New Economy)
Legal Aid At Work
Legal Aid Foundation of Los Angeles
Legal Aid of Marin
Legal Aid of Sonoma County
Logan Heights Community Development Corporation
Low Income Investment Fund
Ltsc Community Development Corporation
Microenterprise Collaborative of Inland Southern California
Montebello Housing Development Corporation
Monterey County Renters United
Multicultural Real Estate Alliance for Urban Change
National Council of Jewish Women Los Angeles
National Housing Law Project
National Resources Defense Council
Neighborhood Housing Services of Los Angeles County
North Bay Organizing Project
Pico California
Pomona United for Stable Housing
Power CA Action
Powerswitch Action
Pubic Interest Law Project
Public Advocates
Public Counsel
Renaissance Entrepreneurship Center
Rise Economy
Sacramento Environmental Justice Coalition
Sacramento Homeless Union
Sacramento Tenants Union
San Diego City Attorney's Office
San Diego Tenants Union
San Francisco Community Land Trust
Santa Clara County Wage Theft Coalition
Social Justice Learning Institute
Sonoma County Tenants Union
Strategic Actions for A Just Economy
Sustainable Economies Law Center
T.r.u.s.t. South LA
Techequity Collaborative
Tenants Together
Tenderloin Housing Clinic
The Central Valley Urban Institute
The Children's Partnership
The Sidewalk Project
Unite Here Local 11
United Food and Commercial Workers, Western States Council
Uplift San Bernardino
Urban Habitat
Ventura County Community Development Corp
Warehouse Worker Resource Center
Working Partnerships USA
Worksafe

Opposition

Building Owners and Managers Association of California
California Apartment Association
California Association of Realtors
California Business Properties Association
California Chamber of Commerce
Institute of Real Estate Management (IREM)
Naiop of California, the Commercial Real Estate Development Association

-- END --

1. This bill also places a reporting requirement on real estate investment trusts (REITs) that are organized as unincorporated associations under California law. Committee staff searched the SOS online database to determine whether any such entities filed statements as unincorporated associations and did not find any results. Rather, the REITs found in the SOS database were organized as corporations, LLCs, or foreign associations (often, out-of-state trusts). The remainder of this analysis focuses on reporting requirements of corporations and LLCs, but note that if any REITs are organized as unincorporated associations, those entities would have similar reporting requirements as those discussed for corporations and LLCs. ↑

2. Many corporations elect to incorporate under Delaware law. Committee staff analyzed a dataset created by researchers at Harvard Law School of historical state of incorporation of corporations with publicly traded stock. The data show that 3,692 out of 6,586 companies that filed annual reports in 2019 were incorporated in Delaware, compared to only 112 in California. The dataset was accessed at https://dataverse.harvard.edu/dataset.xhtml?persistentId=doi:10.7910/DVN/KBPZ5V. ↑

3. Public Law 116-283 ↑

4. Pub. L. 116–283, div. F, title LXIV, § 6402 ↑

5. Id. ↑

6. https://www.thomsonreuters.com/en-us/posts/corporates/cta-unconstitutional-ruling/ ↑

7. https://esd.dof.ca.gov/Documents/bcp/2223/FY2223_ORG0890_BCP4974.pdf ↑

8. See, e.g., https://www.acceinstitute.org/hedge_papers_no_69_billionaire_corporate_landlords_are_exacerbating_california_s_housing_crisis ↑

9. See, e.g., Getter, Darryl E. “Single-Family Market Rents and Institutional Investors,” Congressional Research Service. Accessed here: https://crsreports.congress.gov/product/pdf/IF/IF12225, and https://cayimby.org/institutional-investors-in-california-housing-markets/ ↑

10. https://cdn.nar.realtor/sites/default/files/documents/2022-impact-of-institutional-buyers-on-home-sales-and-single-family-rentals-05-12-2022.pdf ↑

SENATE JUDICIARY COMMITTEE

Senator Thomas Umberg, Chair

2023-2024 Regular Session

Bill No: SB 1201 (Author:Durazo)

Version: February 15, 2024

Hearing Date: April 2, 2024

Fiscal: Yes

Urgency: No

Consultant: AWM

SUBJECT

Beneficial owners

DIGEST

This bill requires corporations, limited liability companies (LLCs), and real estate investment trusts to report information about their beneficial owners, as specified, on periodic reports that those business entities are required to file with the Secretary of State and that are made available to the public

EXECUTIVE SUMMARY

Current law requires certain business entities, including corporations and LLCs, organized under the laws of this state or authorized to transact business in this state to periodically file certain information with the Secretary of State. These filings require only minimal information about an entity’s identity (e.g., where it is located, what it does, etc.) and about the people running the business (the identities of CEOs, managers, and the like). The Secretary of State makes the filings public but does not verify the information contained therein.

This bill adds, for corporations, LLCs, and real estate investment trusts operating as unincorporated associations, a requirement that they disclose the names and addresses of their beneficial owners, defined as natural persons who own 25 percent or more of the entity’s equity interest or exercise “substantial control” over the corporation, as defined. The beneficial ownership information would be published by the Secretary of State along with the rest of the information in the entity’s filings. This bill is identical to the SB 594 (Durazo, 2023), as this Committee passed and amended it last year. SB 594 died in the Senate Appropriations Committee.

At a federal level, Congress recently enacted the Corporate Transparency Act, which requires specified entities, including corporations and LLCs, to provide beneficial ownership information to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN), with strict confidentiality requirements for the information received. The author and sponsors wish to move beyond the Corporate Transparency Act and give the public information about the actual human beings behind the entities that operate in California. They argue that this bill will be particularly useful for learning the identities of repeat labor violators and the persons buying up real estate for large investment companies under the guise of small local businesses.

This bill is sponsored by Public Advocates and Rise Economy, and is supported by over 100 organizations. This bill is opposed by Building Owners and Managers Association of California, the California Apartment Association, the California Association of Realtors, the California Building Properties Association, the California Chamber of Commerce, the Institute of Real Estate Management, and NAIOP of California. If this Committee passes this bill, it will be heard by the Senate Banking and Financial Institutions Committee.

PROPOSED CHANGES TO THE LAW

Existing state law:

1. Establishes the General Corporation Law, which sets forth rules governing domestic and foreign corporations authorized to do business in California. (See generally Corp. Code, tit. 1, div. 1, §§ 100 et seq.)
2. Requires a corporation incorporated under the laws of this state, or incorporated under the laws of a different jurisdiction and qualified to transact business in this state, to file, within 90 days after the filing of its original articles and annually thereafter, on a form prescribed by the Secretary of State, a statement containing specified information, including:
   1. The name of the corporation and the Secretary of State’s file number.
   2. The names and complete business or residence address of its incumbent directors.
   3. The names and complete business or residence addresses of its chief executive officer, secretary, and chief financial officer.
   4. The street address of its principal executive office, the mailing address (if different from the principal executive office), and, if the principal executive office is not in this state, the street address of its principal business office in this state, if any.
   5. A statement of the general type of business that constitutes the principal business activity of the corporation.
   6. The agent of the corporation designated for service of process. (Corp. Code, §§ 1502, 2117.)
3. Establishes the California Revised Uniform Limited Liability Company Act, which sets forth rules governing domestic LLCs and foreign LLCs authorized to do business in this state. (Corp. Code, tit. 2.6, art. 1, §§ 17701.01 et seq.)
4. Requires every domestic LLC and every foreign LLC registered to transact intrastate business in this state to deliver to the Secretary of State for filing, 90 days after filing its original articles of organization or registering to transact business in this state and biannually thereafter, a statement of information including:
   1. The LLC’s name and file number and, for a foreign LLC, the name under which the foreign LLC is authorized to transact intrastate business in the state and the state or other jurisdiction in which it is organized.
   2. The name and street address of the agent designated for service of process.
   3. The street address of the LLC’s principal office and, if any, the street address of its principal office in this state.
   4. The name and complete business or residential addresses (1) of any manager or managers and the chief executive officer, if any, or (2) if no manager has been so elected or appointed, of each member. (Corp. Code, § 17702.09(a).)
5. If the statement of information delivered to the Secretary of State under 5) does not contain the information required, the Secretary of State shall promptly return the statement to the reporting LLC for correction. (Corp. Code, § 17702.09(e).)
6. Provides statutes governing unincorporated associations. (Corp. Code, tit. 3, pt. 1, §§ 18000 et seq.)
   1. An unincorporated association is an unincorporated group of two or more persons joined by mutual consent for a common lawful purpose, whether organized for profit or not. (Corp. Code, § 18035(a).)
   2. Without more, joint tenancies and other specified joint property holdings, marriages, and domestic partnerships do not by themselves establish an unincorporated association. (Corp. Code, § 18035(b), (c).)
   3. The definition of “unincorporated association” excludes a corporation, a government or governmental subdivision or agency, a partnership or joint venture, an LLC, and labor organizations, as specified. (Corp. Code, § 18055.)
7. Permits an unincorporated association to file a statement with the Secretary of State containing either of the following:
   1. A statement designating the location and complete street address of the unincorporated association’s principal office in California; or
   2. A statement including the information in 8(a) or, if the unincorporated association does not have an office in the state, a mailing address to which the Secretary of State shall send required notices; and designating an agent for the service of process. (Corp. Code, § 18200.)
8. Authorizes the Secretary of State to provide the information provided in 8) to any person on request, and authorizes the Secretary of State to accept the resignation of a person named as designated for service of process, as specified. (Corp. Code, §§ 18205, 18201.)

Existing federal law and regulations:

1. Establish the Corporate Transparency Act, which requires corporations, LLCs, and other similar entities created under the laws of a state or a foreign country, with certain exceptions, to deliver, within 30 days of their creation and on a biannual basis, a report to FinCEN that:
   1. Identifies each beneficial owner of the company;
   2. Provides, for each beneficial owner, their full legal name, date of birth, residential or business street address, and a unique identification number from specified documents (e.g., a passport number or state-issued identification document) or a FinCEN identifier; and
   3. Includes specified information about the entity, including the jurisdiction under whose laws it is formed and its complete address. (31 U.S.C. § 5336; 31 C.F.R. § 1010.380(a), (b).)
2. Require, if there has been a change in any of the information submitted to FinCEN in 1), a reporting entity to submit to FinCEN a report that updates the information within 30 calendar days after the change occurs. (31 U.S.C. § 5336(b); 31 C.F.R. § 1010.380(a)(2).)
3. Define, for purposes of 1), “beneficial owner” to mean, with respect to an entity, an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise (a) exercises substantial control over the entity, or (b) owns or controls not less than 25 percent of the ownership interests of the entity.
   1. The term excludes a minor child, an individual acting on behalf of another individual or entity, as specified, an individual whose only interest in an entity is through a right of inheritance, and a creditor of an entity, unless the creditor satisfies 2)(a) or 2)(b). (31 U.S.C. § 5336(a)(3).)
   2. A person exercises “substantial control” over the reporting company if the individual (1) serves as a senior officer for the reporting company, (2) has authority over the appointment or removal of any senior officer or a majority of the board of directors or similar body; (3) directs, determines, or has substantial influence over important decisions made by the reporting company, including the nature and scope of the reporting company’s business or major expenditures or investments; or (4) has any other form of substantial control over the reporting company. Substantial control may be exercised directly or indirectly, including through board representation, ownership or control of a majority of voting interests, or financial relationships. (31 C.F.R. § 1010.380(d).)
4. Provide that the information submitted under 1) shall be confidential and shall not be disclosed unless FinCEN receives a valid request from an authorized entity for an authorized purpose, including law enforcement conducting investigations or a financial institution conducting legally required due diligence activities. Entities receiving information from FinCEN must satisfy specified security and confidentiality requirements as a condition of receiving the information. (31 U.S.C. § 5336(c) & 31 C.F.R. § 1010.955(b)-(d).)
5. Establish penalties for violations of 1) and 4) as follows:
   1. A person who willfully provides false beneficial ownership information or timely update beneficial ownership information shall be liable for a civil penalty of not more than $500 per day that the violation continues and may be fined not more than $10,000, imprisoned for not more than two years, or both; these penalties are subject to a safe harbor that allows liability to be avoided if inaccurate information is corrected voluntarily within 90 days of the submission.
   2. A person who discloses or uses beneficial ownership information without authorization shall be liable for a civil penalty of not more than $500 per day that the violation continues and shall be fined not more than $250,000, imprisoned for not more than five years, or both. (31 U.S.C. § 5336(h).)

This bill:

1. Requires a domestic corporation, a foreign corporation, a limited liability company, a foreign limited liability company, or a real estate investment trust to include in specified periodic filings with the Secretary of State the name and complete business or residence address of any beneficial owner.
2. Defines “beneficial owner,” for purposes of 1), as a natural person for whom, directly or indirectly and through any contract arrangement, understanding, relationship, or otherwise, either of the following applies with respect to the business entity:
   1. The person exercises substantial control over the entity.
   2. The person owns 25 percent or more of the equity interest in the entity.
3. Defines “substantial control,” for purposes of 2)(a), to have the same meaning as in Section 1010.380 of Title 31 of the Code of Federal Regulations, which is set forth in Item 3)(b) of the “Existing federal law” section.
4. Requires a limited liability company or a foreign limited liability company to include in specified periodic filings with the Secretary of State the name and complete business or residence address of any manager or managers and the chief executive officer, if any, or, if no manager has been elected or appointed, the name and business or residence address of each member.

COMMENTS

1. Author’s comment

According to the author:

SB 1201 aims to establish transparency in the ownership of limited liability companies (LLCs) and similar corporations by requiring the disclosure of owners with substantial control over the entity. Existing law allows for the creation of LLCs and corporate entities in order to provide legal protection for assets not owned by the LLC.

However, owners often abuse LLCs to shield not only their assets, but also their identities. The ability for LLCs to abuse the structure to remain anonymous, none of which is necessary to maintain the legal and financial protections of forming an LLC, ends up presenting numerous issues and even enables unscrupulous and in some cases, illegal practices. For instance, deceitful employers can use LLCs to avoid responsibility for underpaying workers and ignoring health and safety regulations. When owners of properties can hide behind a web of LLCs, tenants who have issues with negligent landlords don’t know where to turn and local officials don’t know whom to hold accountable for code violations.

It can take years for justice departments, labor representatives, and other enforcement entities to connect the dots to show that a single person is responsible for repeated violations, allowing abuses to continue largely unimpeded. Without owner transparency, policymakers, enforcement agencies, and the public lack critical information to make informed policy decisions that are responsive to the changing needs of California’s communities and it frustrates attempts to ensure accountability. SB 1201 is a good governance bill that simply requires additional transparency.

2. Background on California business entity law

California, and all other states, offer natural persons (i.e., living human beings) the ability to establish separate legal entities through which to conduct business activities. Corporations and LLCs are two of the most commonly used entity forms and are the primary focus of this bill.^[1]

Generally, a person may establish a corporation or LLC under the laws of any state by filing the required paperwork, irrespective of the business’s physical location(s) or the state(s) of residence of the business owners. For example, a business that is entirely owned by California residents, has physical locations only in California, and conducts all of its business activities within California may still choose to incorporate its corporation or form its LLC under the laws of a different state.

The Secretary of State requires domestic corporations and LLCs and foreign corporations and LLCs that conduct business in this state to periodically file specified information regarding the entity.^[2] These filings are fairly bare-bones; the required information includes matters including the name and address of the business, the names and business or residence addresses of key personnel, and the general type of business that constitutes the principal business activity of the corporation or LLC.^[3] Once the Secretary of State has accepted a statement for filing, it is made publicly available through a free online database. The Secretary of State generally does not check the statements for accuracy.

3. The federal Corporate Transparency Act

In early 2021, Congress passed the Corporate Transparency Act (CTA) as part of the National Defense Authorization Act for Fiscal Year 2021.^[4] The CTA establishes, for certain types of corporations, limited liability companies, and other similar entities created in or registered to do business in the United States, a requirement that they report specified beneficial ownership information to FinCEN.^[5] FinCEN is a bureau of U.S. Treasury that collects and analyzes information about financial transactions in order to combat domestic and international money laundering, terrorist financing, and other financial crime.

The beneficial ownership information reported to FinCEN under the CTA is presumptively confidential.^[6] FinCEN may disclose the information only to government authorities and financial institutions, including state and local law enforcement, subject to effective safeguards and control.^[7] Unauthorized disclosure of information collected under the CTA is a felony punishable by up to five years’ imprisonment.^[8]

In enacting the CTA, Congress noted that “most or all States do not require information about the beneficial owners” of these businesses. Congress went on to describe the problematic consequence of such anonymity:

[M]align actors seek to conceal their ownership of corporations, limited liability companies, or other similar entities in the United States to facilitate illicit activity, including money laundering, the financing of terrorism, proliferation financing, serious tax fraud, human and drug trafficking, counterfeiting, piracy, securities fraud, financial fraud, and acts of foreign corruption, harming the national security interests of the United States and allies of the United States.

[M]oney launderers and others involved in commercial activity intentionally conduct transactions through corporate structures in order to evade detection, and may layer such structures, much like Russian nesting ‘‘Matryoshka’’ dolls, across various secretive jurisdictions such that each time an investigator obtains ownership records for a domestic or foreign entity, the newly identified entity is yet another corporate entity, necessitating a repeat of the same process.^[9]

Congress also acknowledged that beneficial ownership information is sensitive information; in addition to prohibiting its disclosure except for narrow purposes, FinCEN is required to store the information “using information security methods and techniques that are appropriate to protect nonclassified information systems at the highest security level.”^[10] FinCEN’s administrative rules setting forth the limited number of entities that may access beneficial ownership information, and the limited purposes for which it may be accessed, took effect in February of this year.^[11] Consistent with the CTA, the rules generally limit disclosure to law enforcement and intelligence agencies conducting investigations or intelligence operations, or to banks to perform due diligence functions.^[12] The rules also impose strict confidentiality requirements on entities who receive beneficial ownership information from FinCEN.^[13]

4. This bill requires corporations and LLCs doing business in California to disclose the names and addresses of their beneficial owners, as defined, in specified filings with the Secretary of State

While the CTA makes beneficial ownership information reported to FinCEN confidential except in narrow circumstances, the author and sponsors contend that certain beneficial ownership information should be made publicly available. To that end, this bill requires any corporation or LLC that conducts business in California to disclose the name and business or residence address of its beneficial owners, as defined, to the Secretary of State; the disclosed information would be made publicly available by the Secretary of State, including on its business entity search website.

The persons defined as “beneficial owners” of a corporation or an LLC under this bill would include:

• Any natural person who exercises substantial control over a corporation or LLC; “substantial control” is defined by incorporating the definition of “substantial control” added in the regulations implementing the CTA.
• Any natural person who owns 25 percent or more of the equity interest of a corporation or LLC.

5. Implementation concerns

As discussed last year in the analysis of SB 594, the most significant implementation challenge to this bill is the Secretary of State’s Office’s inability to perform any sort of verification of the beneficial owner information submitted in entities annual or biannual filings. The Secretary of State does not currently take steps to verify information submitted in entity filings, nor is it expected to; entity filings are received and processed as an administrative matter. This bill does not create any new obligation for the Secretary of State to investigate whether beneficial owner information filed by an entity is accurate; even if the bill did create such an obligation, it is unclear how the Secretary of State would be able to determine whether information was accurate or not. Without mechanisms to ensure the adequacy and completeness of the beneficial ownership information provided by the filing entity, there is significant risk of the information being incorrect and misleading. In particular, to the extent that this bill is targeted at bad actors who use legal entity structures to evade legal liability, it seems unlikely that they will willingly disclose their identities to the public. Accordingly, it is unclear whether the beneficial ownership information required to be disclosed by this bill will significantly benefit the public.

6. Privacy concerns

The author and sponsors are clear that this measure is intended to prevent persons from abusing the system through the anonymity of entities. For example, as the California Housing Partnership writes:

The Limited Liability Company (LLC) legal structure can be used to shield owners’ identities. Compounding the issue, many LLCs are owned in the name of another LLC, creating additional layers of anonymity. This makes it difficult for tenants, the public, and governmental agencies to know who the beneficial owner of a property truly is and hold that person accountable.

If implemented correctly, this bill would make it easier to identify the natural persons pulling entities’ puppet strings. There is little question that having such information readily available would be a boon when, e.g., determining whether a repeat labor-law violator has opened a new factory under a new entity name. Of course, as discussed above, because the Secretary of State does not verify the entity information submitted, this benefit would inure only if the bad actor decided to disclose their underlying identity.

This bill does not apply only to companies owned by profligate law-breakers, of course. This bill eliminates the right of a person to keep their identity private while exercising substantial control of a business. As a policy matter, the Legislature can decide that operating privately does more harm than good, and that the public has an interest in knowing who is behind each entity that overrides the interest in privacy. It is worth noting, however, that this bill paints with a broad brush: all corporations and LLCs will be required to disclose this information. Thus, while capturing the people behind the real estate companies (assuming they comply), this bill also captures the people behind every other company.

7. Legal concerns

First, there is some question whether California’s system of collecting and publishing beneficial ownership information is preempted by the federal CTA. There is no preemption clause in the CTA,^[14] so the question is whether existing federal laws so occupy the field as to render any state legislation in this space improper, or whether the state’s law creates a conflict with an existing federal scheme.^[15] In determining whether Congress intended to preempt state law in a particular area, “ ‘the purpose of Congress is the ultimate touchstone in every pre-emption case.’ ”^[16]

At this stage, there is no clear indication that Congress intended to occupy the field of beneficial ownership reporting; the Securities and Exchange Commission, for example, requires beneficial owners of equity securities, as specified, to disclose their status as such.^[17]

There may be a harder question, however, as to whether this bill would impede the implementation of the CTA. The CTA guarantees confidentiality of beneficial ownership information unless and until law enforcement or an investigating civil agency has the need for it.^[18] Congress may have adjudged that this guarantee was necessary to ensure proper compliance. It is possible that, if California requires beneficial ownership information to be published, companies will be less willing to be forthright under both the state and federal scheme. To be clear, this is by no means an open-and-shut preemption case, but the possibility of reduced compliance does raise it as a possibility.

Second, the purpose of this bill might be thwarted by the “internal affairs doctrine.” “The internal affairs doctrine is a conflict of laws principle which recognizes that only one State should have the authority to regulate a corporation’s internal affairs—matters particular to the relationships among or between the corporation and its current officers, directors, and shareholders—because otherwise a corporation could be faced with conflicting demands.”^[19] The theory is that “it would be impractical to have matters which involve a corporation’s organic structure or internal administration governed by different laws.”^[20]

Here, if a beneficial owner added an out-of-state corporate entity between itself and the corporate entity doing business in California, it is unclear whether the state would have a right to that beneficial owner’s information. In such a case, the internal affairs doctrine suggests that the state could demand information from an out-of-state entity (say, a Nevada LLC that owns a California LLC); but unless Nevada requires its own LLCs to disclose its beneficial owners, California law cannot reach into the Nevada LLC and demand information that Nevada law does not.

If a court applied the internal affairs doctrine to this law, this would presumably create a two-tiered system of disclosure: large, wealthy entities would be able to block disclosure through an added layer of corporate protection, while smaller businesses without the resources to form an out-of-state business would be covered by the bill. The internal affairs doctrine could thus affect whether the bill can be effectively implemented and who will be able to maintain their privacy.

8. Arguments in support

According a coalition of the sponsors and 97 other organizations:

The ability to abuse LLCs to maintain anonymity enables unscrupulous and, in some cases, illegal practices. For instance, layers of anonymous LLCs are widespread among employers that skirt worker protection laws. These employers use LLCs to avoid responsibility for underpaying workers, violating meal and rest break rules, and ignoring occupational health and safety regulations. By the time a business is found responsible for violations, the owners have dissolved the LLC and created a new one, leaving nobody to pay back wages or address safety issues. In addition, the lack of owner transparency makes it harder to remedy substandard housing. Property owners hide behind LLCs to avoid accountability, leaving tenants living in unsafe conditions. It can take years for enforcement entities to connect the dots to show that a single person is responsible for repeated violations across multiple LLCs, allowing abuses to continue largely unimpeded.

The use of anonymous LLCs also hides the extent to which California’s housing stock is increasingly concentrated in the hands of large corporations. These sophisticated entities use numerous LLCs to create the impression that they are small “mom and pop” investors when in fact they own hundreds, if not thousands, of units. They aggressively outbid families and true small landlords, crowding out first-time homebuyers and limiting wealth-building opportunities in many California communities.

9. Arguments in opposition

According to the coalition of opponents:

There is no rational reason to mandate disclosure of a “beneficial owner(s).” Corporations and limited liability companies already file with the federal government and with Secretary of State an extensive amount of information. Those filings provide everything that the general public needs to know about the entity in order to send notices or file lawsuits against them. The bill appears to be a veiled attempt to provide contact information for owners already legally reporting and doing business in the state without any rational reason given as to how this information is valuable to the public.

At a time when California is grappling with an enormous budget deficit, SB 1201 will cost the state additional dollars to update the filing requirements mandated by the bill. Notably, last year’s equivalent bill (SB 594) had estimated general fund costs of approximately $9 million in the first year of implementation, with ongoing costs of around $3 million in subsequent years for necessary staff positions. Considering today’s economic climate, this would not be a prudent use of state funds.

SUPPORT

Public Advocates (co-sponsor)

Rise Economy (co-sponsor)

AFSCME CA

Alliance of Californians for Community Empowerment

Anti-Eviction Mapping Project

ASIAN, Inc.

BASTA, Inc.

Bay Area Community Land Trust

Bay Area Legal Aid

Beverly-Vermont Community Land Trust

CA Community Land Trust Network

California Coalition for Worker Power

California Community Economic Development Association

California Continuing Care Residents Association

California Democratic Renters Council

California Employment Lawyers Association
California Housing Partnership

California Immigrant Policy Center

California Labor Federation

California Latinas for Reproductive Justice

California Rural Legal Assistance Foundation

Californians for Safety and Justice

Canal Alliance

Center for Community Advocacy

Centro Legal de la Raza

Climate First: Replacing Oil & Gas (CFROG)

Coalition for Economic Survival

Community Financial Resources

Community Legal Services in East Palo Alto

Congregations Organized for Prophetic Engagement (COPE)

Consumer Advocates Against Reverse Mortgage Abuse (CAARMA)

Consumers for Auto Reliability and Safety

Contra Costa Senior Legal Services

Courage California

Disability Rights Education and Defense Fund

East Bay Housing Organizations

East LA Community Corporation

Esperanza Community Housing

Fair Housing Advocates of Northern California

Fair Housing Council of Orange County

Fair Housing Council of the San Fernando Valley

Faith in Action Bay Area

Faith in the Valley

Family Violence Appellate Project

First Unitarian Church of Los Angeles

Greater Napa Valley Fair Housing Center

Haven Services Inc. dba Haven Neighborhood Services

Housing and Economic Rights Advocates (HERA)

Housing Equity & Advocacy Resource Team

Housing Land Trust of the North Bay

Housing Now!

Housing Rights Committee of San Francisco

Human Impact Partners

ICA Fund

Inclusive Action for the City

Inland Equity Community Land Trust

Inner City Law Center

K3 Tenant Council

KIWA

LA Forward

Legal Aid at Work

Legal Aid Foundation of Los Angeles

Legal Aid of Marin

Legal Aid of Sonoma County

Logan Heights CDC

Los Angeles Alliance for a New Economy

Low Income Investment Fund (LIIF)

LTSC Community Development Corporation

Microenterprise Collaborative of Inland Southern California

Montebello Housing Development Corporation

Monterey County Renters United

Mt. Tam Community Land Trust

Multicultural Real Estate Alliance for Urban Change

National Council of Jewish Women Los Angeles

National Housing Law Project

National Resources Defense Council

Neighborhood Housing Services of Los Angeles County

PICO California

Pomona United for Stable Housing (PUSH)

Power CA Action

PowerSwitch Action

Public Council

Public Interest Law Project

Renaissance Entrepreneurship Center

Sacramento Environmental Justice Coalition

Sacramento Tenants Union

San Francisco Community Land Trust

Santa Clara County Wage Theft Coalition

Social Justice Learning Institute

Sonoma County Tenants Union

Strategic Actions for a Just Economy (SAJE)

TechEquity Collaborative

T.R.U.S.T. South LA

Tenants Together

Tenderloin Housing Clinic

The Central Valley Urban Institute

The Children’s Partnership

The Sidewalk Project

Transparency International U.S.

UNITE HERE! Local 11

United Food and Commercial Workers (UFCW) Western States Council

Uplift San Bernardino at the Making Hope Happen Foundation

Urban Habitat

Ventura County Community Development Corporation

Western Center on Law and Poverty

Working Partnerships USA

Worksafe

OPPOSITION

Building Owners and Managers Association of California

California Apartment Association

California Association of Realtors

California Building Properties Association

California Chamber of Commerce

Institute of Real Estate Management

NAIOP of California

RELATED LEGISLATION

Pending Legislation: None known.

Prior Legislation:

SB 738 (Hurtado, 2023) establishes the Corporate Transparency Act, which requires foreign corporations and foreign LLCs to disclose certain information with respect to any beneficial owner, as specified. SB 738 died in the Senate Banking and Financial Institutions Committee.

SB 594 (Durazo, 2023) was identical to this bill when it passed out of this Committee as amended. SB 594 died in the Senate Appropriations Committee.

AB 889 (Gipson, 2021) would have required landlords who hold rental property in the name of a corporation or limited liability company to report the identity of the beneficial owners of the property to the California Secretary of State. AB 889 failed passage in the Senate Judiciary Committee.

AB 3075 (Gonzalez, Ch. 357, Stats. 2020) required, beginning January 1, 2024, that LLCs and other business entities disclose whether key members have any outstanding final judgments issued by the Division of Labor Standards Enforcement or a court of law, for which no appeal therefrom is pending, for the violation of any wage order or provision of the Labor Code.

**************

1. This bill also imposes a reporting requirement real estate investment trusts (REITs) organized as unincorporated associations under California law. It appears that REITs are generally formed as corporations, LLCs, or foreign associations (often out-of-state trusts). This analysis thus focuses on corporations and LLCs, but the beneficial owner reporting requirements and definitions would apply to any REIT that operated as an unincorporated association. ↑

2. Corp. Code, §§ 1502, 2117, 17702.09. ↑

3. Id., §§ 1502, 2117, 17702.09. ↑

4. Pub. Law 116-283, 134 Stat. 4604. ↑

5. 31 U.S.C. § 5336(b).) ↑

6. Id., § 5336(c). ↑

7. Ibid. ↑

8. 31 U.S.C. § 5336(h). ↑

9. Pub. L. 116–283 134 Stat. 4604, title LXIV, § 6402. ↑

10. Id., § 6402(7). ↑

11. 31 C.F.R. § 1010.955; 88 Fed.Reg. 88732-88813 (Dec. 22, 2023). ↑

12. 31 C.F.R. § 1010.955. ↑

13. Id., § 1010.955(d). ↑

14. 31 U.S.C. § 5336. ↑

15. See Hughes v. Talen Energy Marketing, LLC (2016) 578 U.S. 150, 162-163. ↑

16. Id. at p. 163. ↑

17. 17 C.F.R. § 240.13-d-1. ↑

18. 31 U.S.C. § 5336(c). ↑

19. Edgar v. MITE Corp. (1982) 457 U.S. 624, 645. ↑

20. Friese v. Superior Court (2005) 134 Cal.App.4th 693, 707 (internal quotation marks and ellipses omitted). ↑