Limited liability companies operating in D.C. will now need to report new details about their ownership structures to city officials after a law passed more than a year ago finally takes effect.
D.C.’s Department of Consumer and Regulatory Affairs will begin collecting names and addresses of any individual with at least 10% of an ownership stake in an LLC, or who controls the financial or day-to-day operations of the company. Now, anyone looking to form an LLC in the District will need to report those ownership details up front. Existing entities will need to include the disclosures in the biennial reports they file with DCRA.
The change dates back to 2018 legislation crafted by Councilwoman Elissa Silverman, I-At large, who was hoping to expose negligent landlords hiding their identities behind a web of LLCs. Her initial bill targeted companies handling real estate, but the council broadened the legislation to include all LLCs, which drew rebukes from some in the business community.
The implementation is being celebrated among tenant advocates, however, who hope it will allow them to track the actual owners of apartment buildings where renters report persistent problems. Some hope that it will make landlords think twice about letting properties deteriorate if they’re no longer shielded by D.C.’s previously permissive disclosure law. Under the old law, LLCs merely needed to report the corporation’s registered agent, often an attorney who handles scores of such companies.
“Too many families we work with have kids who end up sick, in the ER or hospitalized because they live in unhealthy homes run by negligent landlords,” Tracy Goodman, an attorney at the Children’s Law Center, a D.C. nonprofit, wrote in an email this week to the Washington Business Journal. “We are optimistic these new regulations will unmask the real owners behind an LLC and allow for stronger accountability.”
Silverman’s bill passed in 2018 as part of a broader package of reforms for DCRA, long one of the District’s most troubled agencies, but it’s taken some budgetary wrangling to make the reforms a reality.
Silverman's spokeswoman, Ashley Fox, dubbed DCRA’s arguments an “unrealistic cost estimate,” given the bill’s requirements. So Council Chairman Phil Mendelson opted instead to start negotiating with the agency to see if there was any way to bring down those costs, according to his spokeswoman.
By fall of 2019, DCRA came back to Mendelson's office with a surprising update: It could fund the changes with its existing budget, determining instead that the $27 million estimate only applied to other parts of the broader reform legislation. The LLC changes would be much more manageable for the agency, it said.
With that concession in hand, Mendelson inserted language into an arcane budget clarification bill to make the change official, passing it into law in late December. Mayor Muriel Bowser signed off on it on Jan. 17.
Local real estate attorneys previously dubbed such a change “an administrative nightmare,” and it drew opposition from the D.C. Building Industry Association. Developers frequently rely on LLCs in acquiring and managing properties. Some worried that the transparency measures would scare off nervous executives.
“It’s something that goes to the competitiveness of the city,” said Yesim Taylor, executive director of the nonpartisan, business-backed D.C. Policy Center. “It’s not just about taxes, but how welcome businesses feel. This is going to make criminals out of businesses that fail to report things.”
Taylor also worries that if DCRA isn’t predicting any budgetary impact, “it won’t be effective at all,” considering that the agency might simply collect ownership information from LLCs but fail to connect that data to resident complaints and home inspection reports. DCRA officials previously pledged to do so when Silverman first proposed her bill, but a new director has since taken over the agency.
Taylor also pointed out that anyone truly concerned about hiding their identity would still find a way to do so by setting up companies in other states with looser laws, and putting those LLCs in control of their D.C. firms.
“All it’s going to do is make people create more LLCs,” Taylor said. “Those who want to do it will do it, and for those who have no reason to worry about their identities, it doesn’t matter in the first place. “