If you own a Washington, D.C. LLC (especially if your LLC owns real estate investments), or if you are planning to form a D.C. LLC anytime soon, you definitely should know about a new law recently passed by the D.C. Council. This new law will have an impact on the confidentiality of D.C. LLC owners; depending on how you intend to operate your D.C. business, you might need to make some adjustments to your plans.
What Is The Real Estate LLC Transparency Amendment Act?
This new law is called the Real Estate LLC Transparency Amendment Act Of 2018, and it was passed by the D.C. Council in December 2018. The main focus of the law is that it requires individuals who own LLCs in Washington, D.C. to identify themselves if their D.C. LLC is “applying for a residential housing endorsement to a basic business license.” All D.C. LLC owners are now required to disclose their identities and street addresses — and according to D.C. Councilmember Elissa Silverman, this disclosure requirement has been expanded to all business entities.
Does This Law Apply to All D.C. LLC Owners?
Originally, this bill was written to apply only to LLCs or Limited Liability Partnerships (LLPs) that were involved in the following within Washington, D.C.:
- Owning real estate
- Owning residential properties
- Seeking to own/operate residential properties as landlords within the city of Washington, D.C.
However, it has since been expanded to include all business entities. If you own a D.C. LLC, make sure you are in compliance with the new requirements for identifying yourself as the business owner.
Why Is This Law Important?
In recent years, it has become more common for real estate LLCs to own property anonymously, since they don’t have to disclose the identities of individuals who own the LLC. According to the New York Times, in 1991, 92 percent of American rental properties were owned by individual owners who could easily be looked up by name. But by 2015, only 74 percent of rental properties had an individual owner who could be easily identified. The remaining rental properties were owned by anonymous LLCs, which were not required by law to identify the owner — whether it was an individual person, a team of investors or a big institutional investor.
Giving LLC owners the ability to remain anonymous is a great legal benefit for investors, but critics argue that the housing market should be more transparent — people have a right to know who they are renting from, and tenants need to be able to contact their landlord if something goes wrong with their residence. Susan Pace Hamill, a law professor at the University of Alabama, told the New York Times: “Should tenants have a right to know who they’re renting from? Should cities have a right to know who owns the property? The answer is a resounding yes.”
Who Is Affected by This New Disclosure Law for D.C. LLCs?
According to D.C. Councilmember Elissa Silverman, who was involved with writing and promoting the bill, this new legislation requires all D.C. LLCs to disclose the identities of their owners, not just real estate investment entities. And it requires “anyone with at least a 10-percent ownership interest, or who has decision-making authority for financial decisions or day-to-day operations, to be disclosed on business filings.”
Until this legislation was passed, D.C. LLC owners were allowed to remain anonymous and were only required to provide information about the business’ Registered Agent. However, the D.C. Council wanted to deliver a higher level of transparency and accountability to protect people who rent their housing from real estate LLCs.
Why Were Anonymous LLC Owners Causing a Problem?
Some D.C. LLC owners were causing damage to nearby homes and rental properties due to construction projects, but were not able to be found because of the anonymous ownership reporting allowances. This was causing confusion and frustration for some people in D.C., and the D.C. Council decided to raise the standards for LLC ownership identity disclosures in order to improve consumer protections for the city.
There are legitimate business reasons for an LLC owner to remain anonymous. But in some cities, according to the New York Times, this was contributing to financial crimes and causing problems in the housing market, such as money laundering, unfair evictions or vacant properties that cause stalled development and blighted neighborhoods: “In expensive cities like New York and Miami, LLCs have helped foreign investors launder money through luxury condo purchases. In poorer cities like Memphis and Milwaukee, they have enabled investors to walk away from vacant properties and tax bills. For renters, or tenants mired in rent-to-own contracts, these entities mean they often don’t know whom they’re dealing with — or who’s evicting them.”
What Should You Do Next for Your D.C. LLC?
If you were already operating your D.C. LLC under your name and the names of any other owners with at least a 10 percent ownership stake, no changes are needed. But if you had been operating an anonymous D.C. LLC that was only identified by its Registered Agent, you will need to update your business filings. The new bill will take effect in January 2020.
NOTE: This article does not constitute legal advice. If you have specific questions or concerns about D.C. LLC reporting requirements, other state-specific requirements or other compliance issues, talk with an expert at Incfile and/or consult with an attorney about the best way to set up and structure your business.
Are you ready to start a business, form an LLC, reorganize your business structure or update your business filings to meet the changing needs of your company? Talk to Incfile today! Our incorporation experts can help you evaluate your options with state-specific advice.