Limited liability companies and similar corporations in the United States are often formed to protect a business owner’s personal assets. In California, the world’s fifth largest economy, such businesses are already required to register with the Secretary of State and share information including the name of the business, its address and the names of its executives or representatives.

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

Durazo said the lack of that crucial information has allowed people to set up business structures where one company is owned in the name of another, all to shield their identities from the public, government officials and even law enforcement agencies. In many cases, local and state officials must spend significant time and resources to track down the owners before they can charge or sue the business for violating state laws, if they can find them at all.

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

With support from labor, housing and environmental groups, her bill passed a key legislative committee Wednesday. There was no debate. It needs a second committee vote before reaching the Senate floor.

A similar proposal last year did not survive the Legislature’s suspense file, a mysterious process where lawmakers decide — with no explanation — whether bills should move forward or not.

The legislation faces fierce opposition from a number of business groups including those that represent landlords. They argue that LLCs must already share lots of information with the government and note that they will be required to disclose ownership to a branch of the U.S. Treasury Department by 2025.

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

“It really doesn’t make any sense to us.” said Debra Carlton, an executive of California Apartment Association. “Why add these costs onto the state,” she asked, “when we’re already having financial challenges?”

The practice of operating business anonymously is prevalent in many California industries, proponents of the bill said. In Oakland, after city officials condemned a dilapidated building rented out to low-income immigrant families, the city attorney’s office spent more than a year investigating and combing through hundreds of city code enforcement records to find the owners of the building, said Suzie Dershowitz, who worked on the case at the time. The city eventually found and successfully sued the landlords, who owned more than 130 properties in the city through a network of LLCs and corporations. The investigation would have had taken half a day of work if Durazo’s bill was law at the time, she added.

“As a government agency, I had access to a lot of information,” said Dershowitz, who now works for Public Advocates, an advocacy group sponsoring the bill. “But the lack of transparency in corporate ownership really hampered our investigation.”

Some employers also rely on the practice to dodge labor violations and cheat workers out of their pay, labor attorney Ruth Silver-Taube said. She pointed to a case in San Jose where a hotel worker was fired from his job for filing a wage theft claim with the state. The state couldn’t track down the business owners and had to name 14 different companies, some of which were defunct, in its lawsuit before the owners agreed to settle, she said. The agreement came nine years after the worker filed the initial complaint.

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

By hiding behind an anonymous LLC, Silicon Valley billionaires were successful in shielding their identities in a secretive $800 million land-buying spree in rural Northern California, despite years of local scrutiny.

Others managed to dodge legal ramifications and responsibilities altogether through the practice, said Haley Ehlers of climate watchdog organization Climate First: Replacing Oil & Gas. The group has spent years advocating for the removal of orphan and idle wells left behind by defunct oil operations. Orphan wells are often be sold to private, anonymous shell companies designed to go bankrupt to help owners of oil businesses evade legal responsibility to clean up the site, leaving taxpayers to shoulder the cost, she said.

“If we had more owner transparency, bad actors wouldn’t be able to hide behind a new shell company name,” Ehlers said.

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

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

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