DC’s New LLC Law Will Have a Major Impact on the Development/Construction Industry

In the spring of 2018, Councilwoman Elissa Silverman (I) At-Large lead an effort to reshape the District’s Limited Liability Corporation (LLC) laws as it relates to various types of development and real estate transactions. The motivation for this push is to change the rules of how companies use LLC’s to bid, develop and manage projects in the District. Under the previous law, companies would oftentimes use newly created LLC’s as the ownership and/or management of projects under development. Likewise, they would use similar efforts to join into partnerships such as Joint Ventures (JV) partnerships to bid, build and manage projects throughout the city.

While these practices have been around for decades and are common throughout the various development and construction-related industries, they have come under pressure within the District. In recent years the city has seen an uptick in new development, residential property flips and building in non-traditional parts of the city. This created many new issues including an increase in the number of substandard projects, illegal construction and damage done to adjoining and/or abutting properties. Even though the District had laws in place to allow those harmed by these projects to seek adjudication, there was one major concern. Of the projects in question, the true owners of the properties were never identified, as they were able to hide behind the mask of LLC’s.

To counteract this issue and to also bring more transparency and restrictions to the political contribution process, the new law, which went into effect at the beginning of February 2020, now requires that all LLC’s registered in the District must list the name of anyone who has at least a 10% ownership stake in the LLC. In addition, it will also require LLC’s to disclose the names of the individuals who control the day-to-day operations of the organization.

Not only will these new rules require additional processing, registration and legal requirements from companies doing business in the District, it will also provide further exposure for those listed on the documents. First, it will allow the Department of Employment Services (DCRA), the Office of the Attorney General (OAG) as well as private citizens to identify entities and/or individuals who would now be potentially liable for damages caused by the LLC. In addition, it would also allow liberal groups to attack the owners of LLC’s plus those who manage its operations who give political donations to candidates for office. Further, it would allow the DC Board of Ethics and Government Accountability (BEGA) along with DC Office of Campaign Finance (OCF) to comb through company documents to ensure that individuals making political contributions have followed campaign finance contribution limits.

If you have questions or would like to find out more about these new rules, please contact Eric J. Jones, MFS Associated Director of Government Affairs at [email protected]