The California Fair Political Practices Commission (“FPPC”) continues to focus on Limited Liability Companies (“LLCs”) as a potential source of “dark money” in California elections. As you may recall, last year the FPPC adopted new rules requiring that reports filed by political committees which receive contributions, as well as Major Donor reports filed by LLCs, list the name of an individual responsible for the LLC’s political decision-making. In our experience, these new rules have had a “chilling effect” on LLCs’ willingness to get involved in California political campaigns.
The FPPC and State Legislature have now gone one step further.
A new law that takes effect on January 1, 2022 is likely to have even more of a chilling effect on the political activities of LLCs. (Cal. Govt. Code section 84109; SB 686.) Any LLC which qualifies as a Major Donor, or as the sponsor of a political committee, will have to file a report with the Secretary of State disclosing its members who have a 10 percent or greater ownership interest in the LLC. Perhaps more notably, this applies to individuals or entities which have made capital contributions totaling $10,000 or more to the LLC during the 12 months before the LLC qualified as a Major Donor. This new disclosure requires the amount and date of these capital contributions, the member’s percentage ownership in the LLC, and even provides for a “piercing of the corporate veil” if the LLC’s member is also an LLC. In addition, once an LLC has begun filing these reports, all additional capital contributions of $10,000 or more must be disclosed within 10 days.
This onerous new law follows national publicity about LLCs being used in other states to hide the identity of political donors, but really stems from a single FPPC enforcement matter in which an LLC was alleged to have been established and funded solely for the purpose of sending out “hit pieces” against a Southern California candidate. The new law ignores the fact that the vast majority of LLCs involved in California campaigns were created for bona fide reasons having absolutely nothing to do with political campaigns. Instead of adopting a more nuanced approach – perhaps requiring LLCs to disclose their investors if money is put into the LLC specifically to fund a political campaign, or requiring disclosure for new LLCs which quickly become involved in campaigns – the FPPC and State Legislature have decided to use a sledgehammer when a scalpel is warranted.
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Feel free to contact a Sutton Law Firm attorney or Political Compliance Specialist if you have any questions regarding reporting requirements for LLCs, or any other political law matter. If the Sutton Law Firm prepares your LLC’s Major Donor reports, we will follow up with you before the first of the year about these new disclosure requirements
THIS ALERT IS INTENDED FOR GENERAL INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE.
About the Sutton Law Firm
The Sutton Law Firm specializes in political and election law, representing businesses, individuals, candidates, ballot measures, PACs and nonprofit organizations involved in the political and legislative processes on the state, local and national levels. The firm offers its clients a full range of legal, reporting and litigation services.