(Bloomberg) – Airbnb Inc., the second-most highly valued San Francisco-based startup, is suing its hometown over claims the city's rental restrictions violate protections for internet companies and its free-speech rights.

The company is hoping to avoid thousands of dollars in daily fines it could face when a new San Francisco law takes full effect next month. The law, passed with a 10-0 vote by the city's Board of Supervisors, would require Airbnb to make sure that hosts on its platform have registered with the city.

'Flawed new ordinance'

"While we have attempted to work with the city on sensible, lawful alternatives to this flawed new ordinance, we regret that we are forced to now ask a federal court to intervene in this matter," the company said Monday in a statement. "This is an unprecedented step for Airbnb, and one we do not take lightly, but we believe it's the best way to protect our community of hosts and guests."

San Francisco, which faces a housing shortage, has struggled with how to regulate eight-year-old Airbnb. The startup, last valued at $25.5 billion, operates in almost every city in the world, outside of Syria, Iran and North Korea. Yet, it's struggled to work with two of the first markets that it entered, New York and San Francisco. Airbnb generated about $1 billion in revenue last year and is on its way to becoming another internet giant from the San Francisco Bay Area.

Daily $1,000 fine for every unregistered host

San Francisco's newest law passed June 7. Mayor Ed Lee let the law take effect without signing it. The law went into effect on Friday, but many of its provisions, including potential fines against Airbnb, won't kick in until late next month. The law requires Airbnb and other short-term rental companies like VRBO and HomeAway to pay a daily $1,000 fine for every unregistered host on their platform. The companies could face misdemeanor charges for flouting the law.