BILL NUMBER: SB 414 CHAPTERED
BILL TEXT
CHAPTER 80
FILED WITH SECRETARY OF STATE JULY 17, 2007
APPROVED BY GOVERNOR JULY 17, 2007
PASSED THE SENATE APRIL 19, 2007
PASSED THE ASSEMBLY JULY 3, 2007
AMENDED IN SENATE APRIL 17, 2007
INTRODUCED BY Senator Corbett
FEBRUARY 21, 2007
An act to amend Section 16956 of the Corporations Code, relating
to partnerships.
LEGISLATIVE COUNSEL'S DIGEST
SB 414, Corbett. Limited liability partnerships: public
accountancy and law.
Existing law requires that every registered limited liability
partnership and foreign limited liability partnership provide
specified security for claims arising out of the practice of public
accountancy and law. Under existing law, the total aggregate limit of
liability under the policy or policies of insurance or the amount of
security required to be provided by those partnerships providing
accountancy or legal services is $100,000 multiplied by the number of
licensed persons, but not less than $500,000 and not more than
$5,000,000 or $7,500,000, respectively.
This bill would provide that the total aggregate limit of
liability under the policy or policies of insurance or the amount of
security for those partnerships providing accountancy or legal
services with 5 or fewer licensees shall be not less than $1,000,000
and for partnerships with more than 5 licensees, shall be an
additional $100,000 for each additional licensee up to the $5,000,000
or $7,500,000 maximum, respectively.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 16956 of the Corporations Code is amended to
read:
16956. (a) At the time of registration pursuant to Section 16953,
in the case of a registered limited liability partnership, and
Section 16959, in the case of a foreign limited liability
partnership, and at all times during which those partnerships shall
transact intrastate business, every registered limited liability
partnership and foreign limited liability partnership, as the case
may be, shall be required to provide security for claims against it
as follows:
(1) For claims based upon acts, errors, or omissions arising out
of the practice of public accountancy, a registered limited liability
partnership or foreign limited liability partnership providing
accountancy services shall comply with one, or pursuant to
subdivision (b) some combination, of the following:
(A) Maintaining a policy or policies of insurance against
liability imposed on or against it by law for damages arising out of
claims; however, the total aggregate limit of liability under the
policy or policies of insurance for partnerships with five or fewer
licensed persons shall not be less than one million dollars
($1,000,000), and for partnerships with more than five licensees
rendering professional services on behalf of the partnership, an
additional one hundred thousand dollars ($100,000) of insurance shall
be obtained for each additional licensee; however, the maximum
amount of insurance is not required to exceed five million dollars
($5,000,000) in any one designated period, less amounts paid in
defending, settling, or discharging claims as set forth in this
subparagraph. The policy or policies may be issued on a claims-made
or occurrence basis, and shall cover: (i) in the case of a
claims-made policy, claims initially asserted in the designated
period, and (ii) in the case of an occurrence policy, occurrences
during the designated period. For purposes of this subparagraph,
"designated period" means a policy year or any other period
designated in the policy that is not greater than 12 months. The
impairment or exhaustion of the aggregate limit of liability by
amounts paid under the policy in connection with the settlement,
discharge, or defense of claims applicable to a designated period
shall not require the partnership to acquire additional insurance
coverage for that designated period. The policy or policies of
insurance may be in a form reasonably available in the commercial
insurance market and may be subject to those terms, conditions,
exclusions, and endorsements that are typically contained in those
policies. A policy or policies of insurance maintained pursuant to
this subparagraph may be subject to a deductible or self-insured
retention.
Upon the dissolution and winding up of the partnership, the
partnership shall, with respect to any insurance policy or policies
then maintained pursuant to this subparagraph, maintain or obtain an
extended reporting period endorsement or equivalent provision in the
maximum total aggregate limit of liability required to comply with
this subparagraph for a minimum of three years if reasonably
available from the insurer.
(B) Maintaining in trust or bank escrow, cash, bank certificates
of deposit, United States Treasury obligations, bank letters of
credit, or bonds of insurance or surety companies as security for
payment of liabilities imposed by law for damages arising out of all
claims; however, the maximum amount of security for partnerships with
five or fewer licensed persons shall not be less than one million
dollars ($1,000,000), and for partnerships with more than five
licensees rendering professional services on behalf of the
partnership, an additional one hundred thousand dollars ($100,000) of
security shall be obtained for each additional licensee; however,
the maximum amount of security is not required to exceed five million
dollars ($5,000,000). The partnership remains in compliance with
this section during a calendar year notwithstanding amounts paid
during that calendar year from the accounts, funds, Treasury
obligations, letters of credit, or bonds in defending, settling, or
discharging claims of the type described in this paragraph, provided
that the amount of those accounts, funds, Treasury obligations,
letters of credit, or bonds was at least the amount specified in the
preceding sentence as of the first business day of that calendar
year. Notwithstanding the pendency of other claims against the
partnership, a registered limited liability partnership or foreign
limited liability partnership shall be deemed to be in compliance
with this subparagraph as to a claim if within 30 days after the time
that a claim is initially asserted through service of a summons,
complaint, or comparable pleading in a judicial or administrative
proceeding, the partnership has provided the required amount of
security by designating and segregating funds in compliance with the
requirements of this subparagraph.
(C) Unless the partnership has satisfied subparagraph (D), each
partner of a registered limited liability partnership or foreign
limited liability partnership providing accountancy services, by
virtue of that person's status as a partner, thereby automatically
guarantees payment of the difference between the maximum amount of
security required for the partnership by this paragraph and the
security otherwise provided in accordance with subparagraphs (A) and
(B), provided that the aggregate amount paid by all partners under
these guarantees shall not exceed the difference. Neither withdrawal
by a partner nor the dissolution and winding up of the partnership
shall affect the rights or obligations of a partner arising prior to
withdrawal or dissolution and winding up, and the guarantee provided
for in this subparagraph shall apply only to conduct that occurred
prior to the withdrawal or dissolution and winding up. Nothing
contained in this subparagraph shall affect or impair the rights or
obligations of the partners among themselves, or the partnership,
including, but not limited to, rights of contribution, subrogation,
or indemnification.
(D) Confirming, pursuant to the procedure in subdivision (c),
that, as of the most recently completed fiscal year of the
partnership, it had a net worth equal to or exceeding ten million
dollars ($10,000,000).
(2) For claims based upon acts, errors, or omissions arising out
of the practice of law, a registered limited liability partnership or
foreign limited liability partnership providing legal services shall
comply with one, or pursuant to subdivision (b) some combination, of
the following:
(A) Each registered limited liability partnership or foreign
limited liability partnership providing legal services shall maintain
a policy or policies of insurance against liability imposed on or
against it by law for damages arising out of claims; however, the
total aggregate limit of liability under the policy or policies of
insurance for partnerships with five or fewer licensed persons shall
not be less than one million dollars ($1,000,000), and for
partnerships with more than five licensees rendering professional
services on behalf of the partnership, an additional one hundred
thousand dollars ($100,000) of insurance shall be obtained for each
additional licensee; however, the maximum amount of insurance is not
required to exceed seven million five hundred thousand dollars
($7,500,000) in any one designated period, less amounts paid in
defending, settling, or discharging claims as set forth in this
subparagraph. The policy or policies may be issued on a claims-made
or occurrence basis, and shall cover (i) in the case of a claims-made
policy, claims initially asserted in the designated period, and (ii)
in the case of an occurrence policy, occurrences during the
designated period. For purposes of this subparagraph, "designated
period" means a policy year or any other period designated in the
policy that is not greater than 12 months. The impairment or
exhaustion of the aggregate limit of liability by amounts paid under
the policy in connection with the settlement, discharge, or defense
of claims applicable to a designated period shall not require the
partnership to acquire additional insurance coverage for that
designated period. The policy or policies of insurance may be in a
form reasonably available in the commercial insurance market and may
be subject to those terms, conditions, exclusions, and endorsements
that are typically contained in those policies. A policy or policies
of insurance maintained pursuant to this subparagraph may be subject
to a deductible or self-insured retention.
Upon the dissolution and winding up of the partnership, the
partnership shall, with respect to any insurance policy or policies
then maintained pursuant to this subparagraph, maintain or obtain an
extended reporting period endorsement or equivalent provision in the
maximum total aggregate limit of liability required to comply with
this subparagraph for a minimum of three years if reasonably
available from the insurer.
(B) Each registered limited liability partnership or foreign
limited liability partnership providing legal services shall maintain
in trust or bank escrow, cash, bank certificates of deposit, United
States Treasury obligations, bank letters of credit, or bonds of
insurance or surety companies as security for payment of liabilities
imposed by law for damages arising out of all claims; however, the
maximum amount of security for partnerships with five or fewer
licensed persons shall not be less than one million dollars
($1,000,000), and for partnerships with more than five licensees
rendering professional services on behalf of the partnership, an
additional one hundred thousand dollars ($100,000) of security shall
be obtained for each additional licensee; however, the maximum amount
of security is not required to exceed seven million five hundred
thousand dollars ($7,500,000). The partnership remains in compliance
with this section during a calendar year notwithstanding amounts paid
during that calendar year from the accounts, funds, Treasury
obligations, letters of credit, or bonds in defending, settling, or
discharging claims of the type described in this paragraph, provided
that the amount of those accounts, funds, Treasury obligations,
letters of credit, or bonds was at least the amount specified in the
preceding sentence as of the first business day of that calendar
year. Notwithstanding the pendency of other claims against the
partnership, a registered limited liability partnership or foreign
limited liability partnership shall be deemed to be in compliance
with this subparagraph as to a claim if within 30 days after the time
that a claim is initially asserted through service of a summons,
complaint, or comparable pleading in a judicial or administrative
proceeding, the partnership has provided the required amount of
security by designating and segregating funds in compliance with the
requirement of this subparagraph.
(C) Unless the partnership has satisfied the requirements of
subparagraph (D), each partner of a registered limited liability
partnership or foreign limited liability partnership providing legal
services, by virtue of that person's status as a partner, thereby
automatically guarantees payment of the difference between the
maximum amount of security required for the partnership by this
paragraph and the security otherwise provided in accordance with the
provisions of subparagraphs (A) and (B), provided that the aggregate
amount paid by all partners under these guarantees shall not exceed
the difference. Neither withdrawal by a partner nor the dissolution
and winding up of the partnership shall affect the rights or
obligations of a partner arising prior to withdrawal or dissolution
and winding up, and the guarantee provided for in this subparagraph
shall apply only to conduct that occurred prior to the withdrawal or
dissolution and winding up. Nothing contained in this subparagraph
shall affect or impair the rights or obligations of the partners
among themselves, or the partnership, including, but not limited to,
rights of contribution, subrogation, or indemnification.
(D) Confirming, pursuant to the procedure in subdivision (c),
that, as of the most recently completed fiscal year of the
partnership, it had a net worth equal to or exceeding fifteen million
dollars ($15,000,000).
(3) For claims based upon acts, errors, or omissions arising out
of the practice of architecture, a registered limited liability
partnership or foreign limited liability partnership providing
architectural services shall comply with one, or pursuant to
subdivision (b) some combination, of the following:
(A) Maintaining a policy or policies of insurance against
liability imposed on or against it by law for damages arising out of
claims in an amount for each claim of at least one hundred thousand
dollars ($100,000) multiplied by the number of licensed persons
rendering professional services on behalf of the partnership;
however, the total aggregate limit of liability under the policy or
policies of insurance for partnerships with five or fewer licensees
rendering professional services on behalf of the partnership shall
not be less than five hundred thousand dollars ($500,000), and for
all other partnerships is not required to exceed five million dollars
($5,000,000) in any one designated period, less amounts paid in
defending, settling, or discharging claims as set forth in this
subparagraph. On and after January 1, 2008, the total aggregate limit
of liability under the policy or policies of insurance for
partnerships with five or fewer licensees rendering professional
services on behalf of the partnership shall not be less than one
million dollars ($1,000,000), and for partnerships with more than
five licensees rendering professional services on behalf of the
partnership, an additional one hundred thousand dollars ($100,000) of
liability coverage shall be obtained for each additional licensee;
however, the total aggregate limit of liability under the policy or
policies of insurance is not required to exceed five million dollars
($5,000,000). The policy or policies may be issued on a claims-made
or occurrence basis, and shall cover: (i) in the case of a
claims-made policy, claims initially asserted in the designated
period, and (ii) in the case of an occurrence policy, occurrences
during the designated period. For purposes of this subparagraph,
"designated period" means a policy year or any other period
designated in the policy that is not greater than 12 months. The
impairment or exhaustion of the aggregate limit of liability by
amounts paid under the policy in connection with the settlement,
discharge, or defense of claims applicable to a designated period
shall not require the partnership to acquire additional insurance
coverage for that designated period. The policy or policies of
insurance may be in a form reasonably available in the commercial
insurance market and may be subject to those terms, conditions,
exclusions, and endorsements that are typically contained in those
policies. A policy or policies of insurance maintained pursuant to
this subparagraph may be subject to a deductible or self-insured
retention.
Upon the dissolution and winding up of the partnership, the
partnership shall, with respect to any insurance policy or policies
then maintained pursuant to this subparagraph, maintain or obtain an
extended reporting period endorsement or equivalent provision in the
maximum total aggregate limit of liability required to comply with
this subparagraph for a minimum of three years if reasonably
available from the insurer.
(B) Maintaining in trust or bank escrow, cash, bank certificates
of deposit, United States Treasury obligations, bank letters of
credit, or bonds of insurance or surety companies as security for
payment of liabilities imposed by law for damages arising out of all
claims in an amount of at least one hundred thousand dollars
($100,000) multiplied by the number of licensed persons rendering
professional services on behalf of the partnership; however, the
maximum amount of security for partnerships with five or fewer
licensees rendering professional services on behalf of the
partnership shall not be less than five hundred thousand dollars
($500,000), and for all other partnerships is not required to exceed
five million dollars ($5,000,000). On and after January 1, 2008, the
maximum amount of security for partnerships with five or fewer
licensees rendering professional services on behalf of the
partnership shall not be less than one million dollars ($1,000,000),
and for partnerships with more than five licensees rendering
professional services on behalf of the partnership, an additional one
hundred thousand dollars ($100,000) of security shall be obtained
for each additional licensee; however, the maximum amount of security
is not required to exceed five million dollars ($5,000,000). The
partnership remains in compliance with this section during a calendar
year notwithstanding amounts paid during that calendar year from the
accounts, funds, Treasury obligations, letters of credit, or bonds
in defending, settling, or discharging claims of the type described
in this paragraph, provided that the amount of those accounts, funds,
Treasury obligations, letters of credit, or bonds was at least the
amount specified in the preceding sentence as of the first business
day of that calendar year. Notwithstanding the pendency of other
claims against the partnership, a registered limited liability
partnership or foreign limited liability partnership shall be deemed
to be in compliance with this subparagraph as to a claim if within 30
days after the time that a claim is initially asserted through
service of a summons, complaint, or comparable pleading in a judicial
or administrative proceeding, the partnership has provided the
required amount of security by designating and segregating funds in
compliance with the requirements of this subparagraph.
(C) Unless the partnership has satisfied subparagraph (D), each
partner of a registered limited liability partnership or foreign
limited liability partnership providing architectural services, by
virtue of that person's status as a partner, thereby automatically
guarantees payment of the difference between the maximum amount of
security required for the partnership by this paragraph and the
security otherwise provided in accordance with subparagraphs (A) and
(B), provided that the aggregate amount paid by all partners under
these guarantees shall not exceed the difference. Neither withdrawal
by a partner nor the dissolution and winding up of the partnership
shall affect the rights or obligations of a partner arising prior to
withdrawal or dissolution and winding up, and the guarantee provided
for in this subparagraph shall apply only to conduct that occurred
prior to the withdrawal or dissolution and winding up. Nothing
contained in this subparagraph shall affect or impair the rights or
obligations of the partners among themselves, or the partnership,
including, but not limited to, rights of contribution, subrogation,
or indemnification.
(D) Confirming, pursuant to the procedure in subdivision (c),
that, as of the most recently completed fiscal year of the
partnership, it had a net worth equal to or exceeding ten million
dollars ($10,000,000).
(b) For purposes of satisfying the security requirements of this
section, a registered limited liability partnership or foreign
limited liability partnership may aggregate the security provided by
it pursuant to subparagraphs (A), (B), (C), and (D) of paragraph (1)
of subdivision (a), subparagraphs (A), (B), (C), and (D) of paragraph
(2) of subdivision (a), or subparagraphs (A), (B), (C), and (D) of
paragraph (3) of subdivision (a), as the case may be. Any registered
limited liability partnership or foreign limited liability
partnership intending to comply with the alternative security
provisions set forth in subparagraph (D) of paragraph (1) of
subdivision (a), subparagraph (D) of paragraph (2) of subdivision
(a), or subparagraph (D) of paragraph (3) of subdivision (a) shall
furnish the following information to the Secretary of State's office,
in the manner prescribed in, and accompanied by all information
required by, the applicable section:
TRANSMITTAL FORM FOR EVIDENCING
COMPLIANCE
WITH SECTION 16956(a)(1)(D), SECTION
16956(a)(2)(D),
OR
SECTION 16956(a)(3)(D) OF THE
CALIFORNIA
CORPORATIONS CODE
The undersigned hereby confirms the
following:
1. ____________________________________________
Name of registered or foreign limited
liability partnership
2. ____________________________________________
Jurisdiction where partnership is
organized
3. ____________________________________________
Address of principal office
The registered or foreign limited liability
partnership
chooses
to satisfy the requirements of Section
16956 by
confirming,
pursuant to Section 16956(a)(1)(D),
16956(a)(2)(D),
or
16956(a)(3)(D) and pursuant to Section
16956(c), that, as
of
the most recently completed fiscal year,
the partnership
4. had
a net worth equal to or exceeding ten
million
dollars
($10,000,000), in the case of a partnership
providing
accountancy services, fifteen million
dollars
($15,000,000)
in the case of a partnership providing
legal services,
or
ten million dollars ($10,000,000), in the
case of a
partnership
providing architectural services.
5. ____________________________________________
Title of authorized person executing this
form
6. ____________________________________________
Signature of authorized person executing
this form
(c) Pursuant to subparagraph (D) of paragraph (1) of subdivision
(a), subparagraph (D) of paragraph (2) of subdivision (a), or
subparagraph (D) of paragraph (3) of subdivision (a), a registered
limited liability partnership or foreign limited liability
partnership may satisfy the requirements of this section by
confirming that, as of the last day of its most recently completed
fiscal year, it had a net worth equal to or exceeding the amount
required. In order to comply with this alternative method of meeting
the requirements established in this section, a registered limited
liability partnership or foreign limited liability partnership shall
file an annual confirmation with the Secretary of State's office,
signed by an authorized member of the registered limited liability
partnership or foreign limited liability partnership, accompanied by
a transmittal form as prescribed by subdivision (b). In order to be
current in a given year, the partnership form for confirming
compliance with the optional security requirement shall be on file
within four months of the completion of the fiscal year and, upon
being filed, shall constitute full compliance with the financial
security requirements for purposes of this section as of the
beginning of the fiscal year. A confirmation filed during any
particular fiscal year shall continue to be effective for the first
four months of the next succeeding fiscal year.
(d) Neither the existence of the requirements of subdivision (a)
nor the extent of the registered limited liability partnership's or
foreign limited liability partnership's compliance with the
alternative requirements in this section shall be admissible in court
or in any way be made known to a jury or other trier of fact in
determining an issue of liability for, or to the extent of, the
damages in question.
(e) Notwithstanding any other provision of this section, if a
registered limited liability partnership or foreign limited liability
partnership is otherwise in compliance with the terms of this
section at the time that a bankruptcy or other insolvency proceeding
is commenced with respect to the registered limited liability
partnership or foreign limited liability partnership, it shall be
deemed to be in compliance with this section during the pendency of
the proceeding. A registered limited liability partnership that has
been the subject of a proceeding and that conducts business after the
proceeding ends shall thereafter comply with paragraph (1), (2), or
(3) of subdivision (a), in order to obtain the limitations on
liability afforded by subdivision (c) of Section 16306.