BILL ANALYSIS
SB 392
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Date of Hearing: August 4, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 392 (Florez) - As Amended: June 23, 2010
Policy Committee: JudiciaryVote:10
- 0
Business and Professions 10 - 0
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill authorizes the State Contractors License Board (CSLB)
to issue a contractors license to a limited liability company
(LLC) if the LLC meets other requirements such as bonding,
solvency, and liability insurance.
FISCAL EFFECT
1)The Franchise Tax Board estimates that the contractors
establishing LLCs and paying the $800 annual LLC tax would
result in an additional $8.4 million in revenue for 2011-12,
growing to $11 million in 2012-13.
2)The CSLB anticipates between 500 and 700 initial applications
for the new LLC license category. Workload and automation
costs associated with these applications and creating the new
category would be approximately $65,000 per year for the first
two years. The revenue increase associated with the new
licenses would more than offset the costs.
COMMENTS
1)Purpose . The intent of this legislation is to offer
California's licensed contractors the same advantages as other
industries in California and contractors in other states by
allowing them to form an LLC. Among the advantages are the
fact that the LLC provides liability protection for the
personal assets of the owners and allows flexibility for
distributing profits and losses.
SB 392
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2)Limited Liability Company . Generally, a limited liability
company is a legal entity formed under the Beverly-Killea
Limited Liability Company Act that allows one or more owners
to conduct a business without any owner having personal
liability for the obligations of the business. While members
of an LLC are commonly thought to be individuals, they may
also be corporations or other business entities.
The primary non-tax characteristics of a limited liability
company (LLC) are limited liability for its owners (as in a
corporation) and freedom to structure management rights and
financial interests in the entity in virtually any
configuration the parties wish (as in a partnership). Unlike
a corporation, an LLC can have different classes of ownership
and may allocate income, gains, losses, and other items
disproportionately among owners without affecting the LLC's
pass-through tax treatment.
There are also important tax consequences. In regular
corporations, both the entity and the shareholders are taxed
on the increased value of the property when the property is
sold or the corporation is liquidated. LLCs avoid this tax.
In addition, because the LLC usually elects to be treated as a
partnership for income tax purposes, the income, gains,
losses, deductions, and credits of the LLC generally will flow
through to its members for reporting on their tax returns. The
distribution of the gains and losses will depend on the terms
of the LLC agreement, not necessarily the ownership interest
of the individual members.
The ability of LLCs to allocate income, gains, losses, and
other items disproportionately among owners allows LLCs to be
arranged in such a way as to create a more desirable tax
treatment than corporations or other forms of business
organization.
3)Related Legislation . SB 1008 (Padilla) authorizes licensed
engineers and land surveyors to organize and operate as
limited liability partnerships, provided that they provide
security for claims against the LLP by maintaining specified
levels of insurance liability coverage, cash reserves in
trust, and minimum net worth. That bill is currently pending
in this committee.
Analysis Prepared by : Julie Salley-Gray / APPR. / (916)
SB 392
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