BILL ANALYSIS                                                                                                                                                                                                    

                                                                  SB 392
                                                                  Page  1

          SB 392 (Florez)
          As Amended  June 23, 2010
          Majority vote 

           SENATE VOTE  :36-0  
           BUSINESS & PROFESSIONS     10-0 JUDICIARY           10-0        
          |Ayes:|Hayashi, Emmerson,        |Ayes:|Feuer, Tran, Brownley,    |
          |     |Conway, Eng,              |     |Evans, Hagman, Jones,     |
          |     |Hernandez, Nava, John A.  |     |Knight, Monning, Nava,    |
          |     |Perez,                    |     |Huffman                   |
          |     |Ruskin, Smyth, Hill       |     |                          |
          |     |                          |     |                          |
           APPROPRIATIONS      17-0                                        
          |Ayes:|Fuentes, Conway,          |     |                          |
          |     |Bradford,                 |     |                          |
          |     |Charles Calderon, Coto,   |     |                          |
          |     |Davis,                    |     |                          |
          |     |De Leon, Gatto, Hall,     |     |                          |
          |     |Harkey, Miller, Nielsen,  |     |                          |
          |     |Norby, Skinner, Solorio,  |     |                          |
          |     |Torlakson, Torrico        |     |                          |
          |     |                          |     |                          |
           SUMMARY  :  Allows licensed contractors to organize their company  
          under the laws of a limited liability corporation (LLC).   
          Specifically,  this bill  :   

          1)Includes LLC within the definition of "person" for the  
            purposes of the Contractors State License Law (Contractors  

          2)Defines "qualifying person," "qualifying individual," or  
            "qualifier" as an individual who qualifies for a contractor's  


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          3)Authorizes the issuance of a contractor's license to a LLC,  
            and adds license requirements that mirror those of a  

          4)Requires a LLC to provide security for claims with at least  
            one of the following:

             a)   The total aggregate limit of liability under the policy  
               or policies of insurance for a limited liability company  
               that employs five or fewer licensed persons shall not be  
               less than $1 million dollars, and for a LLC that employs  
               more than five licensees rendering professional services on  
               behalf of the company, an additional $100,000 of insurance  
               shall be obtained for each licensee except that the maximum  
               amount of insurance is not required to exceed $5 million  
               dollars in any one designated period.  Defines "designated  
               period" to mean a policy year or period less than 12  

             b)   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. The  
               maximum amount of security for a LLC that employing up to  
               five licensed persons shall not be less than $1 million.   
               For each additional licensee employed beyond five  
               licensees, an additional $100,000 of security shall be  
               obtained up a maximum of $5 million; 

             c)   At the time of licensing, a LLC shall file with the  
               registrar all necessary information and documentation  
               demonstrating compliance with the financial security  
               requirements; and,

             d)   If the security requirements of this section are  
               satisfied wholly, or in part, with an insurance policy,  
               then a certification of coverage shall be submitted to the  
               commissioner by the licensee or applicant, and signed by an  
               authorized agent or employee of the insurer.


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          5)Requires that if a LLC license is suspended, each person  
            within the company identified shall be personally liable up to  
            $1 million for damages against third parties in connection  
            with the company's performance during the period of  
            suspension, for any act or contract where a license is  

          6)Requires that if a LLC license has been suspended or revoked,  
            but stayed, the applicant or licensee must file or have on  
            file a contractor's bond in a sum fixed by the registrar.  The  
            sum shall not be less than $15,000 or more than 10 times that  

          7)Requires that the qualifying individual for a LLC shall not be  
            required to file or have on file a qualifying individual's  
            bond if he or she owns at least a 10% interest in the LLC and  
            certifies this fact on a form prescribed by the registrar.

          8)Requires a LLC to include information of the liability  
            insurance or security it maintains at a financial institution  
            for change orders and service and repair contracts. 

          9)Requires the Contractors State License Board (CSLB) to require  
            as a condition precedent to the issuance, reissuance,  
            reinstatement, reactivation, renewal, or continued valid use  
            of a LLC license, that the applicant or licensee file or have  
            on file a surety bond in the sum of $100,000, as specified.

          10)Requires a LLC to obtain a Certificate of Liability  
            Insurance, by an authorized agent or employee of the insurer,  
            and requires the insurer to submit specified information to  

          11)Authorizes CSLB to post on the Internet the name of the  
            insurers providing the liability policies, the policy numbers,  
            and the sum of each aggregate limit of liability, of active  
            LLC licensees. 

          12)Requires CSLB to begin processing applications for licensure  
            from LLCs by January 1, 2012. 

          13)Defines "members of the personnel of record" to mean every  
            person listed in the records of the registrar as then  
            associated with a licensee.


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          14)Makes other technical and conforming changes.

          15)Makes legislative findings and declarations. 

           EXISTING LAW  : 

          1)Provides for the licensure and regulation of contractors by  
            the CSLB. 

          2)Defines "person" for the purpose of the Contractors Law to  
            include an individual, a firm, co-partnership, corporation,  
            association or other organization, and prohibits any  
            unlicensed person from engaging in business or acting as a  

          3)Authorizes the issuance of a contractors' license to  
            individual owners, co-partnerships, corporations, and joint  
            ventures, and requires applicants to demonstrate degree of  
            knowledge, experience, and qualifications. 

          4)Establishes the Beverly-Killea Limited Liability Company Act  
            (LLC Act), to provide for LLCs to organize and conduct  
            business in California, and allows foreign LLCs (any LLC  
            organized outside of California) to register to conduct  
            business in the state. 

          5)Provides that a LLC may engage in any lawful activity except  
            banking, insurance, or trust company operations or the  
            offering of professional services for which a license,  
            certificate, or registration is required, unless expressly  

           FISCAL EFFECT  :   According to the Assembly Appropriations  
          Committee analysis:

          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  


                                                                  SB 392
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            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  :   The Contractors Law was adopted in 1929, prior to  
          the adoption of the LLC Act in 1994 that established LLCs.   
          Currently, general contractors are allowed to organize as one of  
          the following legal entities:  sole proprietorship, general  
          partnership (GP), limited partnership (LP), C-Corporation, and  
          S-Corporation.  Under current law, the CSLB may issue a license  
          to an individual, a partnership, a corporation, or a joint  
          venture that has met the requirements enumerated above.  SB 392  
          would add a LLC to this list, with the CSLB treating a license  
          applicant in almost all respects as a corporation. 

          Thus, current law authorizes attorneys, accountants, and  
          architects, all of whom provide professional services under the  
          Business and Professions Code, to organize themselves as Limited  
          Liability Partnerships (LLPs) and to provide professional  
          services, so long as the LLP maintains a net worth of at least  
          $10 million, and obtains liability insurance coverage or  
          maintains bank deposits of $1 million for partnerships of five  
          or fewer licensees and an additional $100,000 for each  
          additional licensee up to a maximum of $5 million for all  
          others.  LLPs are required to register with the Secretary of  
          State, and LLP partners are only personally liable for those  
          torts in which they personally participated and are not jointly  
          and severally liable for any other torts or debts of the  
          Analysis Prepared by  :    Joanna Gin / B. & P. / (916) 319-3301 

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