BILL ANALYSIS
SB 1008
Page 1
Date of Hearing: June 22, 2010
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
SB 1008 (Padilla) - As Amended: April 28, 2010
SENATE VOTE : 33-0
SUBJECT : Engineering and land surveying: limited liability
partnerships.
SUMMARY : Authorizes engineers and land surveyors operating
within their scope of licensure to conduct business as a limited
liability partnership (LLP) similar to that of architects,
certified public accountants and attorneys, and to be designated
as a registered LLP or a foreign LLP. Specifically, this bill :
1)Authorizes a civil engineer, electrical engineer, mechanical
engineer, or land surveyor to practice or offer to practice as
an LLP within the scope of his or her licensure if certain
requirements are met.
2)Authorizes a foreign LLP and a registered LLP to be formed for
the practice of engineering and the practice of land
surveying, and provides that engineers or land surveyors are
not prohibited from practicing or offering to practice, within
the scope of their registration, as an LLP.
3)Imposes the security requirements on an LLP and foreign LLP
providing engineering or land surveying services, equivalent
to the requirements for architects. Specifically, an LLP
offering engineering or land surveying services must obtain
either one, or an aggregate of the following:
a) 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 and in the annual aggregate of
at least $1.5 million. The policy or policies may be
issued on a claims-made or occurrence basis as specified.
b) Security for payment of liabilities in trust or bank escrow,
cash, bank certificates of deposit, United States Treasury
obligations, bank letter of credit, or bonds of insurance
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or surety companies in an amount of at least $1.5 million.
4)Provides that, in lieu of the requirement specified in #3
above, an LLP may file a confirmation with the Secretary of
State that the LLP has a net worth equal to or greater than
$10 million.
5)Provides that each partner, except for a partnership that
satisfies #4 above, by virtue of his or her status as a
partner, is liable for the difference should the LLP's
insurance fall short of the minimum insurance requirements.
6)Strikes obsolete provisions out of the law relating to LLPs,
and makes technical and conforming changes.
7)Sunsets the provisions of this bill on January 1, 2016.
EXISTING LAW :
1)Licenses and regulates professional engineers and land
surveyors by the Board for Professional Engineers and Land
Surveyors (Board) within the Department of Consumer
Affairs.
2)Allows one or more civil engineer, electrical engineer,
mechanical engineer, or land surveyor to practice or offer to
practice within the scope of their registration as a sole
proprietorship, partnership, firm, or corporation if specified
requirements are met.
3)Provides for the formation of various types of legal entities,
including corporations, limited liability companies (LLC),
partnerships, limited partnerships, and LLCs.
4)Defines "foreign LLP" as a partnership, other than a limited
partnership, formed and governed by the laws of another
jurisdiction and requires it to also be licensed in California
to engage in the practice of architecture, public accountancy,
or the practice of law.
5)Defines "registered LLP" as a partnership, other than a
limited partnership, registered with the Secretary of State
and governed by the laws of California to engage in the
practice of architecture, public accountancy, or the practice
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of law.
6)Sunsets as of January 1, 2012, statutes permitting architects
to form a foreign LLP or registered LLP for the practice of
architecture.
7)Defines "professional LLP services" as the practice of
architecture, the practice of public accountancy, or the
practice of law.
8)Requires a registered LLP or foreign LLP offering accountancy,
legal or architectural services to provide security as
specified against claims based upon acts, errors, or omissions
arising out of the practice of these professions.
9)Provides as an option for providing security for claims that
the accountants, attorneys or architects who form an LLP
maintain a policy or policies of insurance against liability
imposed on or against it by law for damages arising out of
claims with a total aggregate imit of liability for
partnerships with five or fewer licensees of not less than $1
million, and for partnerships with more than five
licensees an additional $100,000 for each additional licensee.
However, the maximum amount of insurance is not required to
exceed $5 million for LLPs formed by accountants or architects
and $7.5 million for LLPs formed by attorneys in any one
designated period.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author's office,
"Allowing engineering and land surveying firms the option to
structure as [LLPs] will grant parity with related design
professionals (architects) who can currently form [LLPs].
"The ability to form [LLPs] will allow engineering and land
surveying firms to combine with firms with complimentary
expertise in order to better compete for projects. As the
needed infrastructure projects become more complex, the
flexibility of design and construction firms to adapt is key in
being able to effectively deliver for their clients.
"Currently, 14 other states (New York, Nevada, Ohio, Oklahoma,
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Missouri, Massachusetts, Kansas, Tennessee, Virginia, Illinois,
Connecticut, Delaware, Washington and Wisconsin) allow the
formation of [LLPs] by engineering and land surveying firms.
Background . An LLP is a hybrid of a corporation and a general
partnership, which offers its owners limited liability and
pass-through income tax treatment, yet can be run without the
formalities generally required of a corporation. The
distinguishing characteristic of an LLP from a corporate or
general partnership is that in an action regarding the
negligence or wrongful act of a partner, a plaintiff can enforce
a judgment against the partnership assets and the personal
assets of the negligent partner. The personal assets of the
non-negligent partners are not available to satisfy
the judgment. To mitigate the public's concerns over the
limitation of liability, LLPs traditionally must maintain a high
level of professional liability insurance.
LLCs, LLPs and Professional Services . Under the Beverly-Killea
LLC Act, a foreign or domestic LLC is prohibited from rendering
professional services in this state unless expressly authorized
under applicable provisions of law. Professional services are
those services for which a license, certification, or
registration is required under specified statutes.
The rationale for the exclusion was that service providers who
harm others by their misconduct, incompetence or negligence
should not be able to limit their liability by operating as an
LLC or LLP and thus become potentially judgment-proof.
Related legislation . SB 392 (Florez) of 2009, authorizes the
State Contractors License Board to issue a contractors license
to a limited liability company if the LLC meets other
requirements such as bonding, solvency, and liability insurance.
SB 392 is currently pending Assembly Appropriations Committee.
Previous legislation . SB 414 (Corbett), Chapter 80, Statutes of
2007, increases the minimum amount of insurance required of LLP
firms registered for the practice of public accountancy or law
from $500,000 to $1 million.
AB 2914 (Leno), Chapter 426, Statutes of 2006, extends the
sunset date on licensed architects' ability to organize as LLPs
to January 1, 2012, and increases the minimum liability coverage
requirements for architectural LLPs to $1 million (from
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$500,000) as of January 1, 2008.
AB 180 (Horton) of 2005 would have authorized, until January 1,
2009, engineers and land surveyors to operate within their scope
of registration, and to conduct business as a LLP similar to
that of architects, certified public accountants and attorneys,
and to be designated as a registered LLP or a foreign LLP, and
specifies the level of liability insurance or security the LLPs
are required to maintain. This bill was amended to address an
unrelated issue.
AB 1265 (Benoit) of 2003 authorizes engineers and land surveyors
to operate within their scope of registration, and to conduct
business as a LLP similar to that of architects, certified
public accountants and attorneys, and to be designated as a
registered LLP or a foreign LLP. AB 1265 was held in the
Senate.
AB 1596 (Shelley), Chapter 595, Statutes of 2001 extends the
sunset date for architects to form LLPs and foreign LLPs from
January 1, 2002, until January 1, 2007.
AB 469 (Cardoza), Chapter 504, Statutes of 1998, permitted
architects to limit their liability by operating as a LLP when
the partnership meets specified insurance requirements.
SB 513 (Calderon), Chapter 679, Statutes of 1995, authorized
licensed accountants and licensed attorneys be authorized to
form LLPs with members of their own profession to practice law
or accounting, as applicable, with the effect that partners will
be personally liable only for those torts in which they
personally participated, and not jointly and severally liable
for any other torts and debts of the partnership.
SB 469 (Beverly and Killea), Chapter 1200, Statutes of 1994,
enacted the Beverly-Killea LLC Act.
Double referred : This bill is double-referred to Assembly
Judiciary Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
American Council of Engineering Companies of California
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American GI Forum of California
Golden State Management Services
Amersoft International, LLC
Asian Business Association
Asian Indian Association of America
California Based Hispanic Contractors Association
California Business Properties Association
California Chamber of Commerce
California Hispanic Chambers of Commerce
California Land Surveyors Association
Century Diversified Inc.
Emergintec, LLC
Greater Los Angeles Chamber of the Society of Hispanic
Professional Engineers, Inc.
Green America Public Private Partnership
Hernandez, Kroone & Associates
La Raza Roundtable de California
Latino Business Chamber of Greater Los Angeles
Latino Institute for Corporate Inclusion
League of United Latin American Citizens
Lista Design Studio, Inc.
National Concilio of America
Testing Services & Inspection Inc.
Valle & Associates
W2 Design, Inc.
Yang Management, Inc.
Yerba Buena Engineering & Construction
Opposition
None on file.
Analysis Prepared by : Rebecca May / B.,P. & C.P. / (916)
319-3301