BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 1008|
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UNFINISHED BUSINESS
Bill No: SB 1008
Author: Padilla (D)
Amended: 8/19/10
Vote: 27 - Urgency
SENATE BUSINESS, PROF. & ECON. DEV. COMMITTEE : 7-0, 4/5/10
AYES: Negrete McLeod, Aanestad, Calderon, Correa, Oropeza,
Walters, Yee
NO VOTE RECORDED: Wyland, Florez
SENATE JUDICIARY COMMITTEE : 4-0, 4/20/10
AYES: Corbett, Harman, Hancock, Leno
NO VOTE RECORDED: Walters
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SENATE FLOOR : 33-0, 5/17/10 (Consent)
AYES: Aanestad, Alquist, Calderon, Cedillo, Cogdill,
Corbett, Correa, Cox, Denham, DeSaulnier, Ducheny,
Dutton, Florez, Hancock, Harman, Hollingsworth, Huff,
Kehoe, Leno, Liu, Lowenthal, Negrete McLeod, Padilla,
Pavley, Romero, Runner, Simitian, Steinberg, Strickland,
Walters, Wolk, Wyland, Yee
NO VOTE RECORDED: Ashburn, Oropeza, Price, Wiggins,
Wright, Vacancy, Vacancy
ASSEMBLY FLOOR : 76-0, 8/23/10 - See last page for vote
SUBJECT : Engineering and land surveying: limited
liability
partnerships
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SOURCE : American Council of Engineering Companies
DIGEST : This bill authorizes engineers and land
surveyors to operate within their scope of licensure, and
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.
Assembly Amendments increase the amount of security
required on an LLP and foreign LLP providing engineering or
land surveying services from $1,500,000 to $2,000,000, and
add an urgency clause.
ANALYSIS :
Existing law, the Business and Professions Code:
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.
Existing law, the Corporations Code:
3. Provides for the formation of various types of legal
entities, including corporations, limited liability
companies, partnerships, limited partnerships, and
limited liability partnerships.
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.
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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 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
limit of liability for partnerships with five or fewer
licensees of not less than $1,000,000, 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
$5,000,000 for LLPs formed by accountants or architects
and $7,500,000 for LLPs formed by attorneys in any one
designated period.
This bill:
1. Authorizes a civil engineer, electrical engineer,
mechanical engineer, or land surveyor to practice or
offer to practice within the scope of their registration
as an LLP.
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
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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 $2,000,000. 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 or surety companies in
an amount of at least $2,000,000.
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 $10,000,000.
5. Provides that each partner, except for a partnership
that satisfies #4 above, by virtue of his/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.
Background
An LLP is a hybrid of a corporation and a general
partnership, which offers its owners limited liability and
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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.
Limited Liability Companies (LLCs), LLPs and Professional
Services . Under the Beverly-Killea Limited Liability
Company Act, a foreign or domestic limited liability
company 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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 8/24/10)
American Council of Engineering Companies (source)
American GI Forum of California
Asian Business Association
California Business Properties Association
California Chamber of Commerce
California Land Surveyors Association
Century Diversified, Inc.
Golden State Management Services
Greater Los Angeles Chapter of the Society of Hispanic
Professional Engineers, Inc.
Hispanic Contractors Association
Latino Business Chamber of Greater Los Angeles
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W2 Design, Inc.
ARGUMENTS IN SUPPORT : The bill's sponsor, the American
Council of Engineering Companies, along with the California
Business Properties Association and the California Chamber
of Commerce who support this bill, argue that the authority
to organize as an LLP under this bill will offer unique
project delivery opportunities and allow for the creation
of specialty partnerships to deliver infrastructure
projects in California. They state the bill will encourage
the expansion of business practices while bringing
California into parity with the vast majority of other
states which allow professional services to be engaged in
these business structures. The proponents further suggest,
"As California attempts to claw its way out of the worst
recession in decades, providing options to business makes
sense. Allowing engineering and land surveying firms the
option to structure as LLPs will provide additional
flexibility that will encourage business expansion in some
instances, while boosting project delivery options."
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Bass, Beall,
Bill Berryhill, Tom Berryhill, Block, Blumenfield,
Bradford, Brownley, Buchanan, Caballero, Charles
Calderon, Carter, Chesbro, Conway, Cook, Coto, Davis, De
La Torre, De Leon, DeVore, Eng, Feuer, Fletcher, Fong,
Fuentes, Fuller, Gaines, Galgiani, Garrick, Gatto,
Gilmore, Hagman, Hall, Harkey, Hayashi, Hernandez, Hill,
Huber, Huffman, Jeffries, Jones, Knight, Lieu, Logue,
Bonnie Lowenthal, Ma, Mendoza, Miller, Monning, Nava,
Nestande, Niello, Nielsen, Norby, V. Manuel Perez,
Portantino, Ruskin, Salas, Saldana, Silva, Skinner,
Smyth, Solorio, Audra Strickland, Swanson, Torlakson,
Torres, Torrico, Tran, Villines, Yamada, John A. Perez
NO VOTE RECORDED: Evans, Furutani, Vacancy, Vacancy
JJA:mw 8/24/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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