BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 560| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: AB 560 Author: Gorell (R), et al. Amended: 7/12/11 in Senate Vote: 21 SENATE JUDICIARY COMMITTEE : 5-0, 7/5/11 AYES: Evans, Harman, Blakeslee, Corbett, Leno SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8 ASSEMBLY FLOOR : 70-0, 5/12/11 (Consent) - See last page for vote SUBJECT : Professional limited liability partnerships SOURCE : American Institute of Architects, California Council DIGEST : This bill extends the sunset date of January 1, 2012, to January 1, 2019, authorizing limited liability partnerships for the practice of architecture. ANALYSIS : Existing law provides that a partner in a registered limited liability partnership (LLP) is not liable or accountable, directly or indirectly, including by way of indemnification, contribution, assessment, or otherwise, for debts, obligations, or liabilities of or chargeable to the partnership or another partner in the partnership, whether arising in tort, contract, or CONTINUED AB 560 Page 2 otherwise, that are incurred, created, or assumed by the partnership while the partnership is a registered limited liability partnership, by reason of being a partner or acting in the conduct of the business or activities of the partnership. (Corporations Code (CORP) Section 16306(c)) Existing law defines "foreign LLP" to include partnerships licensed to engage in the practice of architecture, engineering, land surveying, public accountancy, or the practice of law. (CORP Section 16101(6)(A)) Existing law defines "registered LLP" to include persons licensed to engage in the practice of architecture, engineering, land surveying, public accountancy, or law. (CORP Section 16101(8)(A)) Existing law defines "professional LLP services" to include the practice of architecture, engineering, land surveying, public accountancy, or law. (CORP Section 16101(14)) Existing law provides that general partners of LLPs are jointly and severally liable for all obligations of the limited partnership. (CORP Section 15904.04) Existing law requires that every registered LLP and foreign LLP provide security for claims, as specified. (CORP Section 16956) Existing law requires all LLPs, at the time of registration and continuously while transacting intrastate business to provide security for claims, as specified. 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 some combination as specified, of the following: 1. Maintaining a policy or policies of insurance against liability imposed on or against it by law for damages arising out of claims as follows: A. The total aggregate limit of liability under the policy or policies of insurance for partnerships with five or fewer licensees rendering professional CONTINUED AB 560 Page 3 services on behalf of the partnership shall not be less than $1 million. B. For partnerships with more than five licensees rendering professional services on behalf of the partnership, an additional $100,000 of liability coverage shall be obtained for each additional licensee. C. However, the total aggregate limit of liability under the policy or policies of insurance is not required to exceed $5 million. 2. In lieu of insurance coverage as specified above, 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 as follows: A. 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 $1 million. B. For partnerships with more than five licensees rendering professional services on behalf of the partnership, an additional $100,000 of security shall be obtained for each additional licensee. C. However, the maximum amount of security is not required to exceed $5 million. (CORP Section 16956(a)(3)(A)-(B)) Existing law provides that 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 for that designated period. (CORP Section 16956(a)(3)(A)) Existing law sunsets the ability of architects to organize as LLPs on CONTINUED AB 560 Page 4 January 1, 2012. (CORP Section 16101(19)) This bill extends the above January 1, 2012 sunset date to January 1, 2019. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No SUPPORT : (Verified 8/15/11) American Institute of Architects, California Council (source) ARGUMENTS IN SUPPORT : According to the author: "Existing law allows attorneys, accountants, architects, engineers, and land surveyors to organize as Limited Liability Partnerships. Unlike attorneys and accountants, the architect LLP law (and the engineer and land surveyor law, enacted last year) contains a sunset date. AB 560 proposes to eliminate the sunset date on the architect LLP, giving it the same status as the law for accountants and attorneys. "Without AB 560, the architect LLP law would expire, forcing the nearly 200 architect LLPs to reorganize their businesses to another business structure, and most likely require them to rewrite their existing contracts to reflect that change. Also, the sunset date serves as a disincentive for architecture firms to organize as an LLP. Many architectural firm principals dismiss the LLP structure as a viable option because of the sunset date; they do not want to risk having to reorganize their firm and rewrite existing contracts. "The sponsor of this bill, the AIACC, adds that by extending the sunset date, this bill "Ýbrings] this law into parity with the law that authorizes attorneys and licensed accountants to form LLPs. . . . While the 1995 legislation that authorized attorneys and licensed accountants to form LLPs did not include a sunset date, the 1998 legislation to add licensed architects to the LLP statutory framework did include a sunset date Ýlater extended twice]." CONTINUED AB 560 Page 5 ASSEMBLY FLOOR : 70-0, 5/12/11 (Consent) AYES: Achadjian, Allen, Ammiano, Atkins, Beall, Bill Berryhill, Block, Blumenfield, Bonilla, Bradford, Brownley, Buchanan, Butler, Charles Calderon, Campos, Carter, Chesbro, Cook, Davis, Dickinson, Donnelly, Eng, Feuer, Fletcher, Fong, Fuentes, Furutani, Beth Gaines, Galgiani, Gatto, Gordon, Grove, Hagman, Halderman, Hall, Harkey, Hayashi, Hill, Huber, Hueso, Huffman, Jeffries, Jones, Knight, Lara, Logue, Ma, Mansoor, Mendoza, Miller, Monning, Morrell, Nestande, Nielsen, Norby, Olsen, Pan, Perea, V. Manuel Pérez, Silva, Skinner, Smyth, Solorio, Swanson, Valadao, Wagner, Wieckowski, Williams, Yamada, John A. Pérez NO VOTE RECORDED: Alejo, Cedillo, Conway, Garrick, Gorell, Roger Hernández, Bonnie Lowenthal, Mitchell, Portantino, Torres RJG:mw 8/16/11 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED