BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                   AB 560|
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                                 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 
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          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 

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                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 

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          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]."

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           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

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