BILL ANALYSIS Ó
SB 1077
Page 1
Date of Hearing: June 19, 2012
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
SB 1077 (Price) - As Amended: May 1, 2012
SENATE VOTE : 38-0
SUBJECT : Alarm companies: limited liability companies.
SUMMARY : Authorizes a licensed alarm company to be organized
as a limited liability company (LLC) until January 1, 2016, and
authorizes the Bureau of Security and Investigate Services
(BSIS) to cite unlicensed alarm company operators.
Specifically, this bill :
1)Authorizes a licensed alarm company to be organized as an LLC
until January 1, 2016, and makes conforming changes to the
licensing provisions of the Alarm Company Act (Act).
2)Authorizes an alarm company to apply with the BSIS to assign
the license to another business entity as long as the direct
and indirect owners are unchanged.
3)Establishes a processing fee not to exceed $125 for the
assignment of an alarm company operator license.
4)Establishes a comprehensive system for the BSIS to cite and
issue fines up to $5,000 to a person for unlicensed activity
under the Act.
5)Provides that a citation for unlicensed activity must be in
writing and meet the following criteria:
a) Describe the nature of the violation and the provision
of law violated;
b) Inform the cited person that he or she may, within 30
days, request a hearing to contest the citation;
c) Inform the cited person that he or she may, within 10
days, request an informal conference on the citation with
the chief of BSIS;
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d) Be served upon the cited person by certified mail; and,
e) Require the BSIS to consider the following factors when
determining the amount of an administrative fine:
i) The good or bad faith exhibited by the cited person;
ii) The nature and severity of the violation;
iii) Evidence that the violation was willful;
iv) History of violations of the same or similar nature;
v) The extent to which the cited person has cooperated
with the BSIS;
vi) The extent to which the cited person has mitigated
or attempted to mitigate any damage or injury caused by
the violation; and,
vii) Any other factors as justice may require.
6)Requires that an alarm company applying for a LLC license
obtain and maintain a minimum of $1 million insurance policy,
plus an additional $100,000 per licensee in excess of five
employed by the LLC, up to $5 million in total insurance, and
provides that a LLC which does not maintain the sufficient
levels of insurance under law would be suspended, and that the
members of the LLC shall be personally liable up to $1 million
each for damages resulting to third parties in connection with
the company's performance, during the period of suspension, of
any act or contract where a license is required by the Act.
7)Makes technical corrections and conforming changes.
EXISTING LAW :
1)Provides for the licensure and regulation of alarm companies
and alarm company managers and employees by the BSIS within
the Department of Consumer Affairs (DCA) under the Act. The
BSIS further licenses and regulates security guards,
proprietary private security employers, proprietary private
security officers, private investigators, alarm companies,
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locksmiths, private patrol operators, and repossession
companies and their employees.
2)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.
3)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
authorized.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author's office, "This
bill makes two changes to the Act administered by the BSIS
within the DCA. This bill would authorize a licensed alarm
company to be organized as a LLC and makes conforming changes to
the provisions of the Act, and authorize the BSIS to cite and
fine alarm companies operating without a license."
Background . The LLC Act in 1994 established LLCs, and the Act's
exclusion of professionals to organize as a LLC was intended to
prevent service providers who harm others by their misconduct,
incompetence, or negligence from being able to limit their
liability by operating as an LLC and thus become potentially
judgment-proof. Based upon these provisions of law, it has been
commonly understood that the boards and bureaus under the DCA
are prohibited from issuing a license, certification, or
registration to an entity organized as a LLC.
Recently, SB 392 (Florez), Chapter 698, Statutes of 2010,
authorized the Contractors' State License Board (CSLB) to issue
a contractor's license to a LLC, and incorporated the LLC
business structure into the contractor license provisions.
Thus, if a licensing law under the Business and Professions Code
(BPC) specifically authorizes a LLC to hold a license, then an
LLC may obtain a professional license under that provision.
This bill seeks to make that same authorization for alarm
companies.
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Under existing law, the BSIS lacks the direct authority to
regulate unlicensed alarm companies. When BSIS discovers an
alarm company is operating illegally without a proper license,
the BSIS must rely on the local District Attorney (DA) to
enforce the Act. Securing the support of the local DA is
difficult, as they often have more pressing issues to deal with.
This bill grants the BSIS direct authority to deal with
unlicensed alarm companies more efficiently and effectively.
This bill also provides greater protection for consumers who may
be victimized by unscrupulous alarm companies operating without
a BSIS license or background check. Other boards, such as the
CSLB can regulate unlicensed contractors. This bill seeks to
make that same authorization for alarm companies.
Support . According to the sponsor, the California Alarm
Association (CAA), "The first proposed change would allow an
alarm company to be a LLC. Under the BPC, there are several
professional businesses that are prohibited from becoming LLCs.
This prohibition stems from broad language in the BPC that was
originally targeted at keeping law firms and accounting firms
from becoming LLCs. CAA believes this language is outdated and
was adopted before many professional companies, such as alarm
companies, began organizing as LLCs. Forty-nine other states
allow alarm companies to organize as LLCs. Consumers will still
be able to sue alarm companies organized as a LLC for damages in
the rare cases where disputes arise.
"In addition, SB 1077 would grant the BSIS greater authority to
cite and fine alarm companies operating without a license.
Under current law, it is illegal to operate an alarm company
without a license issued by the BSIS. Part of the licensing
process is a thorough background check on the owners and
employees of the alarm company. However, under current law, the
BSIS lacks the direct authority to regular unlicensed alarm
companies? ÝThis bill] will provide greater protection for
consumers who may be victimized by unscrupulous alarm companies
operating without the proper license."
According to the Los Angeles County District Attorney's Office,
"SB 1077 authorizes the BSIS to issue an alarm company operator
license to a LLC and requires the company to maintain specified
insurance, and failure Ýto do so] would subject the company to
suspension and damages. SB 1077 also authorizes the issuance of
a citation for acting in the capacity of a licensee without a
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license, registration, permit, or certificate and against any
person who advertises for the purpose of soliciting business as
a company operator without a license."
Previous Legislation . SB 392 (Florez), Chapter 698, Statutes of
2010, authorized licensed contractors to organize their company
under the laws of a LLC.
Double-referred . This bill is double-referred to Assembly
Judiciary Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
California Alarm Association (sponsor)
Los Angeles County District Attorney's Office
Opposition
None on file.
Analysis Prepared by : Joanna Gin / B.,P. & C.P. / (916)
319-3301