BILL ANALYSIS Ó
AB 1608
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 1608 (Olsen)
As Amended August 20, 2014
Majority vote
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|ASSEMBLY: |78-0 |(May 15, 2014) |SENATE: |31-1 |(August 25, |
| | | | | |2014) |
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Original Committee Reference: B., P. & C.P.
SUMMARY : Authorizes a licensed private investigator to be
organized as a limited liability company (LLC) until January 1,
2018. Specifically, this bill :
1)Authorizes, until January 1, 2018, a private investigator to
be licensed as an LLC.
2)Requires, as a condition of the issuance, reinstatement,
reactivation, or continued valid use of a license under this
chapter, an LLC to maintain a policy or policies of insurance
against liability imposed on or against it by law for damages
arising out of claims based upon acts, errors, or omissions
arising out of the private investigator services it provides.
3)Requires an applicant for an LLC license to obtain and
maintain a minimum $1 million insurance liability policy for a
licensee that has up to five managing members, and require an
additional $100,000 in coverage for each additional managing
member up to $5 million in total insurance in any one
designated period, less amounts paid in defending, settling,
or discharging claims, as specified.
4)Requires an applicant for an LLC license to submit specified
information and documentation to the Bureau of Security and
Investigative Services (BSIS) that demonstrate compliance with
financial security requirements, and also to submit a
Certificate of Liability Insurance to BSIS, signed by an
authorized agent or employee or the insurer.
5)Requires the insurer to report to BSIS the following
information for any required liability insurance policy:
name, license number, policy number, dates that coverage is
scheduled to commence and lapse, the date and amount of any
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payment of claims, and cancellation date if applicable.
6)Provides that if a licensee fails to maintain sufficient
insurance or provide proof of the required insurance, the
license shall be automatically suspended until the licensee
provides proof of compliance, as specified.
7)Requires BSIS, prior to an automatic suspension, to notify the
licensee, in writing, that it has 30 days to provide proof to
the bureau of having the required insurance or the license
shall be automatically suspended.
8)Provides that if a license is suspended, each member of the
LLC is personally liable up to $1 million for damages
resulting to third parties in connection with the company's
performance during the period of suspension of any act or
contract when a license is required.
9)Requires the application for an LLC license to state the true
name and complete residence address of each managing member
and any other officer or member who will be active in the
business, and the designated person to be actively in charge
of the business.
10)Requires a copy of the most recent articles of organization,
as filed by the Secretary of State, to be supplied to BSIS
upon request, and requires the application to be signed under
penalty of perjury.
11)Authorizes a licensee to assign a license to another business
entity, upon receipt of consent from BSIS and payment of a
processing fee not to exceed $125, as long as the direct and
indirect owners of the assignor own all of the assignee
immediately after the assignment.
12)Makes other technical and conforming changes.
The Senate amendments :
1)Provide that if a licensee fails to maintain sufficient
insurance or provide proof of the required insurance, the
license shall be automatically suspended until the licensee
provides proof of compliance, as specified.
2)Require BSIS, prior to an automatic suspension, to notify the
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licensee, in writing, that it has 30 days to provide proof to
the bureau of having the required insurance or the license
shall be automatically suspended.
3)Authorizes a licensee to assign a license to another business
entity, upon receipt of consent from BSIS and payment of a
processing fee not to exceed $125, as long as the direct and
indirect owners of the assignor own all of the assignee
immediately after the assignment.
FISCAL EFFECT : According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
COMMENTS :
1)Purpose of this bill. This bill seeks to allow licensed
private investigators to enjoy the benefits of operating as an
LLC, which may include tax benefits and protection from
individual civil liability, by authorizing private
investigators to be licensed as LLCs. This bill would also
authorize licensees to transfer licenses, as provided, upon
consent from BSIS. This bill is sponsored by the California
Association of Licensed Investigators (CALI).
2)Author's statement. According to the author, "While LLCs are
an increasingly popular form for business entities, [the]
existing Business and Professions Code prohibits licensed
private investigators from organizing as LLCs.
"The Private Investigator Act within the Business and
Professions Code provides for the licensure and regulation of
private investigators. A person, for purposes of the Act,
includes an individual, firm, company, association,
organization, partnership, and corporation.
"The California Revised Uniform Limited Liability Company Act
governs the formation and operation of LLCs. The [LLC] Act
authorizes a LLC to render services that may be lawfully
rendered only pursuant to a license authorized by the Business
and Professions Code if the provisions of that code authorize
an LLC to hold that license.
"[This bill] would amend the Private Investigator Act in the
Business and Professions Code to authorize limited liability
companies to be licensed as private investigators by [DCA],
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with a sunset on January 1, 2020. AB 1608 would require the
submission of pertinent information to [BSIS] within DCA and
would require liability insurance. The legislation is modeled
after recently-enacted measures that authorize LLCs for
cemeteries, contractors and alarm companies."
3)Limited liability companies. An LLC is a relatively new form
of business organization that is a hybrid entity formed under
the Corporations Code and consists of at least two members who
own membership interests. The company has a legal existence
distinct from its members, and provides members with limited
legal liability to the same extent enjoyed by shareholders of
a traditional corporation, but allows the members to actively
participate in the management and control of the company.
Some benefits of organizing as an LLC include pass-through
taxation (which means that money the companies earned is taxed
only once at the individual member's personal income tax
rate), and protection from individual liability for liability
incurred by or judgments against the LLC.
In 1994, the Beverly-Killea Limited Liability Company Act
authorized the formation and operation of LLCs in California,
but excluded professionals from organizing as LLCs. This
exclusion was intended to prevent professional service
providers who harm others by their misconduct, incompetence,
or negligence, from being able to limit their liability by
operating as an LLC and potentially being judgment proof.
"Professional services" is defined under the Moscone-Knox
Professional Corporation Act as "any type of professional
services that may be lawfully rendered only pursuant to a
license, certification, or registration authorized by the
Business and Professions Code, the Chiropractic Act, or the
Osteopathic Act."
Based on these provisions, it was commonly understood that the
boards and bureaus under DCA were prohibited from issuing a
license, certification, or registration to an entity organized
as a LLC. However, in 2004, Attorney General Opinion No.
04-103 concluded that a business that provides services
requiring a license, certification, or registration pursuant
to the BPC may conduct its activities as an LLC if the
services rendered require only a nonprofessional, occupational
license. The opinion noted that courts have drawn a
distinction between professional licenses and nonprofessional
occupational licenses, and that an examination of the level of
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education, training, and testing required to provide a service
may determine whether a particular service is professional or
nonprofessional. The opinion found that the prohibition
against rendering professional services did not prevent an LLC
from offering "nonprofessional" services that require a
license, certification, or registration pursuant to the BPC,
and thus allowed an LLC to provide "nonprofessional" services.
In 2010, SB 392 (Florez), Chapter 698, Statutes of 2010, amended
the Corporations Code to specifically provide that an LLC "may
render services that may be lawfully rendered only pursuant to
a license, certificate, or registration authorized by the
Business and Professions Code if the applicable provisions of
the Business and Professions Code authorize a limited
liability company to hold that license, certificate, or
registration."
Since the opinion and SB 392, licensed cemeteries, contractors,
and alarm companies have been authorized to operate as LLCs.
This bill seeks to make that same authorization for private
investigators.
Analysis Prepared by : Eunie Linden / B., P. & C.P. / (916)
319-3301
FN: 0005388