BILL ANALYSIS Ó
SENATE COMMITTEE ON
BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT
Senator Jerry Hill, Chair
2015 - 2016 Regular
Bill No: SB 177 Hearing Date: April 13,
2015
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|Author: |Wieckowski |
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|Version: |February 9, 2015 |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant|Janelle Miyashiro |
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Subject: Alarm companies: limited liability companies.
SUMMARY: Extends the sunset date for the Bureau of Security and
Investigative Services to issue an alarm company operator
license to a limited liability company from January 1, 2016 to
January 1, 2022.
Existing law:
1) Provides for the licensure and regulation of alarm companies
and alarm company managers and employees by the Bureau of
Security and Investigative Services (Bureau) within the
Department of Consumer Affairs (DCA) under the Alarm Company
Act. (Business and Professions Code (BPC) §7590).
2) Defines a "licensee" as a business entity; which includes an
individual, partnership, limited liability company, or
corporation. (BPC §7590.1)
3) Defines an "alarm company operator" as a person who, for any
consideration, engages in business or accepts employment to
install, maintain, alter, sell on premises, monitor, or
service alarm systems or who responds to alarm systems except
for any alarm agent. (BPC §7590.2)
4) Prohibits an alarm company operator from transferring his or
her license to another person, as specified. (BPC §7599.47)
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5) Authorizes the Bureau to issue a citation and fine to a
licensed alarm company operator, qualified manager, or an
alarm agent for specified violations of the Alarm Company
Act, and requires the citation to be in writing, containing a
written description of the violation, and the provision of
law violated. The citation shall contain an order of
abatement and shall not exceed $2,500. (BPC §7591.9)
6)The Beverly-Killea Limited Liability Company (LLC) Act
prohibits domestic and foreign limited liability companies
from rendering professional services in California.
(Corporations Code (CC) § 17375).
a) Defines "professional services" as "any type of
professional services which 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." (CC §
13401(a)).
b) Explicitly provides that an LLC may render services that
may be lawfully rendered only pursuant to a license,
certificate, or registration authorized by the BPC if the
applicable provisions of the BPC authorize a limited
liability company to hold that license, certificate, or
registration. (CC§ 17002 (c))
1)Authorizes the Bureau to issue an alarm company operator
license to a limited liability company along with other
provisions for alarm companies to operate as an LLC until
January 1, 2016. (BPC §7590.1)
This bill: Extends the sunset date for the Bureau to issue an
alarm company operator license to a limited liability company
(LLC) from January 1, 2016 to January 1, 2022.
FISCAL
EFFECT: Unknown. This bill has been keyed "fiscal" by
Legislative Counsel.
COMMENTS:
1. Purpose. This bill is sponsored by the California Alarm
SB 177 (Wieckowski) Page 3
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Company Association (CAA). According to the Author, "SB 1077
has allowed alarm companies to professionally organize as
Limited Liability Companies (LLCs), provided these alarm
companies maintain additional insurance requirements to
ensure proper consumer protections." CAA claims that since
SB 1077 became law on January 13, 2013, they are "not aware
of any major lawsuits against an alarm company organized as
an LLC in California that calls into question the insurance
requirements imposed by SB 1077". CAA therefore has asked to
have an extension of the current law in the provisions
related to limited liability alarm companies and their
licensees until January 1, 2022.
2. Background. Formation and operation of limited liability
companies (LLC) in California was authorized in 1994 through
the Beverly-Killea Limited Liability Company Act (SB 469,
Chapter 1200, Statutes of 1994). An uncodified provision in
the Act specified that nothing in the Act shall be construed
to permit a domestic or foreign limited liability company to
render professional services, as defined in the Corporations
Code, unless expressly authorized under applicable provisions
of the Business and Professions Code or the Chiropractic Act.
This provision was codified in 1999 (SB 284, Kelley, Chapter
1000, Statutes of 1999).
Under the Moscone-Knox Professional Corporation Act
(Corporations Code § 13400 ff.), "professional services" is
defined 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.
The rationale for requiring that an LLC be expressly authorized
was apparently to ensure 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 and thus become potentially judgment-proof.
Based upon these provisions of law, it has been commonly
understood that the boards and bureaus under the Department
of Consumer Affairs are prohibited from issuing a license,
certification or registration to an entity organized as an
LLC.
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However, in 2004, an Attorney General Opinion No. 04-103
concluded that a business that provides services requiring a
license, certification, or registration pursuant to the
Business and Professions Code may conduct its activities as a
limited liability company if the services rendered require
only a nonprofessional, occupational license.
In discussing the distinctions between professional services
and nonprofessional occupational services, the AG Opinion
further discusses Mann v. Department of Motor Vehicles (1999)
76 Cal.App.4th 312 (Mann), in which the court concluded that
the services performed pursuant to a vehicle salesperson
license issued under the Vehicle Code were not "professional
services," but rather were "nonprofessional, occupational"
services.
Since this AG Opinion has been released, several changes to
the Business & Professions Code have been made through the
legislature to incorporate limited liability companies into
the licensure provisions of several different Boards and
Bureaus regulated by the DCA.
SB 392 (Florez, Chapter, 698, Statutes of 2010) was one such
amendment.
SB 392 authorized the Contractors State License Board to
issue a contractor license to an LLC, and incorporated the
LLC business structure into the contractor license
provisions. The bill additionally added paragraph (c) to
Corporations Code Section 17002 to read: "(c)
Notwithstanding Section 17375, a limited liability company
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."
Following closely behind SB 392, SB 1077 (Price, Chapter 291,
Statutes of 2012) specifically authorized an LLC to hold an
alarm company operator license. The provision was set to be
repealed on January 1, 2016 so that the Legislature could
evaluate the adequateness of the LLC insurance requirements
and enforcement by the Bureau.
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This bill would extend the provision that authorizes an LLC
to hold an alarm company operator license from its sunset
date of January 1, 2016 to January 1, 2022.
3. Prior Related Legislation. SB 1077 (Price, Chapter 291,
Statutes of 2012) Authorized the Bureau to issue an alarm
company operator license to a limited liability company
(LLC). A failure of a limited liability alarm company to
comply with the requirements to submit the company's
information and documentation with the Bureau would subject
the company's license to suspension and would be mandate that
any violation of the Alarm Company Act by a limited liability
company be considered a crime.
4. Arguments in Support. Writing in support of the bill, the
California Alarm Company Association (CAA) states that the
provisions chaptered by SB 1077 in 2012 have been able to
grant greater protection for consumers by:
a) Allowing an alarm company to professionally organize as
an LLC only if the company maintains additional insurance
requirements to ensure proper consumer protections.
b) Granting the Bureau greater and direct authority to cite
and fine alarm companies operating without a license.
c) Allowing an alarm company to keep the same alarm license
if it changes its business structure (i.e. from a
corporation to a LLC) so that the Bureau would not have to
process a new application for an alarm company license by
the same entity.
d) Granting alarm companies probationary licenses
CAA seeks to extend the Sunset date from January 1, 2016 to
January 1, 2022 on all four of the above listed provisions
that SB 1077 put into law in order to properly protect
consumers.
NOTE : Double-referral to Senate Committee on Judiciary.
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SUPPORT AND OPPOSITION:
Support:
California Alarm Company Association (Sponsor)
Opposition:
None on file as of April 7, 2015.
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