BILL ANALYSIS Ó
SB 177
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Date of Hearing: June 23, 2015
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Susan Bonilla, Chair
SB 177(Wieckowski) - As Amended May 5, 2015
SENATE VOTE: 38-0
SUBJECT: Alarm companies: limited liability companies.
SUMMARY: Extends the authorization of the Bureau of Security
and Investigative Services (BSIS) to issue an alarm company
operator license to a limited liability company (LLC) until
January 1, 2019.
EXISTING LAW:
1)Defines "professional services" as services that may only be
rendered under a license, certification, or registration under
the Business and Professions Code (BPC), Chiropractic Act, or
Osteopathic Act. (Corporations Code (CC) §§ 13401)
2)Provides for the licensure, registration, and regulation of
alarm company operators and alarm agents by the BSIS, within
the Department of Consumer Affairs (DCA). (BPC §7590 et seq.)
3)Until January 1, 2016:
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a) Authorizes the BSIS to issue an alarm company operator
license to a LLC;
b) Defines licensee to include a LLC licensed with the
BSIS; (BPC §7590(i))
c) Requires a LLC, as a condition for licensure, to
maintain at least one policy of insurance against liability
for damages arising out of the alarm company services it
provides: (BPC § 7599.34(b))
i) For a LLC licensee with five or fewer persons named
as managing persons, the total aggregate limit of
liability under the required insurance required must be
at least $1,000,000. (BPC § 7599.34(c)(1))
ii)For a LLC with more than five persons named as managing
members, the LLC are required to maintain an additional
$100,000 (up to a net of $5,000,000) of insurance for
each managing member. (BPC § 7599.34(c)(2))
iii)When applying for a LLC license, including
reinstatement or reactivation, the applicant or licensee
must submit the information and documentation required by
BPC § 7599.34 to show compliance with the specified
financial security requirements. (BPC § 7599.34(d))
iv)For every insurance policy secured under BPC § 7599.34,
the licensee must submit a Certificate of Liability
Insurance to the BSIS. The insurer of the policies must
report the following to the BSIS: name, license number,
policy number, coverage dates, the date and amount of any
payment of claims, and any applicable cancellation date.
(BPC § 7599.34(e))
v) The license of a licensee that fails to maintain the
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required insurance is subject to suspension. (BPC §
7599.34(f))
vi)Where a LLC license is suspended for failure to maintain
sufficient insurance pursuant to the above provisions,
the members of the LLC are personally liable, up to
$1,000,000 each, for damages to third parties in
connection with the LLC's performance of acts or
contracts requiring a license while suspended. (BPC §
7599.34(g))
d) Extends various identification and reporting
requirements to managing members of LLCs. (BPC §§ 7593.1,
7593.7(a), 7599.32(b), BPC § 7599.42(a), BPC § 7599.43(a),
7599.48(a))
THIS BILL:
4)Extends the sunset date for the authorization of the BSIS to
issue an alarm company operator license to a LLC from January
1, 2016 to January 1, 2019.
FISCAL EFFECT: According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, this bill will result
in negligible state costs.
COMMENTS:
Purpose. This bill is sponsored by the California Alarm
Association . According to the author, "[BPC] § 7590.1 currently
allows alarm companies to form [LLCs] for the purposes of
operating their businesses. Under an agreement to ensure
legislative oversight of the LLC corporate form, the enabling
statute for this industry is set to expire in 2016.
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Under [the BPC] there are several professional businesses that
are prohibited from becoming LLCs. When the state first
authorized businesses to incorporate as LLCs, alarm companies
were one of the businesses that were originally prohibited from
forming or operating a LLC.
The prohibition stems from broad language in the [BPC] that was
originally targeted at keeping law firms and accounting firms
from becoming LLCs. Those professions are now allowed to become
Limited Liability Partnerships (LLP). Subsequently, other
industries were statutorily authorized to form LLCs as well.
Today, [nearly] all other states allow alarm companies to
organize as LLCs. [This bill] simply extends the sunset date
until 2019 to allow alarm companies to organize as an LLC."
Background. Alarm companies and their employees are licensed
and regulated by the BSIS. In order for alarm companies to do
business, they must meet the following BSIS requirements:
5)Operator License. Alarm companies must have an alarm company
operator license. The BSIS defines an alarm company operator
as a business that sells, installs, maintains, monitors,
services, or responds to alarm systems. Alarm company LLCs
must also have proof of liability insurance on file with the
BSIS as a condition for licensure. There are currently about
2,000 licensed alarm company operators.
6)Manager Certificate. Alarm company qualified managers must
have a qualified manager certificate. The BSIS requires each
company to have a person designated as the qualified manager
to manage the day-to-day activities of the business. A
company owner may serve as the qualified manager or designate
another person to serve in this capacity. As a condition for
licensure, the person serving as the alarm company operator's
qualified manager must pass a licensing exam. There are
currently about 2,000 qualified managers.
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7)Registration. Alarm agents must hold an alarm employee
registration. An alarm agent is an employee of the alarm
company. There are currently about 19,000 registered alarm
company employees.
Alarm company operators, qualified managers, and agents are
permitted to obtain a BSIS-issued firearm permit under specified
conditions. Regular retail stores do not have to be licensed if
they sell alarm systems only at the store, do not install the
equipment, and do not perform any other alarm company operator
functions.
LLCs and Insurance Requirements. According to the U.S. Small
Business Administration (SBA), an LLC is a hybrid type of legal
structure that has two benefits over other types of business
organizations. First, it provides its members the limited
liability of a corporation. Second, it provides the tax
benefits and operational flexibility of a partnership.
Therefore, a LLC is often a desirable structure to use for
business.
However, state law prohibits a LLC from providing professional
services unless expressly authorized under the law.
"Professional services" are services that require a license,
certification, or registration to lawfully perform, such as
contracting, medicine, or security services. The reason
professional services are usually excluded from forming LLCs is
for consumer protection-to prevent the members of a LLC who harm
others through misconduct, incompetence, or negligence from
limiting their liability.
For instance, there may be situations where a LLC harms a
consumer but does not have enough company funds to reimburse the
consumer for the injury caused. If that occurs, the consumer
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may be left without a remedy because the individual members are
protected from liability. To remedy this issue, state law
requires LLCs that carry a minimum level of liability insurance.
In 2012, when alarm companies were first provided the
opportunity to operate as LLCs, the bill included a three-year
sunset date to ensure there were no unintended consequences and
that the liability insurance levels were sufficient to cover the
potential number of claims. Because there is still insufficient
data on insurance levels, this bill also contains a three-year
sunset date.
BSIS Sunset Issues and Limited Liability. In March of 2015, the
Assembly Business and Professions Committee and the Senate
Business, Professions and Economic Development Committee
(Committees) conducted joint oversight hearings to review 12
regulatory entities, including the BSIS.
While not specific to alarm companies, there were several issues
raised by the Committees surrounding the regulation of the armed
security industry, including the lack of proper training,
screening, and reporting of the use of firearms. While the BSIS
is not currently able to track the LLCs that carry firearm
permits, it was able to provide the following:
1)Of the 2000 licensed alarm companies, approximately 70 are
LLCs.
2)From January 1, 2013 to present, the DCA's Complaint
Resolution Program received 544 complaints relating to alarm
companies. 153 of the complaints involved an alarm company
organized as an LLC. It is important to note that a single
company can receive more than one complaint, and the BSIS
found that the larger alarm companies received multiple
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complaints.
3)From July 1, 2012 to present, the BSIS investigated 247 cases
related to alarm companies. Five of the alarm companies found
to have committed violations are organized as LLCs.
Based on the BSIS' available data, it is unclear what effects
limited liability may have on alarm companies with armed
personnel.
For instance, it may be worth exploring whether an alarm company
LLC with armed personnel should be required to carry higher
levels of insurance than a LLC with unarmed personnel.
Therefore, the three-year sunset date will also provide an
opportunity to examine the issue after more information can be
collected.
Other States. 49 other states allow alarm companies to operate
as an LLC.
Current Related Legislation. SB 284 (Cannella), of this
legislative session, extends the sunset provisions on
professional engineer and land surveyor LLPs to January 1, 2019.
STATUS: This bill is currently pending in the Assembly Business
and Professions Committee.
SB 468 (Hill), of this legislative session, is one of several
sunset bills resulting from the March 2015 sunset hearings.
Among other things, SB 468 imposes training, psychological
evaluation, and training duties on various security forces and
subjects the BSIS to review by the appropriate policy committees
of the legislature. STATUS: This bill passed the Senate and is
currently pending referral to the appropriate Assembly policy
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committee.
Prior Related Legislation. AB 1608 (Olsen), Chapter 669,
Statutes of 2014, among other things, authorized the BSIS, until
January 1, 2016, to issue a private investigator's license to
LLCs.
SB 1077(Price), Chapter 291, Statutes of 2012, among other
things, authorized LLCs, until January 1 2016, to be issued to
alarm company operator licenses if specified liability insurance
requirements are met.
SB 469 (Beverly and Killea), Chapter 1200, Statutes of 1994,
prohibited a foreign or domestic LLC from rendering professional
services in this state unless expressly authorized under
applicable provisions of law.
REGISTERED SUPPORT:
California Alarm Association (sponsor)
REGISTERED OPPOSITION:
None on file.
Analysis Prepared by:Vincent Chee / B. & P. / (916) 319-3301
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