BILL ANALYSIS Ó
SENATE COMMITTEE ON
BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT
Senator Jerry Hill, Chair
2015 - 2016 Regular
Bill No: SB 284 Hearing Date: April 20,
2015
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|Author: |Cannella |
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|Version: |February 19, 2015 |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant|Mark Mendoza |
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Subject: Engineering and land surveying: limited liability
partnerships.
SUMMARY: Deletes the sunset date for engineers and land surveyors to
form registered limited liability partnerships and foreign
limited liability partnerships, thereby extending that authority
indefinitely.
Existing law, Business and Professions Code (BPC):
1) Licenses and regulates professional engineers and land
surveyors by the Board for Professional Engineers and Land
Surveyors (Board) within the Department of Consumer Affairs.
(BPC § 6700 et seq.)
2) Allows one or more civil engineer, electrical engineer, land
surveyor, or mechanical engineer to practice or offer to
practice within the scope of their license as a sole
proprietorship, partnership, limited liability partnership
(LLP), firm, or corporation if specified requirements are
met. (BPC § 6738; 8729)
3) Sunsets as of January 1, 2016 statutes permitting licensed
engineers and land surveyors to form a foreign LLP or
registered LLP. (BPC § 6738)
Existing law, the Corporations Code (CORP):
1) Authorizes attorneys, accountants, engineers, land surveyors,
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and architects to form a LLP. (CORP § 16954 et seq.)
2) Defines "foreign LLP" as a partnership, other than a limited
partnership, formed and governed by the laws of another
jurisdiction and requires it to also be licensed in
California to engage in the practice of architecture, public
accountancy, the practice of engineering, the practice of
land surveying, or the practice of law.
(CORP § 16101(6)(A))
3) Defines "registered LLP" as a partnership, other than a
limited partnership, registered with the Secretary of State
and governed by the laws of California to engage in the
practice of architecture, public accountancy, the practice of
engineering, the practice of land surveying, or the practice of
law.
(CORP § 16101(8)(A))
4) Defines "professional LLP services" as the practice of
architecture, the practice of public accountancy, the
practice of engineering, the practice of land surveying, or
the practice of law. (CORP § 16101(14))
5) Provides a January 1, 2019 sunset date for architects to form
registered limited liability partnerships and foreign limited
liability partnerships. (CORP § 16101(19))
6) Provides that only registered LLPs and foreign LLPs, through
a licensed person, are recognized in this state and may
render professional services. (CORP § 16951)
7) Requires a registered LLP or foreign LLP offering
accountancy, legal, engineering, land surveying,
architectural services to provide security as specified
against claims based upon acts, errors, or omissions arising
out of the practice of these professions. (CORP § 16956)
8) Provides as an option for providing security for claims that
the engineers and land surveyors who form an LLP maintain a
policy or policies of insurance against liability imposed on
or against it by law for damages arising out of claims with a
total aggregate limit of liability for partnerships with five
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or fewer licensees of not less than $2,000,000, and for
partnerships with more than five licensees an additional
$100,000 for each additional licensee. However, the maximum
amount of insurance is not required to exceed $5,000,000 for
LLPs formed by engineers or land surveyors. (CORP §
16956(a)(4)(A))
This bill:
1) Deletes the sunset date for engineers and land surveyors to
form registered limited liability partnerships and foreign
limited liability partnerships, thereby extending that
authority indefinitely.
2) Restates the January 1, 2019 sunset date for architects to
form registered limited liability partnerships and foreign
limited liability partnerships.
3) Makes other technical and conforming changes.
FISCAL
EFFECT: Unknown. This bill has been keyed "fiscal" by
Legislative Counsel.
COMMENTS:
1. Purpose. This bill is sponsored by the American Council of
Engineering Companies (ACEC) to indefinitely extend the
authority to arrange as a limited liability partnership to
engineering and land surveying firms.
According to the Author, "Engineers and land surveyors are a
foundation for businesses growth in California and continuing
to extend the same flexibility to form limited liability
partnerships as architects allows them to contribute to
business and job growth throughout the state."
2. Background. An LLP is a hybrid of a corporation and a
general partnership, which offers its owners limited
liability and pass-through income tax treatment, yet can be
run without the formalities generally required of a
corporation. The distinguishing characteristic of an LLP
from a corporate or general partnership is that in an action
regarding the negligence or wrongful act of a partner, a
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plaintiff can enforce a judgment against the partnership
assets and the personal assets of the negligent partner. The
personal assets of the non-negligent partners are not
available to satisfy the judgment. To mitigate the public's
concerns over the limitation of liability, LLPs traditionally
must maintain a high level of professional liability
insurance.
3. Limited Liability Companies, Limited Liability Partnerships
and Professional Services. 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 LLP 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 LLP and thus become potentially
judgment-proof.
4. Prior Related Legislation. SB 1008 (Padilla, Chapter 634,
Statutes of 2010) authorized limited liability partnerships
and foreign limited liability partnerships to be formed by
person licensed to engage in the practice of engineering or
land surveyors. A sunset date of January 1, 2016 was
included.
SB 392 (Florez, Chapter 698, Statutes of 2010) authorized the
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Contractors State License Board to issue a contractor license
to an LLC, and incorporated the LLC business structure into
the contractor license provisions.
AB 2914 (Leno, Chaper 426, Statutes of 2006) further extended
the sunset date for architects to organize as LLPs to January
1, 2012.
AB 1265 (Benoit, 2003) would have permitted professional
engineers and land surveyors to organize as an LLP and would
have required the same insurance liability coverage as that
of architects. ( Status : This bill failed passage in Senate
Judiciary Committee.)
AB 1596 (Shelley, Chapter 595, Statutes of 2001) extended the
sunset date of statutes permitting architects to organize as
LLPs to January 1, 2007.
AB 469 (Cardoza, Chapter 504, Statutes of 1998) permitted
architects to form an LLP provided the partnership had
between $500,000 and $5 million in insurance depending on the
number of partners in the LLP; also provided that the
provisions of AB 469 would sunset on January 1, 2002.
SB 513 (Calderon, Chapter 679, Statutes of 1995) permitted
accountants and attorneys to form an LLP. Accountants
forming an LLP were required to have between $500,000 and $5
million in insurance, and attorneys were required to have
between $500,000 and $7.5 million in insurance, depending
upon the number of partners in the LLP.
5. Arguments in Support. The American Council of Engineering
Companies (Sponsor) argues that "SB 284 will offer unique
project delivery opportunities and allow for the creation of
specialty partnerships to deliver California's
infrastructure. SB 284 will encourage the expansion of
business practices while bringing California into parity with
the vast majority of other states, all of which allow
professional services to be engaged in these business
structures."
6. Policy Issue : Should there be a five-year sunset date placed
on the provisions which allow for engineers and land
surveyors to form LLPs similar to that placed on architects?
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Over the course of the past two decades, the Legislature has
continuously extended the sunset dates allowing architects to
form LLPs. In particular, AB 1596 (Shelly, 2001) originally
attempted to eliminate the sunset date entirely for
architects. However, when the bill was heard in Senate
Judiciary Committee, there was concern about the claims data
presented and whether it accurately reflected what might be
current and future claims regarding judgments assessed
against architects for professional negligence. No claims
data was provided to this Committee regarding civil engineers
or land surveyors. Due to the history of the sunset
provisions as required by other professions (i.e. architects)
and incomplete data provided, the Committee may wish to
reinstate a five year sunset provision into the bill and
reevaluate claims data in five years.
7. Suggested Author's Amendment . Given the short window
engineer and land surveyors have been authorized to form as
LLPs (only 5 years), the Author should provide for a five
year sunset date rather than eliminating the sunset date
entirely. However, once this five year extension has expired
in 2021, consideration should be given to eliminating the
sunset date entirely, rather than extending it to 2026.
NOTE : Double-referral to Senate Committee on Judiciary (Second).
Any amendments to this bill should be made in the Senate
Committee on Judiciary.
SUPPORT AND OPPOSITION:
Support:
American Council of Engineering Companies (Sponsor)
American Institute of Architects, California Council
California Land Surveyors Association
Structural Engineers Association of California
Opposition: None on file as of April 14, 2015.
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