BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 284| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 284 Author: Cannella (R), et al. Amended: 5/5/15 Vote: 21 SENATE BUS, PROF. & ECON. DEV. COMMITTEE: 9-0, 4/20/15 AYES: Hill, Bates, Berryhill, Block, Galgiani, Hernandez, Jackson, Mendoza, Wieckowski SENATE JUDICIARY COMMITTEE: 6-0, 4/28/15 AYES: Jackson, Anderson, Hertzberg, Leno, Monning, Wieckowski NO VOTE RECORDED: Moorlach SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8 SUBJECT: Engineering and land surveying: limited liability partnerships SOURCE: American Council of Engineering Companies of California DIGEST: This bill extends the sunset date for engineers and land surveyors to form registered limited liability partnerships and foreign limited liability partnerships until January 1, 2019. ANALYSIS: Existing law, Business and Professions Code (BPC): SB 284 Page 2 1) Licenses and regulates professional engineers and land surveyors by the Board for Professional Engineers and Land Surveyors 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, Corporations Code (CORP): 4) Authorizes attorneys, accountants, engineers, land surveyors, and architects to form a LLP. (CORP § 16954 et seq.) 5) 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)) 6) 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 SB 284 Page 3 law. (CORP § 16101(8)(A)) 7) 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)) 8) Provides a January 1, 2019 sunset date for architects to form registered limited liability partnerships and foreign limited liability partnerships. (CORP § 16101(19)) 9) Provides that only registered LLPs and foreign LLPs, through a licensed person, are recognized in this state and may render professional services. (CORP § 16951) 10) 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) 11) 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 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 extends the sunset date for engineers and land surveyors to form registered limited liability partnerships and SB 284 Page 4 foreign limited liability partnerships until January 1, 2019. 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 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. Limited Liability Companies, LLPs and Professional Services. Formation and operation of limited liability companies (LLCs) in California was authorized in 1994 through the Beverly-Killea Limited Liability Company Act (SB 469, Beverly, 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 LLC to render professional services, as defined in the CORP, unless expressly authorized under applicable provisions of the BPC 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 (CORP § 13400 ff.), "professional services" is defined as any type of professional services that may be lawfully rendered only SB 284 Page 5 pursuant to a license, certification, or registration authorized by the BPC, 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. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: No SUPPORT: (Verified 5/19/15) American Council of Engineering Companies of California (source) American Institute of Architects, California Council Arup, Structural Engineers Board of Professional Engineers, Land Surveyors, and Geologists California Land Surveyors Association Leighton Consulting, Inc. Liftech Consultants, Inc. Structural Engineers Association of California OPPOSITION: (Verified5/19/15) None received ARGUMENTS IN SUPPORT: The American Council of Engineering Companies of California, this bill's 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 SB 284 Page 6 allow professional services to be engaged in these business structures." Prepared by:Mark Mendoza / B., P. & E.D. / (916) 651-1868 5/20/15 14:34:03 **** END ****