BILL ANALYSIS                                                                                                                                                                                                    Ó






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          |SENATE RULES COMMITTEE            |                        SB 284|
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                                   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):








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          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  







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             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  







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          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  







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          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  







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          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


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