BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 284|
|Office of Senate Floor Analyses | |
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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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