BILL ANALYSIS Ó
SB 284
Page 1
Date of Hearing: June 23, 2015
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Susan Bonilla, Chair
SB 284(Cannella) - As Amended May 5, 2015
SENATE VOTE: 39-0
SUBJECT: Engineering and land surveying: limited liability
partnerships
SUMMARY: Extends, until January 1, 2019, the authorization for
licensed engineers and land surveyors to operate as limited
liability partnerships (LLPs).
EXISTING LAW:
1)Authorizes, until January 1, 2016, civil engineers, electrical
engineers, mechanical engineers, or land surveyors to practice
or offer to practice within the scope of their license as a
LLP if specified requirements are met. (Business and
Professions Code (BPC) §§ 6738, 8729)
2)Defines, until January 1, 2016, "foreign limited liability
partnership," "registered limited liability partnership," and
"professional limited liability partnership services" to
include the practices of engineering and land surveying.
(Corporations Code (CC) §§ 16101(6)(A), 16100(8)(A),
16100(14))
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3)Requires, until January 1, 2016, for claims based upon acts,
errors, or omissions arising out of the practice of
engineering or the practice of land surveying, a LLP providing
engineering or land surveying services must comply with one
(or some combination, as specified) of the following: (CC §§
16956(a)(4))
a) Maintaining a policy or policies of insurance against
liability imposed on or against it by law for damages
arising out of claims (but does not require more than a
total aggregate limit of liability of five million dollar
($5,000,000)):
i) For LLPs with five or fewer licensees rendering
professional services on behalf of the partnership, the
total aggregate limit of liability under the policy or
policies of insurance must not be less than two million
dollars ($2,000,000);
ii)For LLPs with more than five licensees rendering
professional services on behalf of the partnership, an
additional one hundred thousand dollars ($100,000) of
liability coverage must be obtained for each additional
licensee; or,
b) Maintaining in trust or bank escrow, cash, bank
certificates of deposit, United States Treasury
obligations, bank letters of credit, or bonds of insurance
or surety companies as security for payment of liabilities
imposed by law for damages arising out of all claims (up to
$5,000,000):
i) For LLPs with five or fewer licensees, the maximum
amount of security for rendering professional services on
behalf of the partnership must not be less than two
million dollars ($2,000,000);
ii)For LLPs with more than five licensees rendering
professional services on behalf of the partnership, an
additional one hundred thousand dollars ($100,000) of
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security shall be obtained for each additional licensee.
c) Confirming that, as of the most recently completed
fiscal year of the partnership, the LLP had a net worth
equal to or exceeding ten million dollars ($10,000,000).
d) Unless the LLP confirms a net worth of at least
$10,000,000, each partner of a LLP providing engineering
services or land surveying services, by virtue of that
person's status as a partner, automatically guarantees
payment of the difference between the maximum amount of
security required for the partnership, provided that the
aggregate amount paid by all partners under these
guarantees shall not exceed the difference.
4)Provides that a partner in a LLP is not liable or accountable,
directly or indirectly, including by way of indemnification,
contribution, assessment, or otherwise, for debts,
obligations, or liabilities of or chargeable to the
partnership or another partner in the partnership, whether
arising in tort, contract, or otherwise, that are incurred,
created, or assumed by the partnership while the partnership
is a LLP, by reason of being a partner or acting in the
conduct of the business or activities of the partnership,
except as specified. (CC § 16306(c))
THIS BILL:
5)Extends, until January 1, 2019, the authorization for licensed
engineers and land surveyors to operate as a LLP, as long as
specified insurance requirements are met.
FISCAL EFFECT: According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, this bill will result
in negligible state costs.
COMMENTS:
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Purpose. This bill is sponsored by the American Council of
Engineering Companies . According to the author, "This bill
would now extend the sunset for engineer and land surveyor LLPs,
and the requisite liability insurance provisions, by an
additional three years, to January 1, 2019.
Next January, without SB 284, engineers and land surveyors up
and down the state will no longer have the flexibility they need
to form [a LLP], should they desire to do so?. 3.4 million
California small businesses account for 99 percent of the
state's employers and employ 52 percent of the workforce. Small
businesses are the backbone to any economy. Small business
owners know their business best and should have every tool
available to them to be successful in California. 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."
Background. State law allows several professions to operate
under LLPs, including the practices of engineering and land
surveying. According to the U.S. Small Businesses
Administration, "A partnership is a single business where two or
more people share ownership. Each partner contributes to all
aspects of the business, including money, property, labor or
skill. In return, each partner shares in the profits and losses
of the business." However, in a general partnership, partners
are liable for both their own actions and the business debts and
decisions made by other partners. In addition, the personal
assets of all partners can be used to satisfy the partnership's
debt.
LLPs, on the other hand, allow partners to have limited
liability. While a partner would still be personally liable for
the partner's own wrongdoing, the partner is not responsible for
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the obligations of the other partners or the partnership just
because they are a partner or conducting business for the
partnership. While limited liability may be attractive to the
business partners, it can make it difficult for consumers harmed
by the negligence of a LLP to recover damages for the harm.
Therefore, to protect consumers, state law requires LLPs to
carry liability insurance.
However, it is unclear whether the current levels of insurance
are sufficient to cover the possible claims. Therefore, the
three-year sunset date will provide additional time to gather
information to determine whether to extend, remove, or shorten
the sunset date in the future.
Current Related Legislation. SB 177 (Wieckowski) of the current
Legislative Session, extends the authorization of the Bureau of
Security and Investigative Services to issue an alarm company
operator license to a limited liability company until January 1,
2019. STATUS: This bill is pending in the Assembly Business and
Professions Committee.
Prior Related Legislation. SB 1008 (Padilla), Chapter 634,
Statutes of 2010, authorized, until January 1, 2016, licensed
engineers and land surveyors to organize and operate as LLPs and
requires engineers and land surveyors organizing as LLPs to
carry insurance liability coverage.
AB 180 (Jerome Horton) of 2005, would have authorized the
organization of engineers and land surveyors as LLPs, and
contained a sunset date. NOTE: The bill was gutted and amended.
AB 1265 (Benoit) of 2003, would have permitted professional
engineers and land surveyors to organize as a LLP and would have
required that, depending on the number of partners, the LLP have
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between $500,000 and $5 million in insurance. NOTE: The bill was
held in the Senate Judiciary Committee.
ARGUMENTS IN SUPPORT:
The American Council of Engineering Companies of California
(sponsor) writes in support, "[this bill] 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?. Allowing engineering and land surveying firms the
option to structure as LLPs will provide additional flexibility
that will encourage business expansion in some instances, while
boosting project delivery options. SB 284 offers flexibility in
business and encourages innovative partnerships that will allow
California to better meet our growing infrastructure needs."
The Board for Professional Engineers, Land Surveyors, and
Geologists writes in support, "[this bill] will continue
authorization that was originally granted to engineers and land
surveyors in 2010 to operate within their scope of licensure
while conducting business as [a LLP]; comparable to that of
California certified public accountants and attorneys. In the
years since this authorization was first granted, there have
been no enforcement actions or complaints before the Board
relating to its licensees forming LLPs."
The California Land Surveyors Association writes in support,
"the provisions of [this bill] continue the balanced approach
required of the current professions that enjoy LLP status.
Although LLP status provides for a limitation on liability, it
also requires that a land surveying firm that chooses the LLP
form of business organization maintain certain liability
insurance thresholds, pledge collateral, or maintain a $10
million minimum net worth that will protect the public in the
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event injury is caused by land surveying service."
ARGUMENTS IN OPPOSITION:
None on file.
REGISTERED SUPPORT:
American Council of Engineering Companies of California
(sponsor)
Board of Professional Engineers, Land Surveyors, and Geologists
American Institute of Architects, California Council
California Land Surveyors Association
Structural Engineers Association of California
Arup, Structural Engineers
Guida Surveying Inc.
Group Delta Consultants Inc.
Leighton Consulting, Inc.
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Liftech Consultants, Inc.
The Covello Group
Wagner Engineering & Survey, Inc.
REGISTERED OPPOSITION:
None on file.
Analysis Prepared by:Vincent Chee / B. & P. / (916) 319-3301