BILL ANALYSIS                                                                                                                                                                                                    



                                                                     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