BILL ANALYSIS
AB 2914
Page 1
Date of Hearing: April 4, 2006
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Gloria Negrete McLeod, Chair
AB 2914 (Leno) - As Introduced: February 24, 2006
SUBJECT : Limited liability partnerships: architecture.
SUMMARY : Deletes the sunset date on licensed architects'
ability to organize as limited liability partnerships (LLP),
thereby permitting licensed architects to organize as an LLP
indefinitely.
EXISTING LAW provides for the formation of various types of
legal business entities, including limited liability
partnerships and foreign limited liability partnerships. Under
existing law, registered limited liability partnerships and
foreign limited liability partnerships may only be formed for
the practice of accountancy, the practice of law, and, until
January 1, 2007, the practice of architecture. LLPs formed
within these professions must meet specified insurance
requirements.
FISCAL EFFECT : Unknown. This bill is keyed non-fiscal.
COMMENTS :
Background . An LLP is basically a hybrid of a corporation and a
general partnership. Management of an LLP functions much like
that of a general partnership. Each partner has an equal right
to participate in managing the LLP unless the partner agreement
states otherwise. An LLP also provides "pass-through" income
tax treatment. That is, only an informational tax return is
required of an LLP - any profit generated by the LLP is passed
through to its partners who are then taxed at the individual
level.
Possibly the greatest benefit of an LLP, however, is "limited
liability" for an LLP partner. This limited liability protects
an LLP partner's personal assets from the errors and omissions
of an employee or other partner in the LLP as well as from
financial disaster that may lead to business losses. Thus, a
partner in an LLP is not personally liable for the negligent
acts of other partners or for debts and obligations of the
partnership, although it should be noted that a "protected"
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partner may still benefit from the profits produced by the
negligent partner. A partner of an LLP still remains personally
liable for his or her own actions and errors or omissions. In
contrast to an LLP, all partners of a general partnership are
liable for the actions of their business partners.
Purpose of this bill . According to the sponsor, the American
Institute of Architects, California Council (AIACC), architects
have had a successful eight-year experience operating as LLPs,
and allowing the authority to organize as an LLP to sunset would
require existing architectural LLPs to undergo considerable
expense to reorganize. Furthermore, AIACC argues that the
existence of a sunset date has discouraged some firms from
organizing as an LLP because of the fear of having to reorganize
if the law sunsets. AIACC notes that there is not a sunset date
on the authority to organize as an LLP that is granted to
attorneys and accountants, and the ability for architectural
firms to organize as an LLP is unrestricted in many other
states; if California revoked this authority, many legal
complications and anomalies would result.
Related legislation . AB 180 (Jerome Horton), 2005-2006 Session,
would authorize professional engineers and land surveyors to
operate within their scope of licensure, and to conduct business
as an LLP until January 1, 2009. AB 180 is currently on the
Senate Inactive File.
Previous legislation . AB 1265 (Benoit), 2003-2004 Session,
would have permitted professional engineers and land surveyors
to organize as an LLP and would have required that, depending on
the number of partners, the LLP must have between $500,000 and
$5 million in insurance. AB 1265 was held in the Senate
Judiciary Committee.
AB 1596 (Shelley), Chapter 595, Statutes of 2001, extended the
sunset date of statutes permitting architects to organize as
LLPs, to January 1, 2007.
AB 469 (Cardoza), Chapter 504, Statutes of 1998, permitted
architects to form an LLP provided the partnership had between
$500,000 and $5 million in insurance depending on the number of
partners in the LLP. AB 469 also provided that its provisions
would sunset on January 1, 2002.
SB 513 (Calderon), Chapter 679, Statutes of 1995, permitted
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accountants and attorneys to form an LLP. Accountants forming
an LLP were required to have between $500,000 and $5 million in
insurance, and attorneys were required to have between $500,000
and $7.5 million in insurance, depending upon the number of
partners in the LLP.
REGISTERED SUPPORT / OPPOSITION :
Support
American Institute of Architects, California Council (sponsor)
Opposition
None on file.
Analysis Prepared by : Pablo Garza / B. & P. / (916) 319-3301