BILL ANALYSIS
AB 2914
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 2914 (Leno)
As Amended August 23, 2006
Majority vote
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|ASSEMBLY: |75-0 |(April 20, |SENATE: |39-0 |(August 28, |
| | |2006) | | |2006) |
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Original Committee Reference: B. & P.
SUMMARY : Extends the sunset date on licensed architects'
ability to organize as limited liability partnerships (LLPs) to
January 1, 2012, and increases the minimum liability coverage
requirements for architectural LLPs to $1 million (from
$500,000) as of January 1, 2008.
The Senate amendments :
1)Reinstate and extend the sunset date on licensed architects'
ability to organize as LLPs to January 1, 2012.
2)Provide that, as of January 1, 2008, an LLP offering
architectural services must maintain liability insurance
coverage, security, or a combination of the two, totaling a
minimum of $1 million for LLPs with five or fewer licensed
architects. For each licensed architect above five that an
LLP employs, the LLP shall obtain an additional $100,000 of
liability insurance coverage, security, or a combination of
the two.
3)Provide that this bill will not "chapter out" changes made by
AB 339 (Harman). If both bills are enacted, this bill will
include in the definition of "partnership" those entities to
be governed under the Uniform Limited Partnership Act of 2008,
which AB 339 would enact.
EXISTING LAW :
1)Provides for the formation of various types of legal business
entities, including LLPs and foreign LLPs.
2)States that registered LLPs and foreign LLPs may only be
AB 2914
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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
liability coverage requirements based on the number of
professionals practicing on behalf of the LLP.
3)States that Architectural LLPs must maintain a minimum of
$500,000 in liability coverage, but are not required to exceed
$5 million in liability coverage.
AS PASSED BY THE ASSEMBLY , this bill deleted the sunset date on
licensed architects' ability to organize as LLPs, thereby
permitting licensed architects to organize as an LLP
indefinitely.
FISCAL EFFECT : Unknown. This bill is keyed non-fiscal.
COMMENTS : 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"
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.
According to the sponsor, the American Institute of Architects,
California Council (AIACC), architects have had a successful
eight-year experience operating as LLPs, and extending the
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authority to organize as an LLP is, therefore, warranted.
However, AIACC notes that there is not a sunset date on
accountants' and attorneys' ability to organize as an LLP and
that the ability for architectural firms to organize as an LLP
is unrestricted in many other states.
AB 180 (Jerome Horton) of 2005 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.
AB 1265 (Benoit) of 2003 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, extends the
sunset date of statutes permitting architects to organize as
LLPs, to January 1, 2007.
AB 469 (Cardoza), Chapter 504, Statutes of 1998, permits
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, permits
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.
Analysis Prepared by : Pablo Garza / B. & P. / (916) 319-3301
FN: 0017298