BILL ANALYSIS
SB 392
Page 1
SENATE THIRD READING
SB 392 (Florez)
As Amended June 23, 2010
Majority vote
SENATE VOTE :36-0
BUSINESS & PROFESSIONS 10-0 JUDICIARY 10-0
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|Ayes:|Hayashi, Emmerson, |Ayes:|Feuer, Tran, Brownley, |
| |Conway, Eng, | |Evans, Hagman, Jones, |
| |Hernandez, Nava, John A. | |Knight, Monning, Nava, |
| |Perez, | |Huffman |
| |Ruskin, Smyth, Hill | | |
|-----+--------------------------+-----+--------------------------|
| | | | |
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APPROPRIATIONS 17-0
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|Ayes:|Fuentes, Conway, | | |
| |Bradford, | | |
| |Charles Calderon, Coto, | | |
| |Davis, | | |
| |De Leon, Gatto, Hall, | | |
| |Harkey, Miller, Nielsen, | | |
| |Norby, Skinner, Solorio, | | |
| |Torlakson, Torrico | | |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Allows licensed contractors to organize their company
under the laws of a limited liability corporation (LLC).
Specifically, this bill :
1)Includes LLC within the definition of "person" for the
purposes of the Contractors State License Law (Contractors
Law).
2)Defines "qualifying person," "qualifying individual," or
"qualifier" as an individual who qualifies for a contractor's
license.
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3)Authorizes the issuance of a contractor's license to a LLC,
and adds license requirements that mirror those of a
corporation.
4)Requires a LLC to provide security for claims with at least
one of the following:
a) The total aggregate limit of liability under the policy
or policies of insurance for a limited liability company
that employs five or fewer licensed persons shall not be
less than $1 million dollars, and for a LLC that employs
more than five licensees rendering professional services on
behalf of the company, an additional $100,000 of insurance
shall be obtained for each licensee except that the maximum
amount of insurance is not required to exceed $5 million
dollars in any one designated period. Defines "designated
period" to mean a policy year or period less than 12
months;
b) Maintain 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. The
maximum amount of security for a LLC that employing up to
five licensed persons shall not be less than $1 million.
For each additional licensee employed beyond five
licensees, an additional $100,000 of security shall be
obtained up a maximum of $5 million;
c) At the time of licensing, a LLC shall file with the
registrar all necessary information and documentation
demonstrating compliance with the financial security
requirements; and,
d) If the security requirements of this section are
satisfied wholly, or in part, with an insurance policy,
then a certification of coverage shall be submitted to the
commissioner by the licensee or applicant, and signed by an
authorized agent or employee of the insurer.
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5)Requires that if a LLC license is suspended, each person
within the company identified shall be personally liable up to
$1 million for damages against third parties in connection
with the company's performance during the period of
suspension, for any act or contract where a license is
required.
6)Requires that if a LLC license has been suspended or revoked,
but stayed, the applicant or licensee must file or have on
file a contractor's bond in a sum fixed by the registrar. The
sum shall not be less than $15,000 or more than 10 times that
amount.
7)Requires that the qualifying individual for a LLC shall not be
required to file or have on file a qualifying individual's
bond if he or she owns at least a 10% interest in the LLC and
certifies this fact on a form prescribed by the registrar.
8)Requires a LLC to include information of the liability
insurance or security it maintains at a financial institution
for change orders and service and repair contracts.
9)Requires the Contractors State License Board (CSLB) to require
as a condition precedent to the issuance, reissuance,
reinstatement, reactivation, renewal, or continued valid use
of a LLC license, that the applicant or licensee file or have
on file a surety bond in the sum of $100,000, as specified.
10)Requires a LLC to obtain a Certificate of Liability
Insurance, by an authorized agent or employee of the insurer,
and requires the insurer to submit specified information to
CSLB.
11)Authorizes CSLB to post on the Internet the name of the
insurers providing the liability policies, the policy numbers,
and the sum of each aggregate limit of liability, of active
LLC licensees.
12)Requires CSLB to begin processing applications for licensure
from LLCs by January 1, 2012.
13)Defines "members of the personnel of record" to mean every
person listed in the records of the registrar as then
associated with a licensee.
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14)Makes other technical and conforming changes.
15)Makes legislative findings and declarations.
EXISTING LAW :
1)Provides for the licensure and regulation of contractors by
the CSLB.
2)Defines "person" for the purpose of the Contractors Law to
include an individual, a firm, co-partnership, corporation,
association or other organization, and prohibits any
unlicensed person from engaging in business or acting as a
contractor.
3)Authorizes the issuance of a contractors' license to
individual owners, co-partnerships, corporations, and joint
ventures, and requires applicants to demonstrate degree of
knowledge, experience, and qualifications.
4)Establishes the Beverly-Killea Limited Liability Company Act
(LLC Act), to provide for LLCs to organize and conduct
business in California, and allows foreign LLCs (any LLC
organized outside of California) to register to conduct
business in the state.
5)Provides that a LLC may engage in any lawful activity except
banking, insurance, or trust company operations or the
offering of professional services for which a license,
certificate, or registration is required, unless expressly
authorized.
FISCAL EFFECT : According to the Assembly Appropriations
Committee analysis:
1)The Franchise Tax Board estimates that the contractors
establishing LLCs and paying the $800 annual LLC tax would
result in an additional $8.4 million in revenue for 2011-12,
growing to $11 million in 2012-13.
2)The CSLB anticipates between 500 and 700 initial applications
for the new LLC license category. Workload and automation
costs associated with these applications and creating the new
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category would be approximately $65,000 per year for the first
two years. The revenue increase associated with the new
licenses would more than offset the costs.
COMMENTS : The Contractors Law was adopted in 1929, prior to
the adoption of the LLC Act in 1994 that established LLCs.
Currently, general contractors are allowed to organize as one of
the following legal entities: sole proprietorship, general
partnership (GP), limited partnership (LP), C-Corporation, and
S-Corporation. Under current law, the CSLB may issue a license
to an individual, a partnership, a corporation, or a joint
venture that has met the requirements enumerated above. SB 392
would add a LLC to this list, with the CSLB treating a license
applicant in almost all respects as a corporation.
Thus, current law authorizes attorneys, accountants, and
architects, all of whom provide professional services under the
Business and Professions Code, to organize themselves as Limited
Liability Partnerships (LLPs) and to provide professional
services, so long as the LLP maintains a net worth of at least
$10 million, and obtains liability insurance coverage or
maintains bank deposits of $1 million for partnerships of five
or fewer licensees and an additional $100,000 for each
additional licensee up to a maximum of $5 million for all
others. LLPs are required to register with the Secretary of
State, and LLP partners are only personally liable for those
torts in which they personally participated and are not jointly
and severally liable for any other torts or debts of the
partnership.
Analysis Prepared by : Joanna Gin / B. & P. / (916) 319-3301
FN: 0005685