BILL ANALYSIS
SB 1008
Page 1
SENATE THIRD READING
SB 1008 (Padilla)
As Amended August 2, 2010
Majority vote
SENATE VOTE :33-0
BUSINESS & PROFESSIONS 11-0 JUDICIARY 10-0
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|Ayes:|Hayashi, Conway, Eng, |Ayes:|Feuer, Tran, Brownley, |
| |Hernandez, Hill, Ma, | |Evans, Hagman, Huffman, |
| |Nava, Niello, Ruskin, | |Jones, Knight, Monning, |
| |Smyth, Cook | |Saldana |
|-----+--------------------------+-----+--------------------------|
| | | | |
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APPROPRIATIONS 17-0
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|Ayes:|Fuentes, Conway, | | |
| |Bradford, | | |
| |Huffman, Coto, Davis, De | | |
| |Leon, Gatto, Hall, | | |
| |Harkey, Miller, Nielsen, | | |
| |Norby, Skinner, Solorio, | | |
| |Torlakson, Torrico | | |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Authorizes engineers and land surveyors operating
within their scope of licensure to conduct business as a limited
liability partnership (LLP) similar to that of architects,
certified public accountants and attorneys, and to be designated
as a registered LLP or a foreign LLP. Specifically, this bill :
1)Authorizes a civil engineer, electrical engineer, mechanical
engineer, or land surveyor to practice or offer to practice as
an LLP within the scope of his or her licensure if certain
requirements are met.
2)Authorizes a foreign LLP and a registered LLP to be formed for
the practice of engineering and the practice of land
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surveying, and provides that engineers or land surveyors are
not prohibited from practicing or offering to practice, within
the scope of their registration, as an LLP.
3)Imposes the security requirements on an LLP and foreign LLP
providing engineering or land surveying services, equivalent
to the requirements for architects. Specifically, an LLP
offering engineering or land surveying services must obtain
either one, or an aggregate of the following:
a) A policy or policies of insurance against liability imposed
on or against it by law for damages arising out of claims
in an amount for each claim and in the annual aggregate of
at least $2 million. The policy or policies may be issued
on a claims-made or occurrence basis as specified; or,
b) Security for payment of liabilities in trust or bank escrow,
cash, bank certificates of deposit, United States Treasury
obligations, bank letter of credit, or bonds of insurance
or surety companies in an amount of at least $2 million.
4)Provides that, in lieu of the requirement specified in #3
above, an LLP may file a confirmation with the Secretary of
State that the LLP has a net worth equal to or greater than
$10 million.
5)Provides that each partner, except for a partnership that
satisfies #4 above, by virtue of his or her status as a
partner, is liable for the difference should the LLP's
insurance fall short of the minimum insurance requirements.
6)Strikes obsolete provisions out of the law relating to LLPs,
and makes technical and conforming changes.
7)Sunsets the provisions of this bill on January 1, 2016.
EXISTING LAW :
1)Licenses and regulates professional engineers and land
surveyors by the Board for Professional Engineers and Land
Surveyors (Board) within the Department of Consumer
Affairs.
2)Allows one or more civil engineer, electrical engineer,
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mechanical engineer, or land surveyor to practice or offer to
practice within the scope of their registration as a sole
proprietorship, partnership, firm, or corporation if specified
requirements are met.
3)Provides for the formation of various types of legal entities,
including corporations, limited liability companies (LLC),
partnerships, limited partnerships, and LLCs.
4)Defines "foreign LLP" as a partnership, other than a limited
partnership, formed and governed by the laws of another
jurisdiction and requires it to also be licensed in California
to engage in the practice of architecture, public accountancy,
or the practice of law.
5)Defines "registered LLP" as a partnership, other than a
limited partnership, registered with the Secretary of State
and governed by the laws of California to engage in the
practice of architecture, public accountancy, or the practice
of law.
6)Sunsets as of January 1, 2012, statutes permitting architects
to form a foreign LLP or registered LLP for the practice of
architecture.
7)Defines "professional LLP services" as the practice of
architecture, the practice of public accountancy, or the
practice of law.
8)Requires a registered LLP or foreign LLP offering accountancy,
legal or architectural services to provide security as
specified against claims based upon acts, errors, or omissions
arising out of the practice of these professions.
9)Provides as an option for providing security for claims that
the accountants, attorneys or architects who form an LLP
maintain a policy or policies of insurance against liability
imposed on or against it by law for damages arising out of
claims with a total aggregate limit of liability for
partnerships with five or fewer licensees of not less than $1
million, and for partnerships with more than five
licensees an additional $100,000 for each additional licensee.
However, the maximum amount of insurance is not required to
exceed $5 million for LLPs formed by accountants or architects
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and $7.5 million for LLPs formed by attorneys in any one
designated period.
FISCAL EFFECT : According to the Assembly Appropriations
Committee analysis:
1)The Franchise Tax Board estimates this legislation will result
in a loss of tax revenue of approximately $100,000 in 2010-11,
growing to $2.5 million per year in future years, because
current S corporations and C corporations would convert to
LLPs due to the tax advantages.
2)The licensing board for engineers and land surveyors does not
anticipate that this legislation will have any workload impact
for the board.
COMMENTS : According to the author's office, "Allowing
engineering and land surveying firms the option to structure as
[LLPs] will grant parity with related design professionals
(architects) who can currently form [LLPs].
"The ability to form [LLPs] will allow engineering and land
surveying firms to combine with firms with complimentary
expertise in order to better compete for projects. As the
needed infrastructure projects become more complex, the
flexibility of design and construction firms to adapt is key in
being able to effectively deliver for their clients.
"Currently, 14 other states (New York, Nevada, Ohio, Oklahoma,
Missouri, Massachusetts, Kansas, Tennessee, Virginia, Illinois,
Connecticut, Delaware, Washington and Wisconsin) allow the
formation of [LLPs] by engineering and land surveying firms."
An LLP is a hybrid of a corporation and a general partnership,
which offers its owners limited liability and pass-through
income tax treatment, yet can be run without the formalities
generally required of a corporation. The distinguishing
characteristic of an LLP from a corporate or general partnership
is that in an action regarding the negligence or wrongful act of
a partner, a plaintiff can enforce a judgment against the
partnership assets and the personal assets of the negligent
partner. The personal assets of the non-negligent partners are
not available to satisfy the judgment. To mitigate
the public's concerns over the limitation of liability, LLPs
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traditionally must maintain a high level of professional
liability insurance.
Under the Beverly-Killea LLC Act, a foreign or domestic LLC is
prohibited from rendering professional services in this state
unless expressly authorized under applicable provisions of law.
Professional services are those services for which a license,
certification, or registration is required under specified
statutes.
The rationale for the exclusion was that service providers who
harm others by their misconduct, incompetence or negligence
should not be able to limit their liability by operating as an
LLC or LLP and thus become potentially judgment-proof.
Analysis Prepared by : Rebecca May / B.,P. & C.P. / (916)
319-3301
FN: 0005940