BILL ANALYSIS �
AB 560
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Date of Hearing: April 5, 2011
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
AB 560 (Gorell) - As Introduced: February 16, 2011
(As Proposed to be Amended)
SUBJECT : Professional limited liability partnerships.
SUMMARY : Deletes the sunset date on licensed architects'
ability to organize as limited liability partnerships (LLPs),
thereby permitting licensed architects to organize as LLPs
indefinitely.
EXISTING LAW provides for the formation of various types of
legal business entities, including LLPs and foreign LLPs. Under
existing law, registered LLPs and foreign LLPs may only be
formed for the practice of accountancy, the practice of law,
and, until January 1, 2012, the practice of architecture. LLPs
formed within these professions must meet specified insurance
requirements.
FISCAL EFFECT : Unknown. This bill is keyed non-fiscal.
COMMENTS :
Purpose of this bill . According to the author's office, "The
law that allows California architectural firms to organize as
LLPs sunsets at the end of this year. Without this bill, the
law will expire and force the architectural LLPs to reorganize
their firms."
Background . A LLP is basically a hybrid of a corporation and a
general partnership. Management of a 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. A LLP also provides "pass-through" income tax
treatment. That is, only an informational tax return is
required of a 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 a LLP, however, is "limited
liability" for a LLP partner. This limited liability protects a
AB 560
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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 a 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 a LLP still remains personally
liable for his or her own actions and errors or omissions. In
contrast to a LLP, all partners of a general partnership are
liable for the actions of their business partners.
To date, more than 200 architectural firms are registered as
LLPs. According to the author's office, most of the LLP firms
are small partnerships owned by California architects who will
incur significant costs in reorganizing their business structure
if the LLP law is allowed to sunset.
Author's Amendments . The committee will be processing the
following author's amendments on behalf of the author, who has
been called to active military service and cannot sign for
amendments.
On page 5, strike out lines 28 to 30, inclusive.
On page 9, strike out lines 27 to 29, inclusive.
These amendments effectively delete the sunset date on
architectural LLPs.
Support . According to the American Institute of Architects,
California Council, "In 1995, legislation was enacted to
authorize attorneys and licensed accountants to form LLPs.
Partners of LLPs are only personally liable for those torts in
which they personally participated, rather than jointly and
severally liable for any other torts or debts of the
partnership. The enactment of the LLP status for attorneys and
accountants conformed California law to the law in 49 other
states that permit business organizations to form LLPs. It was
a great benefit to national firms to be able to create a
parallel business organizational structure in each state. AB
560 simply removes the January 1, 2012 sunset date on the law
that authorizes architectural firms to form LLPs."
Previous Legislation . AB 2914 (Leno), Chapter 426, Statutes of
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2006, extended the sunset date of LLPs for architects until
January 1, 2012. As introduced, this bill would have deleted
the sunset date on licensed architects' ability to organize as a
LLP. This bill was amended in the Senate to include a sunset
date of January 1, 2012. This bill also changed the level of
insurance required of architectural LLPs, doubling the minimum
amount from $500,000 to $1 million.
AB 180 (Jerome Horton) of 2005 would have authorized
professional engineers and land surveyors to operate within
their scope of licensure, and to conduct business as a LLP until
January 1, 2009. This bill was amended to address an unrelated
issue.
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
between $500,000 and $5 million in insurance. This bill 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 a LLP provided the partnership had between
$500,000 and $5 million in insurance depending on the number of
partners in the LLP. This bill also provided that its
provisions would sunset on January 1, 2002.
SB 513 (Calderon), Chapter 679, Statutes of 1995, permitted
accountants and attorneys to form a LLP. Accountants forming a
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
AB 560
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None on file.
Analysis Prepared by : Joanna Gin / B.,P. & C.P. / (916)
319-3301