BILL ANALYSIS �
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|Hearing Date:April 16, 2012 |Bill No:SB |
| |1077 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Curren D. Price, Jr., Chair
Bill No: SB 1077Author:Price
As Introduced: February 14, 2012 Fiscal:Yes
SUBJECT: Alarm companies: limited liability companies.
SUMMARY: Authorizes a licensed alarm company to be organized as a
LLC; authorizes an alarm company to apply to the Bureau of Security
and Investigative Services to assign the license to another business
entity as long as the direct and indirect owners are unchanged;
establishes a comprehensive system for the BSIS to issue a citation
and fine not to exceed $5,000 to a person for unlicensed alarm company
activities.
Existing law:
1)Provides for the licensure and regulation of alarm companies and
alarm company managers and employees by the Bureau for Security and
Investigative Services (BSIS) within the Department of Consumer
Affairs (DCA) under the Alarm Company Act (Business and Professions
Code (BPC), Division 3, Chapter 11.6, commencing with � 7590). The
BSIS further licenses and regulates security guards, proprietary
private security employers, proprietary private security officers,
private investigators, alarm companies, locksmiths, private patrol
operators, and repossession companies and their employees.
2)Provides that a "licensee" under the Act means a business entity,
whether an individual, partnership, or corporation. (BPC � 7590.1)
3)Prohibits an alarm company operator from transferring his or her
license to another person, as specified. (BPC � 7599.47)
4)Under the Collateral Recovery Act, authorizes BISS to issue a
repossessor license to an individual, partnership, limited liability
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company or corporation. (BCP � 7503.4); and authorizes a licensed
repossessor to apply to the BSIS to assign the license to another
business entity as long as the direct and indirect owners are
unchanged. (BPC � 7503.9)
5)Under a general provision of the BPC, authorizes any board, bureau or
commission within DCA to establish by regulation a system for the
issuance of citations and fines to a licensee for violation of the
applicable licensing act. The law makes several exemptions from
that authorization, including those regulated under the Alarm
Company Act. The citation must be in writing, and describe the
violation and the law violated, and any fine assessed may not be for
more than $5,000 for each violation. The citation shall also
provide the licensee with an opportunity to request an
administrative hearing on the citation. (BPC � 125.9)
6)Authorizes any board, bureau or commission within DCA to establish by
regulation a system for the issuance of citations and fines to
unlicensed persons acting in the capacity of a licensee which meets
the requirements of BPC � 125.9. (BPC � 148)
7)Authorizes the BSIS to issue a citation and fine to a licensed alarm
company operator, qualified manager, or an alarm agent for specified
violations of the Act, and requires the citation to be in writing,
containing a written description of the violation, and the provision
of law violated. The citation shall contain an order of abatement
and shall not exceed $2,500. (BPC 7591.9)
8)The Beverly-Killea Limited Liability Company (LLC) Act prohibits
domestic and foreign limited liability companies from rendering
professional services in California. (Corporations Code (CC) �
17375).
a) Defines "professional services" as "any type of professional
services which may be lawfully rendered only pursuant to a
license, certification, or registration authorized by the
Business and Professions Code, the Chiropractic Act, or the
Osteopathic Act." (CC � 13401(a)).
b) Explicitly provides that an LLC may render services that may be
lawfully rendered only pursuant to a license, certificate, or
registration authorized by the BPC if the applicable provisions
of the BPC authorize a limited liability company to hold that
license, certificate, or registration. (CC� 17002 (c))
This bill:
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1)Authorizes a licensed alarm company to be organized as an LLC, and
makes conforming changes to the licensing provisions of the Act.
2)Authorizes an alarm company to apply to the BSIS to assign the
license to another business entity as long as the direct and
indirect owners are unchanged.
3)Establishes a processing fee not to exceed $125 for the assignment of
an alarm company operator license.
4)Establishes a comprehensive system for the BSIS to issue a citation
and fine not to exceed $5,000 to a person for unlicensed activity
under the Act.
5)Provides that a citation for unlicensed activity must be in writing
and meet the following criteria:
a) Describe the nature of the violation and the provision of law
violated.
b) Inform the cited person that he or she may, within 30 days,
request a hearing to contest the citation.
c) Inform the cited person that he or she may, within 10 days,
request an informal conference on the citation with the chief of
BSIS.
d) Be served upon the cited person by certified mail.
e) Require the BSIS to consider the following factors when
determining the amount of an administrative fine:
i. The good or bad faith exhibited by the cited person.
ii. The nature and severity of the violation.
iii. Evidence that the violation was willful.
iv. History of violations of the same or similar nature.
v. The extent to which the cited person has cooperated with
the BSIS.
vi. The extent to which the cited person has mitigated or
attempted to mitigate any damage or injury caused by the
violation.
vii. Any other factors as justice may require.
6)Makes technical corrections and conforming changes.
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FISCAL EFFECT: Unknown. This bill has been keyed "fiscal" by
Legislative Counsel.
COMMENTS:
1.Purpose. This bill is sponsored by the California Alarm Association
(Sponsor) to make three changes to the Alarm Company Act. First,
the bill authorizes a licensed alarm company to be organized as an
LLC, and makes conforming changes in the licensing provisions of the
Act.
Second, the bill authorizes an alarm company to keep the same alarm
license if it changes its business structure. For example, if an
alarm company is organized as a corporation and then converts to an
LLC, it would be allowed to transfer its license to the new business
structure. The bill also establishes a processing fee not to exceed
$125 for the assignment of an alarm company operator license.
Third, the bill authorizes the BSIS to cite and fine alarm companies
operating without a license.
According to the Sponsor, the BSIS staff reviewed these provisions
and their technical advice is reflected in the bill's language.
2. Background. The BSIS licenses and regulates the private security
industry. The BSIS jurisdiction includes, not only alarm companies
and their employees, but also security guards, proprietary private
security employers, proprietary private security officers, private
investigators, alarm companies, locksmiths, private patrol
operators, and repossession companies.
3. Unlicensed Activity. Under current law, the BSIS lacks the direct
authority to regulate unlicensed alarm companies. When discovering
an alarm company is operating illegally without a proper license,
the BSIS must rely on the local District Attorney to enforce the
Alarm Act. Securing the support of the local DA is difficult, as
they often have more pressing issues to deal with. Granting the
BSIS direct authority to deal with unlicensed alarm companies will
be more efficient and effective in preventing unfair competition in
the market place. More importantly, it will also provide greater
protection for consumers who may be victimized by unscrupulous
alarm companies operating without the proper license and without
the background review conducted by the BSIS as a condition of
receiving an alarm company license.
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The BSIS states that: "Identifying unlicensed activity and obtaining
compliance from people who are not properly licensed or registered
is a high priority for the Bureau. Individuals and businesses that
are operating without a license pose a threat to both the industry
and the public. The behavior of an unlicensed practitioner often
reflects poorly upon the private security industry and can tarnish
the industry's reputation. Consumers assume they can afford to be
less wary because they are dealing with a regulated industry and
with licensed practitioners."
By giving the BSIS the authority to issue citations and fines to
unlicensed alarm company operators, this will enable the Bureau to
further address unlicensed practices and obtain greater compliance
in order to protect consumers.
4. Engaging in Licensed Practice as an LLC. Limited liability
companies are a relatively new form of business entity for the
state. Formation and operation of such entities in California was
authorized in 1994 through the Beverly-Killea Limited Liability
Company Act (SB 469, Chapter 1200, Statutes of 1994). As
originally enacted, an uncodified provision specified that nothing
in the Act shall be construed to permit a domestic or foreign
limited liability company to render professional services, as
defined in the Corporations Code, unless expressly authorized under
applicable provisions of the Business and Professions Code or the
Chiropractic Act. This provision was codified in 1999 (SB 284,
Kelley, Chapter 1000, Statutes of 1999).
Under the Moscone-Knox Professional Corporation Act (Corporations Code
� 13400 ff.), "professional services" is defined as any type of
professional services that may be lawfully rendered only pursuant
to a license, certification, or registration authorized by the
Business and Professions Code, the Chiropractic Act, or the
Osteopathic Act.
The rationale for the exclusion was apparently 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
and thus become potentially judgment-proof.
Based upon these provisions of law, it has been commonly understood
that the boards and bureaus under the Department of Consumer
Affairs are prohibited from issuing a license, certification or
registration to an entity organized as an LLC.
More recently, SB 392 (Florez, Chapter SB 392, 698, Statutes of 2010)
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authorized the Contractors State License Board to issue a
contractor license to an LLC, and incorporated the LLC business
structure into the contractor license provisions. The bill
additionally added paragraph (c) to Corporations Code Section 17002
to read "(c) Notwithstanding Section 17375, a limited liability
company may render services that may be lawfully rendered only
pursuant to a license, certificate, or registration authorized by
the Business and Professions Code if the applicable provisions of
the Business and Professions Code authorize a limited liability
company to hold that license, certificate, or registration."
Thus, if a licensing law under the BPC specifically authorizes an LLC
to hold a license, then an LLC may obtain a professional license
under that provision. This bill seeks to make that same
authorization for alarm companies.
5. Attorney General Opinion. In 2004, Attorney General Opinion
No. 04-103 concluded that a business that provides services
requiring a license, certification, or registration pursuant to
the Business and Professions Code may conduct its activities as
a limited liability company if the services rendered require
only a nonprofessional, occupational license.
In discussing the distinctions between professional services and
nonprofessional occupational services, the AG Opinion further
discusses Mann v. Department of Motor Vehicles (1999) 76
Cal.App.4th 312, (Mann), in which the court concluded that the
services performed pursuant to a vehicle salesperson license
issued under the Vehicle Code were not "professional services,"
but rather were "nonprofessional, occupational" services.
The AG Opinion further states that:
"Following the reasoning of Mann, we find that some services
that require a license, certification, or registration
pursuant to the Business and Professions Code are
"professional services" and others are "nonprofessional
services." To determine whether a particular service is one
or the other requires an examination of the educational,
training, and testing prerequisites."
6. Assignment of an Alarm Company License. The law explicitly
prohibits an alarm company operator from transferring his or her
license to another person, as specified. This bill would authorize
an alarm company to keep the same alarm license if it changes its
business structure. This would allow an alarm company organized as
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a corporation to convert its organizational structure to an LLC,
and allow the license to be transferred to the new business
structure. According to the Sponsor, this change in law will save
alarm companies as well as the BSIS, which regulates and licenses
alarm companies, from unnecessary work that would otherwise be
necessary when applying for a new alarm company license.
A similar change in code was made for repossessor licenses in 1995 (AB
1541, Lee, Chapter 505, Statutes of 1995).
7. Related Legislation. SB 392 (Florez, Chapter, 698, Statutes of
2010) authorized the Contractors State License Board to issue a
contractor license to an LLC, and incorporated the LLC business
structure into the contractor license provisions. The bill
additionally amended the Corporations Code to authorize an LLC to
render services pursuant to a license, certificate, or registration
under the BPC if the applicable provisions of the BPC authorize a
LLC to hold that license, certificate, or registration.
SB 1225 (Harman, Chapter 114, Statutes of 2008) authorized a LLC to
operate as a cemetery authority (licensed cemetery) and provide
various cemetery and funeral-related services, by employing persons
licensed for these services, if the LLC maintains a specified
minimum amount of insurance and/or assets.
SB 1337 (Correa, 2008) would have allowed a limited liability company
to render contractor services that are "professional services"
prohibited by the LLC Act, by authorizing the issuance of a
contractor's license to a LLC under the BPC. That bill died in
Senate Judiciary Committee.
AB 2235 (Parra, 2006) would have expanded the definition of "person"
under the Real Estate Law to include an LLC. That bill died in the
Senate Judiciary Committee without being heard.
SB 1022 (Campbell, 2005) sought to authorize professional limited
liability companies to provide specified professional services.
That bill would have defined "professional services" to mean any
type of professional services that may only be lawfully rendered
pursuant to a license, certification, or registration under the BPC
or the Chiropractic Act. That bill died in the Senate Judiciary
Committee without being heard.
AB 2724 (Runner, 2002) would authorize contractor's licenses to be
issued to limited liability companies that meet certain
requirements. That bill died in the Assembly Business and
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Professions Committee without being heard.
AB 2401 (Miller, 1996) would have provided that an LLC may not render
professional services, unless the LLC is expressly authorized under
the BPC or the Chiropractic Act, or is a real estate broker
licensed under the real estate law. The bill sought to amend the
contractor, architectural, engineering, and land surveying
provisions of the B&P Code to authorize the licensure of LLCs.
That bill failed passage in Senate Business and Professions
Committee.
AB 1541 (Lee, Chapter 505, Statutes of 1995) included LLCs in the
statutory definition of the types of business entities (e.g.,
corporations) that can be licensed as repossession agencies, and
specified the contents of an application for license by a limited
liability company.
SB 469 (Killea, Chapter 1200, Statutes of 1994) established the
initial LLC Act, to provide for LLCs to organize and do business in
California, and allow LLCs organized outside of California to
register to do business in California. The bill provided that an
LLC may engage in any lawful activity except banking, insurance or
trust company operations, and in an uncodified provision, stated
that nothing in the Act shall be construed to permit an LLC to
render professional services, as defined, for which a license,
certification or registration is required, unless expressly
authorized under provisions of the B&P Code or the Chiropractic
Act.
8. Arguments in Support. In sponsoring the bill, the California Alarm
Association states that the original language prohibiting other
licensed professions to become LLCs still remains. The Sponsor
believes this language is outdated and was adopted before many
professional companies, such as alarm companies, began organizing
as LLCs. The Sponsor states that forty-nine other states allow
alarm companies to organize as LLCs. Consumers will still be able
to sue alarm companies organized as LLC for damages in the rare
cases where disputes arise.
The Sponsor further indicates that the provision allowing an alarm
company to keep the same alarm license if it changes its business
structure is related to the provision allowing an LLC to hold a
license. If an alarm company is organized as a corporation and
then converts to an LLC, it would be allowed to transfer its
license to the new business structure. This change will save alarm
companies and the bureau from unnecessary work that would otherwise
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be necessary when applying for a new alarm company license.
Authorizing the BSIS to issue a citation and fine for unlicensed
activity provides greater protection for consumers who may be
victimized by unscrupulous alarm companies operating without the
proper license and without the background review conducted by the
BSIS as a condition of receiving an alarm company license.
NOTE: Double-referral to Judiciary Committee second. Any amendments
proposed to this bill during our hearing should be made in the Senate
Judiciary Committee.
SUPPORT AND OPPOSITION:
Support:
California Alarm Association (Sponsor)
Opposition:
None received as of April 10, 2012
Consultant:G. V. Ayers