BILL ANALYSIS �
AB 1608
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Date of Hearing: April 8, 2014
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Susan A. Bonilla, Chair
AB 1608 (Olsen) - As Amended: March 18, 2014
SUBJECT : Private investigators: limited liability companies.
SUMMARY : Authorizes a licensed private investigator to be
organized as a limited liability company (LLC) until January 1,
2020. Specifically, this bill :
1)Authorizes, until January 1, 2020, a private investigator to
be licensed as an LLC.
2)Requires, as a condition of the issuance, reinstatement,
reactivation, or continued valid use of a license under this
chapter, an LLC to maintain a policy or policies of insurance
against liability imposed on or against it by law for damages
arising out of claims based upon acts, errors, or omissions
arising out of the private investigator services it provides.
3)Requires an applicant for an LLC license to obtain and
maintain a minimum one million dollar ($1,000,000) insurance
liability policy for a licensee that has up to five managing
members, and require an additional one hundred thousand
dollars ($100,000) in coverage for each additional managing
member up to five million dollars ($5,000,000) in total
insurance in any one designated period, less amounts paid in
defending, settling, or discharging claims, as specified.
4)Requires an applicant for an LLC license to submit specified
information and documentation to the Bureau of Security and
Investigative Services (BSIS) that demonstrate compliance with
financial security requirements, and also to submit a
Certificate of Liability Insurance to BSIS, signed by an
authorized agent or employee or the insurer.
5)Requires the insurer to report to BSIS the following
information for any required liability insurance policy:
name, license number, policy number, dates that coverage is
scheduled to commence and lapse, the date and amount of any
payment of claims, and cancellation date if applicable.
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6)Provides that a license may be suspended if the licensee fails
to maintain sufficient insurance, and that if a license is
suspended for that reason, requires that each member of the
LLC is personally liable up to one million dollars
($1,000,000) for damages resulting to third parties in
connection with the company's performance during the period of
suspension of any act or contract when a license is required.
7)Requires the application for an LLC license to state the true
name and complete residence address of each managing member
and any other officer or member who will be active in the
business, and the designated person to be actively in charge
of the business.
8)Requires a copy of the most recent articles of organization,
as filed by the Secretary of State, to be supplied to BSIS
upon request, and requires the application to be signed under
penalty of perjury.
9)Makes other technical and conforming changes.
EXISTING LAW:
1)Provides for the licensure and regulation of private
investigators by the BSIS within the Department of Consumer
Affairs (DCA) under the Private Investigator Act (Act), and
makes a violation of its provisions a crime. (Business and
Professions Code Section (BPC) 7512 et seq.)
2)Defines a licensee as a "person licensed under the [Act]," and
defines a person as "any individual, firm, company,
association, organization, partnership, and corporation."
(BPC 7512)
3)Authorizes a licensee to provide services to protect a person,
but not property, who is incidental to an investigation for
which the licensee has been previously hired to perform, and
requires, if the license provides those services, that he or
she comply with specified requirements, including maintaining
an insurance policy of at least five hundred thousand dollars
($500,000) for any one loss due to bodily injury or death, and
any one loss due to injury or destruction of property. (BPC
7521.5; 7583.39-7583.41)
4)Requires an application for a license to be verified and to
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include, among other things, the full name and business
address of the applicant, the name under which the applicant
intends to do business, a statement as to the general nature
of the business in which the applicant intends to engage, and
a verified statement of his or her experience qualifications.
(BPC 7525.1)
5)Requires, if the applicant is a corporation, the application
to state the true names, and complete residence addresses of
the chief executive officer, secretary, chief financial
officer, and any other corporate officer who will be active in
the business, and the designated person to be actively in
charge of the business, and requires the application to be
signed under penalty of perjury. (BPC 7525.1(h))
6)Establishes the California Revised Uniform Limited Liability
Company Act (LLC Act) to govern the formation and operation of
limited liability companies. (Corporations Code Section (CC)
17701.01 et seq.)
7)Provides that a LLC may engage in any lawful activity except
banking, insurance, or trust company operations or the
offering of professional services, and authorizes an LLC to
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 17701.04(b))
8)Provides that nothing under the LLC Act shall be construed to
permit a domestic or foreign LLC to render professional
services, as specified. (CC 17701.04(e))
9)Defines professional services 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." (CC 13401)
FISCAL EFFECT : Unknown
COMMENTS :
1)Purpose of this bill . This bill seeks to allow licensed
private investigators to enjoy the benefits of operating as an
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LLC, which may include tax benefits and protection from
individual civil liability, by authorizing private
investigators to be licensed as LLCs. This bill is sponsored
by the California Association of Licensed Investigators
(CALI).
2)Author's statement . According to the author, "While LLCs are
an increasingly popular form for business entities, [the]
existing Business and Professions Code prohibits licensed
private investigators from organizing as LLCs.
"The Private Investigator Act within the Business and
Professions Code provides for the licensure and regulation of
private investigators. A person, for purposes of the Act,
includes an individual, firm, company, association,
organization, partnership, and corporation.
"The California Revised Uniform Limited Liability Company Act
governs the formation and operation of LLCs. The [LLC] Act
authorizes a LLC to render services that may be lawfully
rendered only pursuant to a license authorized by the Business
and Professions Code if the provisions of that code authorize
an LLC to hold that license.
"[This bill] would amend the Private Investigator Act in the
Business and Professions Code to authorize limited liability
companies to be licensed as private investigators by [DCA],
with a sunset on January 1, 2020. AB 1608 would require the
submission of pertinent information to [BSIS] within DCA and
would require liability insurance. The legislation is modeled
after recently-enacted measures that authorize LLCs for
cemeteries, contractors and alarm companies."
3)Limited liability companies . An LLC is a relatively new form
of business organization that is a hybrid entity formed under
the Corporations Code and consists of at least two members who
own membership interests. The company has a legal existence
distinct from its members, and provides members with limited
legal liability to the same extent enjoyed by shareholders of
a traditional corporation, but allows the members to actively
participate in the management and control of the company.
Some benefits of organizing as an LLC include pass-through
taxation (which means that money the companies earned is taxed
only once at the individual member's personal income tax
rate), and protection from individual liability for liability
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incurred by or judgments against the LLC.
In 1994, the Beverly-Killea Limited Liability Company Act
authorized the formation and operation of LLCs in California,
but excluded professionals from organizing as LLCs. This
exclusion was intended to prevent professional service
providers who harm others by their misconduct, incompetence,
or negligence, from being able to limit their liability by
operating as an LLC and potentially being judgment proof.
"Professional services" is defined under the Moscone-Knox
Professional Corporation Act 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."
Based on these provisions, it was commonly understood that the
boards and bureaus under DCA were prohibited from issuing a
license, certification, or registration to an entity organized
as a LLC. However, in 2004, Attorney General Opinion No.
04-103 concluded that a business that provides services
requiring a license, certification, or registration pursuant
to the BPC may conduct its activities as an LLC if the
services rendered require only a nonprofessional, occupational
license. The opinion noted that courts have drawn a
distinction between professional licenses and nonprofessional
occupational licenses, and that an examination of the level of
education, training, and testing required to provide a service
may determine whether a particular service is professional or
nonprofessional. The opinion found that the prohibition
against rendering professional services did not prevent an LLC
from offering "nonprofessional" services that require a
license, certification, or registration pursuant to the BPC,
and thus allowed an LLC to provide "nonprofessional" services.
In 2010, SB 392 (Florez) (Chapter 698, Statutes of 2010)
amended the Corporations Code to specifically provide that an
LLC "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."
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Since the opinion and SB 392, licensed cemeteries,
contractors, and alarm companies have been authorized to
operate as LLCs. This bill seeks to make that same
authorization for private investigators.
While the state may experience a decrease in tax revenue if a
private investigator previously licensed as a corporation
organized as an LLC and reduced its tax burden, such decrease
would not occur if a private investigator that chose to
organize as an LLC was already licensed as an individual or
other business entity that already enjoys pass-through
taxation. In addition, protection from personal civil
liability may encourage potential private investigators to
start a business, or encourage existing private investigators
to expand their businesses, thereby fostering a better
business climate in California and contributing to a stronger
economy.
4)Arguments in support . According to the bill's sponsors,
"While [LLCs] are an increasingly popular form for business
entities, this will only be available to licensed private
investigators through an amendment to the Business and
Professions Code?. This legislation would amend the Private
Investigator Act in the Business and Professions Code to
authorize limited liability companies to be licensed as
private investigators by the [DCA], with a sunset on January
1, 2020."
5)Previous legislation . SB 1077 (Price) (Chapter 291, Statutes
of 2012) authorized an alarm company to be organized as an
LLC, required an alarm company LLC to maintain an insurance
liability policy of at least one million dollars ($1,000,000),
required BSIS approval to assign a license between business
entities, and authorized BSIS to cite and fine alarm companies
operating without a license.
SB 392 (Florez) (Chapter 698, Statutes of 2010) authorized
licensed contractors to organize as an LLC, required an LLC to
maintain an insurance liability policy of at least one million
dollars ($1,000,000), as specified, and 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.
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SB 1225 (Harman) (Chapter 114, Statutes of 2008) authorized a
licensed cemetery authority to organize as an LLC, and
required an LLC to maintain an insurance liability policy or
assets of at least $1 million, as specified.
SB 1337 (Correa) of 2008 would have authorized an LLC to
render "professional services" prohibited by the
Beverly-Killea Limited Liability Company Act if the provisions
governing the applicable license authorized an LLC to hold
that license, and authorized the issuance of a contractor's
license to an LLC. That bill died in the Senate Judiciary
Committee.
AB 2235 (Parra) of 2006 would have expanded the definition of
"person" under the Real Estate Law to include an LLC and
required an LLC to maintain an insurance liability policy of
at least five hundred thousand dollars ($500,000), maintain a
specified amount in assets, or have a net worth of a specified
amount. That bill died in the Senate Judiciary Committee.
SB 1022 (Campbell) of 2005 sought to authorize LLCs to provide
specified professional services, and defined "professional
services" to mean any type of services that may only be
lawfully rendered pursuant to a license, certification, or
registration under the BPC or the Chiropractic Act. This bill
died in the Senate Judiciary Committee.
AB 2724 (Runner) of 2002 would have authorized contractors'
licenses to be issued to LLC's that meet certain requirements.
That bill died in the Assembly Business and Professions
Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
California Association of Licensed Investigators (CALI)
Opposition
None on file.
Analysis Prepared by : Eunie Linden / B.,P. & C.P. / (916)
319-3301
AB 1608
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