BILL ANALYSIS �
AB 1608
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Date of Hearing: May 7, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 1608 (Olsen) - As Amended: March 18, 2014
Policy Committee: Business and
Professions Vote: 14 - 0
Judiciary 10 - 0
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill authorizes licensed private investigators to organize
as a limited liability company (LLC) until January 1, 2020.
Specifically, this bill:
1) Requires 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.
2) 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.
3) 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.
4) Provides that the license of a LLC is subject to
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suspension if a licensee fails to maintain sufficient
insurance as required by this act, and that if the license
is suspended, then each member of the LLC shall be
personally liable up to one million dollars ($1,000,000)
each 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.
FISCAL EFFECT
Costs associated with this legislation would be minor and
absorbable within existing BSIS resources.
COMMENTS
1) Purpose . The author notes while LLCs are an
increasingly popular form for business entities, existing
law prohibits licensed private investigators from
organizing as LLCs. This bill seeks to allow licensed
private investigators to enjoy the benefits of operating as
an LLC, which may include tax benefits and protection from
individual civil liability, by authorizing private
investigators to be licensed as LLCs, but ensures consumer
protection by requiring liability insurance and specific
information and documentation from the application.
2) Private Investigators in California . According to the
California Association of Licensed Investigators (CALI),
there are approximately 9,000 private investigators
licensed by the Bureau of Security and Investigative
Services (BSIS) within the Department of Consumer Affairs.
License requirements include 6,000 hours of compensated
experience in investigative work over three years, or a law
degree or completion of a four-year course in police
science plus two years of experience or an associate degree
in police science, criminal law, or justice and two years
of experience. Licensure requires the passage of background
checks by DOJ and the FBI and payment of licensure fees
which are currently $125 biennially. The majority of
licensed private investigator businesses are organized as
sole proprietorships, others are organized as corporations
or partnerships.
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3) Limited liability companies . An LLC is a business form
that combines the limited liability benefits of a
corporation with the tax benefits of a proprietorship or
business partnership. 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.
California first recognized the LLC form with the enactment of
the Beverley-Killea Limited Liability Company Act in 1994.
Prior to that, business entities could form as so-called "S
Corporations" to obtain limited liability while avoiding the
tax consequences of forming a corporation. The Beverley-Killea
Act provides that a company that renders "professional
services" cannot organize as an LLC unless a specific
provision of the Business & Professions Code (BPC) expressly
authorizes it to do so.
The Legislature has granted express authorization to certain
contractors, private cemetery operators, alarm companies, and
repossessors. This bill would add private investigators to the
list of licensed professional service companies that may form
an LLC.
4) Previous Legislation .
a) 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.
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b) 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.
Analysis Prepared by : Jennifer Swenson / APPR. / (916)
319-2081