Existing law governing limited liability companies (LLCs), the Beverly-Killea Limited Liability Company Act, prohibits domestic and foreign LLCs from rendering professional services in California. See California Corporations Code §17375. "Professional services" is defined 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." See California Corporations Code §13401(a). Until December 31, 2010, only three types of professionals have been permitted to render professional services through an LLC: attorneys, accountants, and architects.

SB 392 changes the law to permit a licensed California contractor to provide services through a California limited liability company ("LLC") so long as:

1. the contractor procures and maintains an errors and omissions insurance coverage of not less than $1 million and up to $5,000,000 (depending on the number of employees) as security for the payment of damages arising out of the provision of contracting services, or self-insures by placing $1 million on deposit or in escrow;
2. the contractor procures and maintains an additional $100,000 of errors and omissions coverage per licensee in excess of five employed by the LLC;
3. the LLC files and maintain a surety bond in the amount of $100,000 for the benefit of employees to ensure payment of wages, interest, and fringe benefits (This bond is in addition to the $12,500 contractor’s bond required of all licensees); AND
4. At the time of formation, the LLC files a certification of coverage with the commissioner.

If the LLC becomes suspended, each member of the LLC who is licensed as a contractor will be personally liable for up to $1 million in damages occurring as a result of any contract signed or activities engaged in by the LLC that requires a contractor’s license during the suspension period.

SB 392 takes effect January 1, 2011, and requires the Contractor’s State Licensing Board to begin processing applications for licensure from LLCs on or before January 1, 2012.