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Your Legal Corner - Client Alert Blog

Contractors May Soon Start Operating Under a California LLC

Written By: Melissa C. Marsh, Esq., California Attorney, February 2011 Add to Favorites
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.

Posted In: Business Law Bulletin  Corporate Client Bulletin  Real Estate Reporter 

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Disclaimer: The information presented on this web site was prepared by Melissa C. Marsh for general informational purposes only and does not constitute legal advice. The information provided in my articles and alerts should not be relied upon, or used as a substitute for professional legal advice from an attorney you retain to advise or represent you. Your use of this Internet site does not create an attorney- client relationship. Transmission of this article is not intended to create, and receipt of it does not constitute, an attorney-client relationship. All uses of the contents of this site, other than personal uses, are prohibited. You may print or email a copy of any information posted on this web site for your own personal, non-commercial, use, but you may not publish any of the articles or posts on this web site without the Express Written Permission of Melissa C. Marsh.

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Located in Los Angeles, California, the Law Office of Melissa C. Marsh handles business law and corporation law matters as a lawyer for clients throughout Los Angeles including Burbank, Sherman Oaks, Studio City, Valley Village, North Hollywood, Woodland Hills, Hollywood, West LA as well as Riverside County, San Fernando, Ventura County, and Santa Clarita. Attorney Melissa C. Marsh has considerable experience handling business matters both nationally and internationally. We routinely assist our clients with incorporation, forming a California corporation, forming a California llc, partnership, annual minutes, shareholder meetings, director meetings, getting a taxpayer ID number (EIN), buying a business, selling a business, commercial lease review, employee disputes, independent contractors, construction, and personal matters such as preparing a will, living trust, power of attorney, health care directive, and more.