Path cleared for CSLB to issue contractor's licenses to limited liability companies

In September 2010 the governor signed into law Senate Bill 392, which amended contractor's license law to authorize the CSLB to issue contractor's licenses to limited liability companies ("LLC"). The law took effect on January 1, 2011, and mandates that the CSLB begin processing applications from LLC's before the end of this year.

An LLC is a fictitious business entity which combines some of the properties of a corporation and a partnership. Its relative ease of formation, flexibility, and tax treatment have made it a preferred entity for many small businesses.

Yet, previously, the CSLB could not issue contractor's licenses to an LLC and therefore contractors could not operate using this favored entity. Instead, contractors were limited to operating as a sole proprietorship, partnership, joint venture, or corporation. The LLC will be added to this list of options once the CSLB implements the SB 392 mandate.

The formation of an LLC is a relatively simple process, which begins with the filling of Articles of Organization with the California Secretary of State. Once the LLC is properly formed, and the CSLB is ready to accept applications, the LLC would apply for its own contractor's license.

SB 392 provides for heightened bonding and insurance requirements for LLC licensees. They must file a surety bond in the amount of $100,000 for the benefit of employees claiming damages for unpaid wages and fringe benefits. LLC's will also be required to carry liability insurance in an amount between $1,000,000 and $5,000,000 (depending on the number of persons listed as personnel of record for the LLC.).

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