Finally! LLCs for Licensed Contractors in California

As usual, January is a time when people think about getting their business in order and consider the ‘choice of entity’ question. Already this month I have received calls from two contractors, one from San Jose and one from Sunnyvale, who want to form an entity for their construction business. I was able to give them the news that, as of January 1, 2011, the California Corporations Code finally allows a California limited liability company (“LLC”) to operate as a licensed contractor. However, the Contractors’ State License Board is only required to start processing applications no later than January 1, 2012.

For years, contractors were limited by a provision in the LLC Act that said an LLC may not “render professional services, as defined in Section 13401 and in Section 13401.3, in this state.” Sections 13401 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.” In addition, a section of the Contractors’ State License Law provided for the issuance of contractors’ licenses only to individuals, partnerships and corporations.

As of this year, the LLC law was changed to add: “…a limited liability company 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.” The Contractors’ State License Law was changed to allow for individuals, firms, partnerships, corporations, limited liability companies, associations, organizations, or any combination thereof.

This is great news for contractors who will no longer be limited to corporations in their choice of entities for liability protection. Hopefully more sections of the Business and Professions Code will soon be revised to provide the same opportunity to other licensed professionals.

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