California (January 21, 2020) - If you are contemplating purchasing or selling a business entity that is a licensed California contractor or even simply changing the type of business entity under which you operate as a licensed California contractor, you must carefully consider and understand the implications and consequences. A basic tenant of the Contractors License Law, Cal. Bus. & Prof. Code §§ 7000 et seq., is that a contractor’s license is not transferrable or reassignable to another individual or business entity, except under very limited circumstances. In turn, under certain circumstances, changes to a business entity will require a new contractor’s license.
Maintaining proper licensure is imperative to avoiding the rather draconian consequences of Section 7130.
Sole Owner License
A sole owner license is issued to a specific individual and it cannot be sold or transferred to another individual. However, Section 7075.1(c) provides for the reassignment of a sole owner license under certain limited circumstances.
A sole owner license may be reassigned to another individual if,
- The individual is an immediate family member of the licensee,
- The licensee is deceased or absent,
- The licensee is required to continue the existing (currently active and operating) family business, and
- A written request for license reassignment is submitted along with an Original Application for Contractor License and the required fees.
In turn, a sole owner license may be reassigned to a corporation if,
- The corporation was formed by the licensee,
- The licensee maintains ownership of at least 51% of the corporation, and
- A Licensed Sole Owner Applying for Corporate License is submitted along with an Original Application for Contractor License and the required fees.
Once a sole owner license number is reassigned to a corporation, it cannot be changed back to a sole owner license.
Limited Partnership License
A limited partnership license is issued to a partnership made up of one or more general partners and one or more limited partners. When a general or qualifying partner leaves the limited partnership, the limited partnership license must be canceled. Similarly, general partners cannot be added to a limited partnership license. A new license will be required for any new partnership structure that includes a change to the general partners.
In contrast, limited partners can be added to and removed from a limited partnership license by completing and submitting an Application to Change Limited Partners of a Partnership. However, at least one limited partner must be listed on the license to continue under the limited partnership license. If all limited partners leave the limited partnership, the limited partnership license must be canceled.
A corporate license is issued exclusively to a specific corporate registration number assigned by the California Secretary of State’s Office (SOS). If this registration number changes, a new contractor’s license number will be required. A company acquiring the “assets” of a licensee would have its own SOS registration number and, therefore, it would be required to obtain its own contractor’s license. In short, a contractor’s license is not an asset that can be acquired in an asset purchase. In turn, if a corporation dissolves, merges, or surrenders the right to do business in California through the SOS, the contractor license must be canceled.
A corporate license may, however, be reassigned to a different corporate registration number if one of the following conditions exists and the new entity is being formed to continue the business of the formerly licensed corporation:
- The parent corporation has merged or created a subsidiary,
- The subsidiary has merged into the parent corporation,
- The corporation has changed its filing status with the SOS from a domestic corporation to a foreign corporation, or
- The corporation has changed its filing status with the SOS from a foreign corporation to a domestic corporation,
The licensee must submit a written request for license reassignment, specifying which condition exists, along with an Original Application for Contractor License and the required fees.
Other Considerations When Changes Are Occurring
A Change to the Licensee’s Name
Any change to the licensee’s name or address must be reported to the Contractors State License Board (CSLB) within 90 days of the change by submitting an Application to Change Business Name or Address signed by an owner, partner, or officer of the corporation.
Any corporate name change must first be registered with the SOS; adding a “DBA” to the existing corporate name does not require any changes with the SOS, except that the DBA cannot indicate a second corporation.
A Change to the Licensee’s Personnel
Certain changes to the licensee’s personnel must be reported to the CSLB after the licensee’s records with the SOS are updated, if required. This includes adding and removing personnel and updating personnel title changes on the CSLB’s records for the licensee.
Limited Liability Corporation (LLC) licensees should be particularly careful because every person who is an officer, member, manager, or director must be listed as personnel of record with the CSLB. In contrast, other California corporations are required to identify only three corporate officers, e.g., the president, secretary, and treasurer, and foreign corporations must only identify their president.
Licensees should be very careful to make sure that they have personnel of record identified in the CSLB’s records, e.g., an owner, partner, member, manager, or officer, who can sign any required documents. They should also understand that the CSLB will review the licensee’s filings with the SOS. Any inconsistencies between the SOS’s and CSLB’s records for the licensee will delay the CSLB’s processing of any attempted changes to the licensee’s personnel of record and certain other applications.
In addition, LLC licensees are required to carry liability insurance with the aggregate limit of $1 million for licensees with five or fewer persons listed as personnel, plus an additional $100,000 required for each additional personnel, not to exceed $5 million total. Changes to the LLC licensee’s personnel of record could trigger an obligation to provide additional insurance.
A Change in the Licensee’s Qualifier
Any changes to the qualifier for the license must also be reported to the CSLB within 90 days either through an Application for Replacing the Qualifying Individual or a Disassociation Request. The licensee must replace the qualifier within 90 days of the qualifier’s disassociation date.
A licensee can request a 90-day extension if it is unable to replace the qualifier within the 90-day period. An extension request will only be considered if its is (1) received by the CSLB within 90 days from the date of the CSLB’s notice that the license will be suspended or the classification removed, and (2) if an application has been made to CSLB to replace the qualifying individual.
A new qualifier’s bond in the name of the new qualifier will also be required.
If the new qualifier will be an RME, the RME must be a bona fide employee who is permanently employed by the licensee and actively engaged in the operation of the licensee’s contracting business for at least 32 hours or 80% of the total hours per week such business is in operation, whichever is less. All qualifiers must engage in direct supervision and control of the licensee’s construction operations. “Direct supervision and control” includes “any one or any combination of the following activities: supervising construction, managing construction activities by making technical and administrative decisions, checking jobs for proper workmanship, or direct supervision on construction job sites.”
Failure to timely replace the qualifier will result in the automatic suspension of the license or removal of the classification from the licensee’s license.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.