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Update on LLC Legislative Changes

For some folks, the legislative changes to LLC and LLP statutes may help with choice of business entity planning.

AB2671. Waiver of LLC Tax for Small Business LLC – Single Member Deployed Overseas

If a Presidential Executive Order called your client to active duty (such as, for example, service in Iraq & Afghanistan), your client may obtain a waiver of the annual $800 LLC Fee, provided:

  1. Total Income < $250,000
  2. Operations Cease or No Profits
  3. Tax year began on or after January 1, 2010 and before January 1, 2018
  4. The single member was deployed during the affected tax year under a Presidential Executive Order.

Yes, I know that TI will be <  $250K if operations cease – the TI is used to define a Small Business Single Member LLC.  Assemblyman Paul Cook responded to constituents wherein deployed service members owed a $800 minimum franchise tax for their LLC that was failing or ceased due to their deployment.

SB392. LLCs for Licensed Contractors!!!

This is interesting to everyone in the RED Group.  To be made effective on or before 1-1-2012 by Contractor’s Licensing Board, an LLC can now operate as a construction contractors business.

Rules are much like registering a corporation to be a licensed contractor.  Requires a Board licensed RMO (or responsible manager or responsible managing member or responsible employee submit his/her license for registration with the Board).  Requires a $100,000 surety bond.  ALSO, requires E&O insurance, $1 million +  $100,000 x “# Personnel of Record of the Licensee” > 5 persons.  (i.e., 6 persons = $1.1 million coverage.

This law recognizes that contractors do screw up.  If the SOS suspends the LLC (no registration, fails to file returns), then RMO becomes personally liable for $1 million in third party damages.

For contractors considering this option, if they are a proprietor, registration and placement into an LLC should be fairly straight forward.  For licensed contractors operating through a corporation, they need to be a bit careful to make sure that they not trigger adverse taxes if they want to dissolve/terminate their corporate entity by conversion into an LLC as this is a taxable event

SB1244. Engineers & Land Surveyors LLP

In past, we had LLPs for attorneys, accountants and architects.  But some firms are architect-engineers do to their similarity.  Now professional engineers and land surveyors can form an LLP.  LLPs are simply general partnerships in certain industries that register both with the SOS and the state licensing board to gain some liability protection to non-tort partners.  There are surety requirements for professional engineers/land surveyor LLPs:  1.  E&O of $2 million + an additional $100,000 for each licensee over 5 persons ($5 Million cap), 2.  Alternate coverage – same account, by trust, escrow, cash, CD, treasury obligations, bank credit or bonds of insurance, 3.  a guaranty by each partner for the shortfall of 1 or 2, OR 4.  LLP must be worth at least $10 million (no E&O, no alternate coverage, no guaranty required.

Keep in mind that there are always new developments happening for LLCs and it is important to keep apprised of these changes.

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