Foreign Corporations, Process Agents & LLC Contractor Licensing

Despite the news about a slowdown in construction work in California, people outside the state know it’s still a ‘golden’ opportunity as the economy revs up again. As we learn from another contractor, a long time issue with LLC’s is about to make a ‘180’ but what you have heard isn’t the whole story for contractors…

Q: A foreign corporation has asked us to do some work for them in Southern California. They will be consultants so should not need a contractor’s license. The company wants to know if it has to register with the California Secretary of State even though they are not actually performing the work? My understanding is that they still have to because they are engaged for profit under the tax code.

Is this your understanding as well? Also, if they do have to register in California, what forms will they need to file and can your company assist with the paperwork? I know this is not exactly a license issue, but I thought you might be able to provide some insight.

A: Based on the information provided, this corporation will need to register with the Secretary of State’s Office (SOS) to do business in CA. If they are conducting business and have employees in the State, they would be subject California’s corporation and tax codes.

Regarding the paperwork requirements, a “Statement and Designation by Foreign Corporation” will need to be filed and must include a Certificate of Good Standing from their home State. The company must list a resident agent for service of process who is authorized to receive legal filings on their behalf.

Fees to the SOS are dependent on how quickly they need this document filed. The base fee is $100.00 and all that is necessary if sending in the form. For an extra $15.00, they can have the document filed in person and can expect to have a corporate number in about 4 weeks. For an additional $350.00 a 24-hour turnaround can be requested. I always recommend reserving the name first to make sure it is available.

There are many companies — including Capitol Services — that can act as “agent”, reserve a corporate name and hand-deliver the form to the SOS in Sacramento.

Q: I see where the CSLB can now issue a license to a Limited Liability Company (LLC). This is great. How do we get started and what is required by the State?

A: I’ve received a number of calls from attorneys and contractors about this new law. While the law took effect on January 1, 2011, authorizing the issuance of a LLC license, the CSLB has until January 1, 2012 to implement it.

According to a report presented at a recent CSLB meeting, Information Technology (IT) staff has begun to work with the Licensing division to develop the rules and program for their automated system. It’s anticipated these changes will take most of 2011 to complete with “user testing in November and December of this year”. Therefore, the CSLB will not be able to accept a LLC application until after implementation is completed (on or about the first week of January.)

Q: I worked for a company as Responsible Managing Employee (RME) until October of last year. I left to pursue projects on my own but just discovered that I’m still listed as the RME. Shouldn’t they have filed the paperwork to remove me from the license? Am I still exposed to any liability? What penalties do they face?

A: Code Section 7068.2 actually requires “the licensee or qualifier” to notify the CSLB in writing within 90 days of disassociation. You are still subject to potential liabilities until you’re officially removed from the license. A licensee that does not replace the qualifier within those 90 days is subject to license suspension and disciplinary action.

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