LLC Liability Insurance, Inactive RME/RMO & RMO on Multiple Licenses

I have heard that ‘timing is everything’ in humor, but it is no joke when deciding on making changes in your contractor’s licensing as our first question illustrates. Timing is again the issue in our second question, but the answer goes well beyond his immediate need. Anyone with, or hoping to obtain, an LLC license will find good news in new legislation signed by the Governor…

Q:  We currently have two licensed corporations that we will be selling the assets of.  The buyer will form two new corporations and obtain new license numbers, however one of the conditions of the sale is that the Responsible Managing Officer (RMO) stay on as his Qualifier for the first few years of business.  I was reading that an RMO can be on up three licenses at a time as long as there is some common ownership (which there is). Once the sale is final we will cancel the existing corporations’ licenses, so he will no longer be listed as the RMO on those two licenses.  I just wanted to be sure that there will be no issues with transferring him over to the two new corporations.  Thank you for your expert advice.

A:  You are correct that when the ownership requirement is met an RMO can be on up to three active licenses at a time, but if you read that regulation further it states that an RMO can be up on three active licenses at a time within a one-year period.  Your Qualifier is currently on two active licenses, so the CSLB would allow him to qualify one of the new entity’s licenses, but it’s unlikely that they will allow him to qualify both.  In order to qualify the “fourth” entity, he would need to wait one year from the time he is removed from the current corporation’s license.

 

Q:  I am the RMO on my brother’s corporation’s license.   He recently went to work for another company so he inactivated his corporate license.  Since he’s not using the license, I would like to remove myself from the license to be released of any potential liability but I don’t want his license to go suspended as a result.  I assume he will have 90 days to replace me once I disassociate?

 

A:  Actually, Inactive licenses are not required to have an RME/RMO.  Likewise, Inactive licenses are not required to have Bonds or Worker’s Compensation on record with the CSLB.  If and when your brother decides to activate the license in the future he will be required to list a new RMO/RME as well as comply with bond and insurance requirements.

LLC Licensing Note:  AB 1236 was signed by Governor Brown, which will authorize contractors licensed as LLC’s to obtain liability insurance from a surplus line insurer.  Current law requires that licensed LLC’s maintain a certain level of liability insurance, and it is to be written by an insurance company admitted to underwrite insurance in California.  Many times LLC contractors are unable to obtain a contractor’s license due to the fact that they cannot obtain the required liability insurance because such coverage is unavailable from any California admitted insurer.  Many contractors in California that operate as corporations use a surplus lines carrier for their liability insurance.  The new legislation will allow those corporations to apply for LLC status without changing insurance carriers.

This new legislation authorizing LLC’s to obtain the required liability insurance from a surplus line insurer will go in to effect on January 1, 2014.

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