How often have you heard something that later turned out to be untrue or way off base? You’d be surprised at how often we do, but for contractors getting it right is the only way to profit. That’s why our first contractor may be a little unhappy with the truth. We map out the directions on LLC operations and take a ‘prime’ cut at subcontractor paydays…
Q: I would like to get a contractor’s license but I lack the required 4 years of work experience. My buddy told me that I could use a retired contractor or someone who isn’t currently using their license as Qualifier on my license. Do you know how that works?
A: You can hire an individual who has already gone through the CSLB application process to act as your Qualifying Individual, however be aware that this individual must exercise direct supervision and control of your construction activities. Many times contractors are looking to act as your Responsible Managing Employee (RME) or Responsible Managing Officer (RMO) for a fee, but without the intention of taking part in the every day operations of the business.
In a recent newsletter, the CSLB warned contractors about the risk of using “absentee Qualifiers” and stated that they are aware of “retired” licensees who are serving as Qualifying Individuals for a monthly fee, but do not have direct involvement in the company’s construction activities. The article stated that the “CSLB is aggressively and stringently taking enforcement actions against those involved in this trend, and is in the process of legislatively enhancing violations to make them a criminal offense.”
Q: We are applying for a contractor’s license for our Limited Liability Company (LLC). We currently have a license for our corporation so I am familiar with the terms RMO and RME. However in addition to those titles, the LLC application also has “Responsible Managing Member” and “Responsible Managing Manager.” What is the difference between the two?
A: The difference between a member and manager is that members have ownership/equity in the LLC, similar to a shareholder of a corporation, and Managers are individuals who don’t necessarily have ownership, but are chosen to manage the everyday operations of the business, similar to Officers or Directors of a corporation. Whether your LLC is member-managed or manager-managed is usually outlined in your LLC operating agreement. I am not a legal advisor, so you may also want to consult with an attorney when making these decisions.
Q: Can you please tell me what the current law is with regards to contractors withholding money from subcontractors on public and private jobs for current contracts?
A: I believe what you are referring to is B&P Code Section 7108.5, requiring a prime contractor to pay their subcontractors no later than 7 days after receipt of each progress payment, unless otherwise agreed to in writing. In the event that there is a good faith dispute over all or any portion of the amount due on a progress payment, the prime contractor may withhold no more than 150 percent of the disputed amount. According to the statute, any violation of this can constitute a cause for disciplinary action and can also subject the licensee to a penalty payable to the subcontractor, of 2% of the amount due per month for every month that payment is not made. Further, with any action to collect funds that are wrongfully withheld, “the prevailing party shall be entitled to his or her attorney’s fees and costs.”