Inc. in Business Name, Independent Contractor and LLC Members & Managers

A bowl of ‘alphabet soup’ results from the many acronyms that makeup titles, names and descriptions of a contractor’s potential roles in a company organization. Another ‘short’ question and we help a young contractor hoping to make a ‘name’ for himself…

Q:  I understand the requirements for the RME (min. 32 hours per week, etc.) and RMO (min. 20% equity), but in the case of a Limited Liability Company (LLC), I need to know what are the minimum working requirements and responsibilities for the responsible managing manager or a responsible managing member? And also are these requirements different for CA, NV and AZ?

 

A:  First, let me make a correction to your first statement.  While you are correct that RME’s are required to work a minimum of 32 hours per week or 80% of the company’s operating hours, whichever is less, RMO’s are not required to have a minimum of 20% equity.

Now to answer your question, an LLC can have a Responsible Managing Employee (RME), a Responsible Managing Officer (RMO), a Responsible Managing Manager (RMG), or a Responsible Managing Member (RMM).  RMG’s and RMM’s are similar to RMO’s in that they don’t have a minimum hour requirement that they must abide by, but they are responsible for exercising direct supervision and control of the company’s construction operation.

 

Nevada does not have the titles RME, RMO, etc., however they are more detailed about the specific duties that they require of Qualifying Individuals.  There is no hour requirement for Qualifying Individuals in Nevada, however they must be a bona fide member or employee of the company and they are required to exercise authority in the company’s contracting business. This includes making technical and administrative decisions; hiring, promoting, directing, etc. other employees either directly or through others; and to devote themselves solely to the business and not take other employment that would conflict with their duties.

 

Arizona also does not use the terms RMO, RME, etc., nor do they have an hour requirement for the Qualifying Party on a license.  Arizona requires that while an individual is acting as a Qualifying Party, they “shall not take other employment that would conflict with his duties as qualifying party or conflict with his ability to adequately supervise the work performed by the licensee.”

 

Q:  I currently work for a company that has a “C-10” electrical license. I have my electrician certification.  I want to be an electrical sub-contractor for my current company and my buddy’s company that also has a “C-10” license.  If both companies hire me as an Independent Contractor, can I work under their licenses or do I need my own “C-10” contractor’s license?

 

A:  If the work you would be doing goes over $500.00, you would need to have your own individual “C-10” license.  Even though you may consider yourself “employed” by the two companies, you are not technically an “employee” of each entity and therefore you cannot do work under their license. Independent contractors are by definition not employees.

Q:  I have worked for my Dad for over 10 years and he has a corporation, ABC Inc., with the “A” General Engineering license.  I want to get a “C-8”concrete license, completely separate from his company, but I want to use the same business name.  Can I get a Sole Owner license and call it ABC Inc. if my Dad notifies the CSLB that he approves?

A:  The CSLB is not going to let you include “Inc.” at the end of your business name as that implies that you are a corporation.

 

Convicted Felon Licensing in CA, AZ & NV, Background Checks, Fingerprinting and Criminal Disclosure Statements

While law is law, what makes our American way great is everyone is entitled to an opinion. Let’s be clear, I am not an attorney. However, when you break the law, did your time and paid your fine, you can find a second chance if fear and extra paperwork does not deter you…

Q:  I recently received a citation from the CSLB for doing work over $500.00 without a license.  I would like to get a license in CA, NV, and AZ but what’s stopping me is that I heard that they all run background checks now and I have a felony on my record.  It’s from many years back, but will that prevent me from getting my license in those three States?

A:  Again, we are happy to provide you with our opinion, however this in no way should be construed as legal advice.

In discussing this issue, here in California, the Contractors Board (CSLB) requires each applicant to respond to a question that concerns any criminal history and provide a detailed description of each arrest/conviction.  In addition, the CSLB requires a fingerprint background check, which is evaluated by the State Department Of Justice (DOJ) and the Federal Bureau of Investigation (FBI).  They do not have any specific criteria concerning what type of past criminal offense would disqualify an applicant from obtaining a contractor’s license or being a license Qualifier.  While it is very unlikely an applicant will be issued a license if still on parole or probation, there actually is no regulation disallowing someone from filing an application.

 

While a felony charge would likely be evaluated carefully, it would depend on how long ago this took place; whether this was an isolated incident or one of several convictions; and how the applicant has documented their rehabilitation.  Each application is evaluated on a case-by-case basis, but statistically only a small percentage of applications are ultimately denied.  In some cases, the CSLB may issue a Probationary License, again depending on the severity of the crime and information provided by the applicant and obtained from the Department Of Justice.

Nevada has a policy of requiring all applicants to complete a “Criminal Disclosure Statement Regarding Criminal Plea/Conviction” form and provide fingerprints.  Like CA, the applicant will be required to list the arresting agency, conviction date, court location, sentence, explanation of the crime and efforts towards rehabilitation.

 

The FBI and the Nevada Criminal History Repository will then evaluate your records and fingerprints.  Any felony will cause the application to be denied at staff level and it will then be assigned to go before the Board for final determination.

When reviewing convictions, the Nevada Board considers factors such as the seriousness of the crime, the time that has passed since the conviction and any evidence of rehabilitation.

Arizona requires that you complete a background check online and the information is automatically transferred to the Arizona Registrar of Contractors (ROC).  The ROC reviews criminal convictions to determine if the crime is substantially related to the duties, qualifications and functions of a contractor.  They also review rehabilitation efforts.  Arizona has a list, which is available on their website, of convictions that may result in the denial of a license so you may want to review that before you apply for a license.

If you would like our assistance with completing the application forms, including guidance with completing the Criminal Disclosure statements, please call us at 866-443-0657. Remember, failing to disclose criminal history can create a considerable delay in the application process.

NV JV Licensing, License Piggybacking, Experience Credit Documentation and Ownership Changes

A ‘no way, no how’ gets us started on this round of contractor “Q&A.” We find a short answer in a very long question for a North Carolina contractor interested in ‘rolling the dice’ on a new venture in Nevada. And, a license applicant shows us why you keep copies of all your paperwork…

 

Q:  We are in the process of obtaining a contractor’s license in California.  The CSLB informed us that it might take 2 or 3 months to issue a license with the testing and fingerprinting requirements.  Is there a way to piggyback off someone else’s license?  We have another company that we use as a subcontractor here in Arizona that has a CA license and they are willing to let us use it.

A:  We hear this question often and the answer is plain and simply no, you cannot piggyback off someone else’s license.  The response we typically get is “well what if we…” and the answer is still no.  Whatever way you may think to work it, you cannot contract for, or perform construction work over $500 without having your own license. No way, no how!

 

Q:  We are a licensed North Carolina contracting company and one of our customers would like us to do a large project in Nevada.  We plan to subcontract the installation to a company that currently has a contractor’s license in Nevada.  We are discussing forming a Joint Venture (JV) with them.  Would that require that our company obtain a license first with a Qualifying Employee from our company, and then we apply for the JV license?  Or can we just apply for a Joint Venture license with one licensed entity and one un-licensed entity utilizing the other company’s qualifying individual?

A:  Nevada does not require that both entities be licensed prior to obtaining a joint venture license.

Q:  We recently restructured the company and the ownership now belongs 100% to our parent company.  Nothing else changed, we still have the same tax ID number, same officers, etc.  Do we need to notify the CSLB of the ownership change?

A: You are required to notify the CSLB of any change to your license within 90 days of the change.  That includes things such as a name change, address change, personnel change, new Worker’s Compensation insurance policy, etc.  If it’s strictly ownership that changed and everything else with the license remains the same, then you are not required to notify the CSLB.  However, if prior to the ownership transfer, your Responsible Managing Officer (RMO) owned more than 10% of company, and now that’s obviously no longer the case, you will need to obtain a Bond of Qualified Individual and submit that to the CSLB with an explanation that he is no longer a 10% shareholder.

Q:  I am in the process of obtaining a “C-10” Sole Proprietorship license and I’m about 2 months deep in the process and I realized I actually want to operate as an Limited Liability Company (LLC).  I understand that I can act as the Qualifier on both, providing that I own at least 20% of the LLC, which I do.  I plan to apply under the LLC once the Sole Proprietor license is issued.  Will I need to re-certify my experience again?  I had to provide all kinds of documentation and I didn’t keep copies of any of it.

 

A:  No, thankfully, you will not be required to show your experience again.  You will want to complete a waiver application and your work experience as well as exams will not be required. And again, for everyone, always keep copies of documents for future use!

Lost a Qualifier, Reporting False Qualifier, Bond Transfers and New Extension of License Reciprocity

Your Qualifier just called and quit, what now? We ‘bond’ with a young contractor who is following in his father’s footsteps.  We ‘re-member’ rules on a ‘limited’ question about names, but first new law brings new opportunity for contractors ready to travel…

 

Q:  One of my subcontractors recently obtained his Arizona license and he didn’t have to take the trade exam because he has been licensed in Oregon for over 5 years.  It was my understanding that Arizona’s reciprocal agreement was only with California, Nevada, and Utah.  Did something change?

 

A:  Yes, there were several changes to the licensing law in Arizona that became effective July 1, 2014.  And yes, one of those changes was expanding the reciprocal agreement to include all States that require licenses.  This being said, contact our office if you need assistance with obtaining an Arizona contractor’s license or information on any other state’s regulations.

 

 

Q:  I have worked for my father’s contracting company for many years and he passed away recently.  I have applied for a new license and I’m requesting that his license number be re-issued to me.  The CSLB sent me a letter requesting a contractor’s bond.  My Dad just renewed the bond on his license.  Can I request that the CSLB also transfer his bond?

A:  No, unfortunately bonds are not transferrable.  So even though you will be keeping your father’s license number you will need to obtain a new contractor’s bond.

Q:  My CPA recommended that I change my corporation to LLC since CA now allows Limited Liability Companies to have contractor’s licenses.  On the application I see that there are boxes to check for “Responsible Managing Member” and “Responsible Managing Manager.”  What is the difference between Member and Manager?

 

A:  It is my understanding that “members” own interest in the company while “managers” are employees of the company who function as Officers of a corporation would, but without having a share of the company’s profit.  You should consult your CPA or an attorney to assist you with the formation of your new LLC.

 

Q:  We are a fire sprinkler installation company and one of our competitors is using a Responsible Managing Employee (RME) that is not involved in the company at all.  He receives a monthly payment but he lives out of state and works for another company full time.  How do I make the CSLB aware of this?

A:  You would want to complete a complaint form which is available on the CSLB’s website.  It is also helpful to submit any supporting documentation that you have available.  The CSLB will “investigate” the complaint from there.

 

Q:  Our Qualifier resigned from our company recently.  We have a new individual that is going to Qualify for the company but he is currently the Qualifier on another company’s license.  I see the form to replace the Qualifying party, but does he need to disassociate with his prior employer first, or is that automatic?  Also, does the license number change when we switch out the Qualifying party?  In other words, do license numbers follow the individuals or stick with the company?

 

A:  No, he is not automatically removed from the current license.  He will need to complete a Disassociation Notice to remove himself from his previous company’s license which is available on the CSLB’s website www.cslb.ca.gov.

RMO On Site Scope of Work & Discussion of 7068.1

After more than 25 years assisting contractors, some questions still come up time and again. That’s primarily a result of several factors; including rumor, misunderstanding or misinterpretation of the law. The rules and regulations written are complex, and the way they are interpreted by the CSLB always a factor. As experts working daily with these regulations we know that what’s written doesn’t always mean the same thing to different people reading it…

Q:  I think I’ve read about this in a past column, although it may have been some time ago.  I’ve been reading the Capitol Connection for a number of years and for the first time I have a question.

We presently have about a dozen jobs going at one time throughout Northern California.  Since the economy has bounced back we’ve been pretty busy. I was told by my attorney that in order to remain legal, I must, as the Responsible Managing Officer (RMO) physically be on each and every job site – no exceptions.  I’m trying to efficiently run my company, so have project managers or superintendents assigned to oversee each project.  Plus while I occasionally visit some job locations, how the heck could I possibly be in twelve places at once?  Am I running afoul of the law as my attorney told me or is it acceptable to “oversee” each job while primarily working in my office?  For your information, I personally meet with all my supervisory employees on a regular basis.

 

A:  Thank you for being a long-time reader.  Plus, nice to hear that you’re keeping busy.  While we cannot give you any legal advice, I think your attorney has likely reviewed B&P Code section 7068.1 which, in part states, “The person qualifying…shall be responsible for exercising that direct supervision and control of his or her employer’s or principal’s construction operations to secure compliance with…the rules and regulations of the board.”

He likely also reviewed CA Code of Regulations #823 (b) which for purposes of 7068.1, defines “direct supervision and control” as including “any one or combination of the following activities: supervising construction, managing construction activities by making technical and administrative decisions, checking on jobs for proper workmanship, or direct supervision on construction sites.”

Nowhere in any statute or regulation does it state or even imply that as the Responsible Managing Officer (RMO) you must “physically be on each and every job site.”  It would be acceptable to supervise construction activities through your supervisory employees plus I assume you’re managing construction activities by making technical administrative decisions.  I do not believe the CSLB expects an RMO to do the impossible and be on a dozen job sites at once.  The key is that your company is complying with the rules and regulations of the board and the fact that you regularly meet with your project managers should be adequate. (Records of these meetings might also be helpful in the future.)

This all being said, your attorney may be worried that a Judge may ignore the above and determine that the only way to comply with 7068.1 is to physically be on each and every job site.  If this in fact were to ever become “the law” it would throw the biggest “monkey wrench” you’ve ever seen in to California’s multi-billion dollar construction industry and could grind thousands of construction projects to an immediate halt.

“C-10” or “C-7”, General Well Drilling, Machinery & Pumps, AZ Reciprocity

If you’re a General Engineering contractor reading to the end of this column, that is likely opportunity you ‘hear’ knocking.  A ‘flood’ of work in Arizona is motivating contractors to consider over the border licensing opportunity. We start with a question that has a ‘yes’ and a ‘no’ for one contractor with ‘reciprocity’ in mind…

Q:  I am a restoration contractor in California and with the recent flooding in Arizona I have the opportunity to secure a lot of work over there.  I have had my “B” license in California for over 10 years (I took over my Dad’s license when he passed away) and I read that there’s a reciprocal agreement between California and Arizona.  Does that mean that I don’t need to take any exams there and I can do work over there based on the fact that I’m licensed in California?

A:  Yes and no.  You cannot automatically do work over there based on your CA license.  You would still need to complete an application and be approved by the Arizona Registrar of Contractors.  If you have been licensed actively for five out of the last seven years then you can qualify for a waiver of the trade exam.  The Business/Management exam is still required because it references laws and statutes specific to Arizona.  In addition, you are required to show that you passed the equivalent exam in California.  I mention this because you stated that you took over your father’s license when he passed away; if you obtained your qualification based on a Family Waiver you will not qualify for reciprocity in Arizona and you will be required to take the trade exam and show at least 4 years of experience with project lists and a Work Certification form.

Q:  I have a “C-10” Electrical contractor license.  I recently bid on a project with a large retail company and they are requesting that we have the “C-7” low voltage license.  How do I go about adding that classification to my license?

A:  Actually, you wouldn’t need to add the “C-7” Low Voltage classification to your license.  It has been determined by the CSLB that all “C-7” work is covered by the “C-10” classification so you should be able to take on the project based on your existing license.

If the project owner absolutely requires that you obtain a “C-7” Low Voltage license, you can apply for that and request a waiver of the exam based on the fact that you currently hold a “C-10”.  That process would likely take about 6-8 weeks at the current time.

ATTN: Well Drilling/General Engineering/Machinery and Pumps contractors:

As stated in a recent column, the CSLB is currently expediting “C-57” license applications.  In addition to expediting “C-57” contractor’s license applications during California’s drought, they are also quickly processing application for “C-61”/”D-21” Machinery and Pumps applications while the State of Emergency is in effect.

As another reminder CSLB wants Generals to hear; in a recent Industry Bulletin, the “CSLB has encouraged currently licensed “A” General Engineering contractors to consider adding the “C-57” classification to their license.  “A’s” are authorized to perform water supply projects but not well drilling unless they hold the “C-57” classification.  To get that classification, “A” licensees just need to have four years of verifiable journey-level “C-57” experience, take the exam, and pass a criminal background check (unless previously completed with CSLB), but don’t have to re-take the business and law examination.”  Contact our office if you need more information or assistance with this process.

 

Filing a CSLB Complaint, Bond Advertising, Drywall Waiver and AZ License Change Update

While we are the experts on contractor’s licensing even I can’t explain some of the rules on the book.  I ‘sign’ on this time with a ‘specialized’ question that has no answer! …

Q:  What makes plumbers, electrical sign contractors and well drillers so special that they require additional license displays (name, address, license, bigger lettering) when advertising than a “normal” contractor?

Also, why are contractors not allowed to advertise about being bonded?  That seems to be something that a customer would want to know.

A:  Thank you for contacting Capitol Services.  I don’t know that you will ever find an answer for your first question regarding Plumbers (“C-36”), Electrical Signs (“C-45”), and Well drillers (“C-57”). The CSLB has some rules and regulations that are not easily explained, but still the law of the land.

Regarding your second question, the CSLB prohibits contractors from advertising that they are bonded because it could lead the public to believe there is a higher level of protection than might actually be the case. Hope this helps.

Q:  I am a fire/water restoration contractor with a “B” (General Building) license.  I have enough drywall work to start a separate business that strictly does drywall.  If I wanted to add the drywall classification to my license would I be required to take the exam?

A:  Being that drywall is a significant portion of the “B” work that you are doing you can request a waiver of the trade exam.  It is not guaranteed that the waiver will be granted. The CSLB will review your work experience and expect to see at least 4 years of experience doing specifically drywall work and make a determination.  Contact our office if you’re a reader with questions or need further assistance with a waiver.

 

Q:  How long after a job is complete does a person have to file a complaint?

A:  The CSLB has jurisdiction for up to four years from the date of an illegal act for patent defects and up to 10 years for latent “structural” defects.  For unlicensed contractors, the CSLB has jurisdiction for up to four years from the date of the illegal act.

Q:  I am an attorney and one of my clients who is licensed in many States is going to be applying for a California contractor’s license (and yes, I will be sending him to you!)  I know each State is different with regards to dba or ‘doing business as’ names and whether or not they can have a corporate ending such as “Inc” or “Incorporated”.  What is the rule for that in CA?  For example, can his company name be ABC Contracting Services Inc. dba John Smith Contracting Services Inc.?

 

A:  The CSLB’s rule for corporate endings on a dba name is that if the dba name is registered with the county then he can have a corporate ending on it.  If it is not registered with the county, then he is not permitted to include a corporate ending on the dba name.  I look forward to assisting him with obtaining his CA license and thanks for the compliment!

 Attention Arizona licensees:

Rule changes effective July 1, 2014 increased nearly all bond amounts to provide additional protection for homeowners and licensees injured by a licensee.  These changes will become effective upon the licensee’s renewal.

Also, the Arizona Registrar Of Contractors (ROC) will no longer be sending out renewal notices by mail.  In order to reduce costs, they will now be sending out renewal notices by the email listed with the Registrar.  Make sure that emails, from renewalnotices@azroc.gov are not blocked by your spam filter!  If no email address is on file then you will continue to receive the notices by mail.

As we have advised in many past columns, keeping your contact information up to date is absolutely crucial as paperwork or notices will not be forwarded.  Simply filing a postal change of address may not be adequate, so let them know directly you have moved and they have your exact mailing address.

Well Drilling for Generals, License Experience Credit & Manufacturer Licensing

While the drought in California has caused many problems, there is also a flipside of the coin and an opportunity for contractors that hasn’t ‘dried up.’

When does the need to be licensed kick in for a manufacturer about to sign a ‘contract’? But we begin with some great memories for a father and son…

Q:  I am a licensed “C-10” Electrician in CA. My son has been learning from me since he was young and we are trying to figure out the process of getting him certified or licensed. His experience doesn’t show up through his taxes but we have pictures showing jobs he’s helped with. We live near Redding and we’ve found one school for the program but don’t want him starting at the bottom if he doesn’t have to.

A:  First, the CSLB usually requires that an individual be 24 years of age before they can qualify for a contractor’s license.  You may be able to get him certified (all employees of electrical contractors are required to be certified with the Department of Industrial Relations). For more information on the certification process you can visit their website at www.dir.ca.gov.

 

Once he is 24 years of age he will be required to show at least four years of work experience doing electrical work in order to obtain a Contractor’s License, and he will most likely need to back that up with W-2’s or paycheck stubs or contracts, permits, etc.  The CSLB will not accept photos in order to verify an individual’s work background. Those are just great father-son memories!

 

Q:  Our company is a manufacturer of LED light fixtures.  We recently were requested to sign a large contract for the installation of these fixtures.  We plan to sub-contract the work out.  Is our company required to have a license if we aren’t actually performing the work?  If so, what type of license is required?

 

A:  A Contractor’s License is required even if you are sub-contracting the work out.  Both the company signing the contract for installations as well as the company/individual performing the work are required to be licensed.

If the wiring is pre-existing then a “C-7” Low Voltage would be the classification necessary to install the light fixtures.  If the wiring is not pre-existing then a “C-10” Electrical license would be required. We often expedite applications for just this situation as it would be illegal to sign that contract now. Let us know if we can help.

Contractor Alert!  Well Drilling and Engineering Contractors

According to recent bulletin released by the CSLB, the current drought conditions in California that are posing health and safety concerns for families who rely on well water and businesses that need ground water resources, have caused a shortage of available “C-57” Well Drilling contractors.  In response the CSLB is expediting applications for “C-57” contractors.

The CSLB is encouraging out-of-state drillers to consider becoming licensed and working in California.  In addition, according to their press release,  “CSLB also encourages “A” General Engineering contractors that are authorized to perform water supply projects (but not well drilling unless they already possess a “C-57” classification) to add the Well Drilling classification to their license.”

As always, contact our office if you’d like assistance with obtaining a license, adding a classification to your license, or any other contractor’s licensing need.

Roofing, Smoke Detectors and Business Names

First, an issue facing the roofing industry in California has a contractor ‘fired up’ then another needs help deciding what name to use for his new business…

Q:  I read your column in the weekly NCBE newsletter.

I sent an email to all CSLB staffers and have gotten no response.  Can you help with this matter?

Our local planning and building departments are now requiring to inspect the smoke detectors inside our clients’ homes before giving us a final for a re-roof permit.

As I am not licensed, certified, qualified or insured to inspect smoke detectors with my “C-39” license the inspectors are demanding access to the inside of all our clients homes to look in every bedroom etc., something most of our clients do not want.

This invasion of government into my client’s bedrooms is well out of line and I would like to know the CSLB point of view on this matter.

A:  Thank you for contacting Capitol Services.  It is unlikely that the CSLB is going to give an opinion on this since they aren’t involved in issuing permits.  As you are probably aware, local building departments issue permits and code requirements vary in different cities and counties around the State.  While we don’t typically deal with agencies on the county or city level, it appears to me that the county is enforcing Health and Safety code section 13113.7 which deals with smoke alarms, see below.  I hope this helps.

13113.7.  (a) (1) Except as otherwise provided in this section, smoke alarms, approved and listed by the State Fire Marshal pursuant to Section 13114 at the time of installation, shall be installed, in accordance with the manufacturer’s instructions in each dwelling intended for human occupancy.

(2) For all dwelling units intended for human occupancy for which a building permit is issued on or after January 1, 2014, for alterations, repairs, or additions exceeding one thousand dollars ($1,000), the permit issuer shall not sign off on the completion of work until the permittee demonstrates that all smoke alarms required for the dwelling unit are devices approved and listed by the State Fire Marshal pursuant to Section 13114.

Q:  I currently own a non-union shop. Within the next year, I would like to open another shop & go signatory with a union. So I will be running 2 shops under 1 roof. My question is, when I open my 2nd shop, to simplify things, I would like to keep my company name as close as possible to my 1st shop. How close can the 2 company names be?

Example: ABC Construction opening a 2nd shop of ABC’s construction

A:  Thank you for contacting Capitol Services Inc.  While two company names can be similar to one another, ABC Construction would be too similar to ABC’s Construction, and therefore the Secretary of State would likely not allow it.

When you decide to open the second shop you would want to check the name availability prior to registering the business.  In addition to Contractor’s Licensing we also handle Secretary of State filing so let me know if you’d like our help when the time comes.

Last week’s article featured a “throwback” column with questions and answers from the past.  We received several comments pointing out that the information was outdated with regards to license numbers issued by the CSLB (at the time the original answer was published the CSLB was issuing licenses in the 760,000 range).  Just to further clarify, the license numbers that were referenced were from some time ago. Of course, license numbers issued today are close to the 1 million mark!