Converting Entity in Business Purchase and RME Scope

Having assisted contractors for many years I have found friends who return time and time again.  Others might need a little ‘conversion’. Another contractor learns ‘timing’ is everything in comedy and contracting.  I’m proud to help and offer every contractor an open door! 

Q: I spoke to you earlier this year regarding the purchase of an existing Contracting business. We had discussed forming a new Limited Liability Company (LLC) to buy the assets of the existing corporation and we went through the process of submitting a license application for the new LLC and such. We’ve changed course a bit and this will now be a conversion. So, we will be purchasing the stock of the corporation and then converting to an LLC. Given there isn’t a new LLC being created which we can start a license application for, does the CSLB give us some sort of grace period after the conversion is completed to transfer the license number? Is there a special application for a conversion situation such as this? 

A: There is no “special” application for a conversion, however I of course have a suggestion on how to handle this situation. First, the CSLB gives you 60 days from the time they discover the entity has converted to complete the process of obtaining a new license or transferring the corporate number to the LLC. To have the best chance of meeting the 60-day deadline, I suggest submitting an application immediately in the name of the resulting LLC entity ahead of time, even before the conversion has officially been filed with the Secretary of State. With the CSLB’s backlog, most likely by the time they get to your application for review, the conversion will have been done. Second, being that new bonds and insurance will be required and possibly fingerprinting, getting a head start on the license application is definitely a good idea.

Q: I have a Sole Proprietorship license currently and I have a company I’ve done work for as a sub-contractor asking to use me as an Responsible Managing Employee (RME) so they can obtain a license for one of their sister companies who is not currently licensed. What are the responsibilities of an RME and what are the risks of loaning my license out? 

A: No joke, an RME is required to work at least 32 hours per week or 80% of the Company’s operating time. He/she is responsible for exercising supervision and control of the Company’s construction operations. You are not really “loaning” your license out; your license can remain in place on Inactive status, during the time you are acting as RME for the Company license. 

As far as risks, as an employee and not an Officer, as long as you are exercising that above mentioned supervision and control, there is little risk for an RME. However, keep in mind if the Company is involved in any sort of legal action in relation to their contractor’s license resulting in something such as a license suspension, an unsatisfied judgement, etc. that can trickle over to your personal license causing it to also become suspended. Don’t worry too much though, if that were to ever occur, it can (most of the time) easily be rectified by immediately disassociating from the Company license. I suggest also consulting with legal counsel to assess risks.