Company organization
CSLB licenses a business, and the type of business decides who can qualify the license, which bonds are needed, and what happens when an owner or qualifier leaves. Expect exam questions on qualifier rules, bond amounts, and the 90-day reporting deadlines. On the job, these rules protect your license from automatic suspension.
In California, the license belongs to a business entity. CSLB issues licenses to sole owners, partnerships, corporations, limited liability companies (LLCs), joint ventures, and tribal businesses (B&P §7065). The entity type controls who may be the qualifier, which bonds and insurance are required, and what happens when an owner dies or leaves.
Business types and the personnel of record
The personnel of record are the people CSLB's records list as connected to a license (B&P §7025). For a corporation or LLC, every officer, member, responsible manager, and director must be listed. For a partnership, every partner must be listed (B&P §7065(b)).
| Business type | Owners and personal liability | Who can be the qualifier |
|---|---|---|
| Sole owner (individual) | One person owns an unincorporated business. The owner is personally liable for business debts. | The owner, or a responsible managing employee (RME) |
| General partnership | Two or more people share profits and losses. Partners have unlimited personal liability. | A general partner, or an RME |
| Limited partnership | General partners have unlimited liability; limited partners have limited liability. | A general partner, or an RME |
| Corporation | A separate legal entity owned by shareholders, who generally are not personally liable. Must be registered with the Secretary of State. | A responsible managing officer (RMO), or an RME |
| Limited liability company (LLC) | Owned by members; personal assets are protected in most cases. Must be registered with the Secretary of State. | An RMO, a responsible managing manager, a responsible managing member, or an RME |
| Joint venture | A combination of businesses that each already hold a current, active license in good standing. | No new qualifier; it uses the classifications of its member licenses |
Taxes also differ by entity. A sole proprietor reports business profit on Schedule C of Form 1040. A C corporation pays tax on its profit, and shareholders pay tax again on dividends (double taxation). An S corporation passes income through to its shareholders and may have no more than 100 shareholders. An LLC with two or more members is taxed as a partnership unless it elects to be taxed as a corporation (IRS).
The qualifying individual
Every license needs a qualifying individual, usually called the qualifier. This is the person whose experience and exam results qualify the license (B&P §7025, §7068). After the license is issued, the qualifier must exercise supervision and control of the construction operations so the business obeys the Contractors' State License Law (B&P §7068.1).
- ‘Supervision and control’ means direct supervision or control, or monitoring and being available to help the people who were given direct supervision.
- ‘Direct supervision or control’ includes supervising construction operations, making technical and administrative decisions, checking jobs for proper workmanship, and supervising on job sites.
A responsible managing officer (RMO) is an officer of a corporation or LLC who qualifies the license. A responsible managing employee (RME) is not an owner. The RME must be a bona fide employee, which means permanently employed by the business. The RME must also be actively engaged in the work: at least 32 hours per week or 80% of the business's total operating hours per week, whichever is less (B&P §7068(c)).
Worked example
How many hours must the RME work?
- The business is open 36 hours per week.
- 80% of 36 hours = 0.80 × 36 = 28.8 hours.
- Compare 28.8 hours with 32 hours. The law uses whichever is less.
The RME must work at least 28.8 hours per week.
Know this
The qualifier can be disciplined for the business's violations even if the qualifier did not know about them or take part in them (B&P §7122.5).
One qualifier for more than one license
A person acting as a qualifier may not hold any other active contractor's license, except as §7068.1 allows (B&P §7068(e)). A person may qualify an additional firm only if one of these conditions exists (B&P §7068.1(a)):
- There is common ownership of at least 20% of the equity of each firm.
- The additional firm is a subsidiary of, or a joint venture with, the first firm. A subsidiary is a firm at least 20% owned by the other firm.
- For partnerships, corporations, and LLCs, the majority of the partners, officers, or managers are the same.
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