Capitol Connection Q&A for Contractors - Week of April 10, 2017

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By Shauna Krause, President, Capitol Services, Inc.

Bonds, license bonds that is, employee ownership and help for a ‘foreigner’ are introduced in this edition.  I start with some important differences as an applicant gets his business organized along some ‘easy’ lines… 

Q:  I am going to be buying an HVAC company and obtaining a new Contractor’s License.  I am trying to decide whether I should apply as a corporation or an LLC. What is the difference and is one easier than the other when it comes to getting licensed?

A:  There are several differences between corporations and LLC's (Limited Liability Company), the biggest difference being how each are taxed.  You should consult with an attorney or tax advisor to discuss the tax differences and advantages/disadvantages of each.

Choosing one type of entity is not necessarily “easier” than the other when it comes to getting licensed, there are several additional requirements for Contractors applying as an LLC.  In addition to the $15,000 Contractors Bond that is required of all licensees, LLC’s are required to also have a $100,000 LLC/Worker Bond.  Limited Liability Companies are also required to show proof of at least $1 million in General Liability coverage, which is not required for other entities.

Q:  We are in the process of replacing our RME (Responsible Managing Employee) who recently left the company.  When we originally obtained the license, we posted $12,500 cash in lieu of the $12,500 Bond of Qualified Individual.  Is that money transferrable to the new RME?  If it’s not transferrable, how do we go about getting the money back so that we can use it for the new Qualifier?

A:  Bonds, including cash bonds, are not transferrable.  You will either need to post a $12,500 Bond of Qualified Individual or post another $12,500 cash.  The CSLB will not release the cash bond until three years after the period for which it provided coverage.  Cash deposits are held in case a claim is filed against the deposit.

Q:  When applying for a license as a corporation, are we required to list our shareholder (which is another corporation) on the application, or are Directors sufficient?

A:  If you are applying as a Foreign corporation (entity formed outside of California) you are required to at a minimum list your President on the application. If you are applying as a Domestic Corporation, you are required to list your President, Secretary, and Treasurer on the application.  The CSLB does not require that corporations list their shareholders.

Q:  Our corporation is a licensed contractor in Nevada.  We are in the process of changing from a standard ‘S’ Corporation to an Employee Stock Ownership Plan (ESOP).  Do we need to do anything to update our Contractor’s License?

A:  A change in ownership does not require that you update your Nevada Contractors License. However, I am not a tax advisor or attorney so suggest you research changing from an ‘S’ Corporation to an ESOP and if it would warrant a new Federal Identification number. That change may trigger a new application be submitted as your ‘business entity’ is now a different structure.  

If your entity changes or if your Officers change, you are required to report it to the Nevada Contractors Board to update your license.

 

While knowledge is power, knowing where to go for the answers is half the battle. Get expert assistance immediately when you call 866-443-0657, emailinfo@cutredtape.com, or write us at Capitol Services, Inc., 1225 8th St. Ste. 500, Sacramento, CA 95814. Research past columns at www.cutredtape.com.

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