What Happens to a Licensed Contractor when Official Personnel Leave?
The state of California permits entities to be licensed as contractors. Depending upon the entity, particular individuals need to be identified as "responsible" for the license or "qualifying" for the particular trade.
The qualifying individual or Responsible Managing Officer (“RMO”) under California law is an individual who is a bona fide employee of the applicant for a contractor’s license, and is actively engaged in the classification of work for which that responsible managing employee is the qualifying person on behalf of the applicant. California Business & Professions Code (“Code”) §7068(c).
For purposes of Code §7068, a “bona fide employee” (or Responsible Managing Employee, or “RME”) of the applicant means an employee who is permanently employed by the applicant and is actively engaged in the operation of the applicant’s contracting business for at least 32 hours or 80 percent of the total hours per week such business is in operation, whichever is less.
If there is a change in the personnel listed on your license, you must report the change to the CSLB within 90 days of the effective date (Business and Professions Code section 7083). Some changes in personnel will result in the cancellation or suspension of the license. This is often dependent upon the entity type that holds the license and whether the departing personnel is a Responsible Managing Employee (RME) or Responsible Managing Officer (RMO).
If the contractor’s license was issued to an individual doing business as a sole proprietorship, the individual license cannot be transferred, even if the business is sold to another person. If the individual with the contractor’s license dies, a death certificate must be submitted to the CSLB, and the license will be cancelled. If the individual with the contractor’s license no longer wishes to conduct business, the individual may either cancel the license by submitting a Cancellation Notice to the CSLB, or inactivate the license by submitting an Application to Inactivate Contractor’s License to the CSLB.
A General Partnership license is issued to a specific partnership structure and the structure cannot be altered. When a general partnership structure is altered, the partnership license must be cancelled.
This means that general partners cannot be added to an existing partnership license. A new license is required for the new partnership structure.
If the general or qualifying partner leaves the partnership or dies, the contractor’s license of the partnership a Disassociation Request must be submitted to the CSLB within 90 days of the date the general or qualifying partner left the partnership. However, the remaining partners may request a one year continuance of the license to complete projects in progress. A request for continuance must be submitted to the CSLB within 90 days of the date the general or qualifying partner left the partnership. If the remaining partners wish to remain in business beyond the one-year continuance they will need to appy for a new contractor’s license.
A Limited Partnership license is also issued to a specific partnership structure. But as it consists of one or more general partners and one or more limited partners, additional limited partners may be added or removed from a limited partnership without cancelling the license. Provided that all general partners remain the same, and at least one limited partner is listed, the license can survive. Rather, only changes in general partners, or removing all limited partners, will result in cancellation of the license.
If a general or qualifying partner leaves the limited partnership, a Disassocation Request must be completed and sent to CSLB's Headquarters Office within 90 days of the disassociation date. If the form is not received by CSLB within 90 days of the effective date of the disassociation, the date the notice is received by CSLB will be used as the disassociation and cancellation date.
Corporations and Limited Liability Companies
If any of the listed officers of a corporation or limited liability company leaves the corporation or limited liability company this change must be reported to the CSLB within 90 days of the listed officer leaving the company.
Corporate officers can be changed on a corporate license. Adding or removing a corporate officer (non-qualifier) does not affect the status of the license.
RMOs, RMEs, Responsible Managing Member, and Responsible Managing Manager
If a qualifying individual, either a RMO, RME, Responsible Managing Member or Responsible Managing Manager, leaves the company, this change must be reported to the CSLB within 90 days of the qualifying individual leaving the company by filing a Disassociation Notice. You must replace the RMO, RME, Responsible Managing Member or Responsible Managing Manager within 90 days of the date the qualifying individual left the company by filing an Application for Replacing the Qualifying Individual and the required application fee. An Application for Replacing the Qualifying Individual can also be used as the Disassociation Notice if the qualifying individual is replaced immediately.
If the RMO, Responsible Managing Member, or Responsible Managing Manager’s share of the voting stock or equity of the corporation or LLC falls below 10% of the voting stock or equity of the corporation or LLC, he or she will no longer be eligible for the exemption from the qualifying individual bond (currently $12,500), and a Bond of Qualifying Individual form must be submitted to the CSLB within 90 days of the change.
Note: You may petition the CSLB for reconsideration if you dispute the date of disassociation on which a suspension is based. You may also petition the CSLB if you can show good cause for failing to notify the CSLB within 90 days of the date of a disassociation. However, the CSLB must receive the petition within 90 days from the date the CSLB sends notice that the contractor’s license will be suspended if the qualifying individual is not replaced.