Having your Contractor’s License up and running to perform work when needed, where needed, is an indispensable compliance matter that contractors face every year. However, this indispensable process may also be cumbersome and time consuming. Knowing the regulations applicable to your business in each state and what to do, how to do it, and when to do it, is of critical importance to maintain compliance and your ability to work in different states.
In this post we will do a high-level review of reporting obligations in California and Louisiana.
California’s Contractors’ State License Law, Bus. & Prof. Code §§ 7000 et seq., requires licensees to report various information to the Contractors State License Board (CSLB) “within 90 days” of the effective date or event. Louisiana State Licensing Laws and Regulations, R.S. §§ 37:24 et seq. and La. Admin. Code tit. 46, XXIX, §§ 101 et seq. also require similar reporting to the Louisiana State Licensing Board for Contractors (LSLBC), sometimes “within 15 days” of the event.
Failure to report required events or information could result in the automatic suspension of your license and, in some cases, revocation of your license for one to five years, and maybe even fines up to 10 percent of the total contract value or other civil remedies.
It is also important to note that this compliance matter may also impact your contractual performance and your relationship with your clients; it may even cause you to breach a contract. You, as a contractor, have signed a contract general contractor in your project. That contract (most likely) contains a provision in which you have promised to maintain compliance with “all laws.” Thus, having your license suspended for failure to report an event may cause a breach of contract with the general contractor, causing difficulty with both the state and with clients.
Let’s dive in. Some of the events that will trigger your obligation to report include:
Changes in Personnel
California requires (Bus. & Prof. Code § 7076) that certain persons be listed on the contractor’s license application and the licensee to otherwise keep the CSLB informed regarding certain persons affiliated with the license. Of course, the qualifier for the license, i.e., the qualifier, the responsible managing officer (RMO), or the responsible managing employee (RME) for each license classification must be identified. Typically, the qualifier, RMO or RME will have to take and pass, at a minimum, a business and law test. Other testing may be required based on the classifications chosen for each license.
In addition, California companies are required to provide the names of the president, secretary and treasurer of the licensee. In contrast, foreign corporations are only required to provide the name of the president of the licensee. Be mindful that officers who are identified will be required to be fingerprinted and undergo a background check, which may be a burdensome process with few facilities to perform the fingerprinting.
When individuals listed on a California license change, the CSLB requires the licensee to provide notice of such changes. The CSLB provides forms to change the following persons listed on a license:
- Application to Add New Personnel to Existing Corporate or Limited Liability Company License
- Application to Report Change of Title for Current Officer or Personnel of Existing Corporate or Limited Liability Company License – No Fee
- Application to Add a New Limited Partner to An Existing Partnership License
- Application to Add a New Limited Partner to an Existing Partnership License
- Disassociation Request for Officers, Qualifiers, a General Partner, a Limited Partner a Joint Venture Entity or Joint Venture (Bus. & Prof. Code § 7076(c), (e), (f))
- Death of a person licensed as an individual (Bus. & Prof. Code § 7076(a))
- Death of a general partner or limited partner (Bus. & Prof. Code § 7076(b), (d))
The same is the case for Louisiana contractors (La. Admin. Code tit. 46, XXIX, §§ 107.) A Commercial Contractor—not qualified for residential work—will have to disclose to the LSLBC full information as to the ownership and management of the applicant, and include information on the Qualifying Party, which is the Louisiana equivalent to the qualifier, who will also have to take and pass a business and law test. Other testing may also be required based on the classifications chosen for each license.
When there is a change in ownership or management of a Louisiana Contractor, even in the address of the members, the licensee shall notify the LSLBC “within 15 days” of the change. The following must be submitted to update the officers for the contractor:
- A letter on company letterhead with license/registration number(s), contact person, and contact telephone number, including extension and a list of the current officers for the company. Limit your reporting to the president, vice president, treasurer and secretary. Note that you must include the full social security number and date of birth for each officer; and,
- The letter may be scanned and emailed to email@example.com.
There is no fee for this change. Check the LSLBC website to make sure that the email has not changed.
In both California and Louisiana, if you fail to report, your license may be suspended.
As explained above, each contractor, in California and Louisiana, requires a qualifier or a qualified party, i.e., an individual that can pass any required trade exam and has the requisite experience. In California you can only have one qualifier for each one of the license classifications you have. However, it is normal to have just one qualifier for a company. On the other hand, in Louisiana, you can have multiple qualified parties; so, there may be more flexibility with personnel. A contractor can have different qualifiers for different classifications or multiple qualifiers who hold all the classifications.
Both in California and Louisiana, if a licensee wants to change its qualified party, either because the current qualifier is no longer serving in that position or because the qualifier’s employment is terminated, a disassociation process must be started.
As part of the disassociation processes, California affords you 90 days after the qualifier stops working for the Contractor to replace the qualifier. During this time, the new qualifier must have been tested, background checked, and presented to the CSLB. (This is a quick turnaround.) The CSLB provides forms to dissociate the qualifier and to replace him/her:
If a licensee will be unable to replace a departing qualifier within the requisite 90-day period, a 90-day extension can be requested. An extension request will only be considered under certain circumstances, including that an application for replacing the qualifier has been filed, and only if timely sought.
On the other hand, when a Louisiana Contractor wants to change its qualifying party, a notice must be filed with the LSLBC within 30 days of the change. This may be done with a letter, as in the prior case of a change in management. Then, a new qualifying party must be submitted to the LSLBC (tested and approved) within 60 days of the change. The form for this purpose is:
Louisiana’s regulations do not provide for an extension of time, so the notice and replacement of qualifying party must be completed within the required timeframe or the LSLBC may grant an extension in its sole discretion.
In both cases, in California and Louisiana, if you fail to replace your qualifier, qualifying party or RME your license may be suspended.
Change of Business Name or Address
In both states a licensee may change its name. In order to do this, the licensee must first change its name with the Secretary of State’s office. However, beware of the details below.
In general, when you change your company’s name, be sure to not make a change in the business entity “form,” or a change that may imply a change in the classification(s) in which you are currently licensed, a personnel change, or overall, any change that will cause your Tax ID-FEIN to change. For example, Bob Heat Inc. should not turn into Bob Heat LLC, or Bob Heat Mechanical Inc. should not turn into Bob Heat Electrical Inc., or Bob Heat Inc. should not turn into Fred Cold Inc. Those changes will likely require a new license. (See the following section below.)
In California you can obtain your license with the addition of a DBA to the existing corporate name. This would facilitate the maintenance of the license in case you change the company’s name—be sure to check the box in section 3 of the form below to indicate that you are adding a DBA to an existing business name. In Louisiana, however, no licensee may obtain a license under a DBA.
The CSLB provides a form to change your business name or address or add a DBA.
In Louisiana, a name change—properly recorded with the Secretary of State—without more, will likely only require a report and change in the interactive Contractor Portal. If, however, the change in name is paired with a change in ownership, a merger, a conversion (LLC to Inc.), a change in Tax ID-FEIN, or a change in “State of Incorporation,” see the following section.
Changes to the Licensee Entity
Changes to the entity under which you are working, such as changes listed above, a change in ownership, a merger, a conversion (LLC to Inc.), a change in Tax ID—FEIN, or a change in “place of incorporation will require a new contractor’s license (Bus. & Prof. Code § 7075.1).
Changes in ownership are especially problematic. For example, if a general partner or qualifying partner leaves the partnership, the partnership license must be canceled and a new license obtained or the license assigned. The situation is not necessarily the same if a corporation changes shareholders or an LLC changes members. In these cases, reporting of the new ownership is mandatory, but no change in the license is required.
If, however, a corporation dissolves, merges with another, or surrenders the right to do business in California or Louisiana through the Secretary of State’s Office, the contractor’s license must be canceled. As a general rule, if your Federal Tax ID-FEIN or your registration number assigned by the Secretary of State’s Office changes, a new contractor license number or an assignment will be required for the new business.
In California, beware that a “change in business entity” rule likely require a new license or an assignment. The CSLB provides forms to cancel your license and to continue and reassign your license, if permitted:
- License Cancellation Request
- Dissolution, Merger, Surrender (Bus. & Prof. Code § 7076(h), (i), 7083)
- Continuance of a License Subject to Cancellation (The Registrar may grant a continuance for up to one year, but only under limited circumstances.)
- License Reassignment (Bus. & Prof. Code § 1(c))
In Louisiana, you will have to file a Name and/or Structure Change Form and pay the corresponding fee. In case the information provided is not sufficient, you will be notified by email if any additional information or documents are needed or if the name or structure change process is complete. But please be mindful that you cannot transfer a license from an individual to a company or from one company to another.
Changes to Required Bond(s)/Workers’ Compensation Insurance
In California, failure to have the required bond(s) and workers’ compensation insurance likely will expose your license to suspension until cured. With regard to the former, the CSLB can accept a bond as of its effective date, even though it was not received within 90 days retroactive to the bond’s effective date if you file a Request for Bond Acceptance.
Louisiana does not currently have a mandatory statewide bonding requirement for all contractors. They do require proof of workers’ compensation insurance, but certain contractors (such as electricians and plumbers) must still get bonded, and bonds are normally required to meet contractual or liability requirements. Also, some parishes and municipalities may have local bonding requirements.
Proof of Payment of a Citation, Arbitration Award, or Judgment
As a contractor you must be diligent. If you get into a dispute with a client, the worst thing you can do is avoid it; you must address it head on. If possible, resolve it early—through negotiations or mediation. Ultimately, if you get a citation, or an award or judgment goes against you, pay it as soon as possible.
In California, failure to timely pay a “construction-related” small claims court judgment or civil court judgment, or CSLB citation or arbitration decision and, more importantly, failure to provide the CSLB with proof of payment will expose the licensee to immediate suspension of its license. The CSLB also has an arbitration program to resolve disputes proactively. When you receive an arbitration award issued by the CSLB, payment may be delivered directly to the CSLB for ultimate delivery to the consumer. For other payments, be sure to obtain some sort of proof of acceptance of the payment—a copy of a check, even a cashier’s check or money order is not proof that it was delivered to the payee. Ideally, you should obtain a “Settlement and Release” from your client.
In Louisiana, failure to pay of a judgment, bankruptcies, insolvencies, or any similar evidence, may be used to deny a license or renewal.
Other Events with a Shorter Window for Resolution
Don’t assume that you will always have a long time to report an event to the CSLB or LSLBC. As we have seen, the time in which one must provide notices and comply with reporting varies depending on the nature of the event being reported.
Typically, the communication from the CSLB or the LSLBC will indicate when a response is required, and you should take care to promptly comply with any such deadlines.
If unsure or if no communication is sent, review the CSLB’s website or LSLBC’s website for guidance or call to confirm what rule applies. Events with shorter reporting deadlines include:
- Payment of a citation due to the CSLB within 15 days of issuance and the LSLBC within 30 days of their order (barring appeal).
- Payment of amounts due from a CSLB arbitration award are due within 30 days
- Proof of resolution of outstanding liability are due within 60 days
Please note that these commentaries are applicable to Commercial Contractors, not residential contractors. Regulation of residential contractors, although related, is different. Please consult with your legal counsel before engaging in any residential work.
California and Louisiana are not the only states that require licensees to report events like those identified above. Licensees should be aware of these common triggers to reporting obligations and take care when their business operations are undergoing change, including, but not limited to, changes in business operations—such as a change in ownership or key personnel—or operational difficulties—including, for example, a troubled project.