Contractors are legally required to maintain a form of security deposit as a guarantee that they will perform in a good and workmanlike manner. Surety bonds are commonly used for this purpose.
Before an active contractor’s license can be issued or renewed, or an inactive license made active, the licensee must have a current Contractor’s Bond, or an approved alternative to the bond, on file with the CSLB. The Contractor’s Bond shall be in the amount of $15,000 for all classifications. In addition, a Qualifying Individual must carry a $12,500 bond or an approved alternative to the bond, on file for each responsible managing employee (RME). You must also have a $12,500 Bond of Qualifying Individual on file for each responsible managing officer (RMO) unless the RMO owns 10 percent or more of the voting stock of the corporation.
The contractor’s bond is for the benefit of the following:
Any homeowner contracting for home improvement upon the homeowner’s personal family residence damaged as a result of a violation Contractors License Law.
Any person damaged as a result of a willful and deliberate violation of California Contractors License Law by the licensee, or by the fraud of the licensee in the execution or performance of a construction contract.
Any employee of the licensee who has been damaged by the licensee’s failure to pay wages.
A Contract Surety Bond is a three-party instrument between a surety, the contractor and the project owner. The agreement binds the contractor to comply with the terms and conditions of a contract. If the contractor is unable to successfully perform the contract, the surety assumes the contractor’s responsibilities and ensures that the project is completed. Below are the three types of contract bonds that can make up a surety guarantee.
Bid – Bond which guarantees that the bidder on a contract will enter into the contract and furnish the required payment and performance bonds.
Payment – Bond which guarantees payment from the contractor of money to persons who furnish labor, materials equipment and/or supplies for use in the performance of the contract.
Performance – Bond which guarantees that the contractor will perform the contract in accordance with its terms.
Premium for the above Contract Surety Bond package is typically 2-3% of the contract amount. Note that private jobs are underwritten with more scrutiny as the surety must obtain evidence that the owner has sufficient funds to pay for the contract.
Limited Liability Companies are required to post a $100,000 LLC Employee/Worker Bond as well as $1 Million General Liability Insurance policy.
$100,000 LLC Employee/Worker BondIn addition to the $15,000 contractor bond, a $100,000 LLC Employee/Worker Bond is required for the issuance, reissuance, reinstatement, reactivation, and renewal of an LLC license for the benefit of any employee or worker damaged by the LLC’s failure to pay wages, interest on wages, or fringe benefits, as well as other contributions (not required for inactive LLC licenses). (Business and Professions [B&P] Code section 7071.6.5)
$1 Million Liability Insurance MinimumLiability insurance with the cumulative limit of at least $1 million for licensees with five or fewer persons listed as members of the personnel of record is required. Also, an additional $100,000 is required for each additional member of the personnel of record, not required to exceed $5 million total. (B&P Code section 7071.19)
Beginning January 1, 2014, B&P Code section 7071.19 (c) required that LLC liability insurance policies be written by insurers that are “duly licensed by this state or an eligible surplus line insurer.” According to the legal office of the California Department of Insurance (CDI), the only insurers that are duly licensed by the State of California are admitted insurers that are licensed by CDI, searchable on their website under Insurance Company Profiles. Eligible surplus line insurers include those listed on CDI’s List of Approved Surplus Line Insurers (LASLI) and other eligible carriers as determined by law.
Pursuant to California Business & Professions Code §7164 (SB 2029), contractors building single-family residences and home improvement contractors must provide this notice (http://www.cslb.ca.gov/forms/glisfd.pdf) and disclose whether or not they carry commercial general liability insurance.
Commercial General Liability Insurance can protect against third-party bodily injury and accidental property damage. It is not intended to cover the work the contractor performs.
No. But the Contractors State License Board strongly recommends that all contractors carry it. General Liability Insurance has become and industry standard. No insurance? No job!
Workers’ compensation provides benefits to employees who are injured or become ill during the course of or due to employment.
California law requires every employer to carry insurance to cover the cost of occupational injuries and illnesses. This insurance requirement is mandatory even if you have only one part-time employee. Companies based out-of-state with employees hired in California must also have California workers’ compensation insurance. Contractors who do not have employees are required to file a certificate of exemption.
Class “A” – General Engineering Contractor
A general engineering contractor is a contractor whose principal contracting business is in connection with fixed works requiring specialized engineering knowledge and skill, including the following divisions or subjects: irrigation, drainage, water power, water supply, flood control, inland waterways, harbors, docks and wharves, shipyards and ports, dams and hydroelectric projects, levees, river control and reclamation works, railroads, highways, streets and roads, tunnels, airports and airways, sewers and sewage disposal plants and systems, waste reduction plants, bridges, overpasses, underpasses and other similar works, pipelines and other systems for the transmission of petroleum and other liquid or gaseous substances, parks, playgrounds and other recreational works, refineries, chemical plants and similar industrial plants requiring specialized engineering knowledge and skill, powerhouses, power plants and other utility plants and installations, mines and metallurgical plants, land leveling and earthmoving projects, excavating, grading, trenching, paving and surfacing work and cement and concrete works in connection with the above mentioned fixed works.
Class “B” – General Building Contractor
(a) Except as provided in this section, a general building contractor is a contractor whose principal contracting business is in connection with any structure built, being built, or to be built, for the support, shelter, and enclosure of persons, animals, chattels, or movable property of any kind, requiring in its construction the use of at least two unrelated building trades or crafts, or to do or superintend the whole or any part thereof.
This does not include anyone who merely furnishes materials or supplies under Section 7045 without fabricating them into, or consuming them in the performance of the work of the general building contractor.
(b) A general building contractor may take a prime contract or a subcontract for a framing or carpentry project. However, a general building contractor shall not take a prime contract for any project involving trades other than framing or carpentry unless the prime contract requires at least two unrelated building trades or crafts other than framing or carpentry, or unless the general building contractor holds the appropriate license classification or subcontracts with an appropriately licensed specialty contractor to perform the work. A general building contractor shall not take a subcontract involving trades other than framing or carpentry, unless the subcontract requires at least two unrelated trades or crafts other than framing or carpentry, or unless the general building contractor holds the appropriate license classification. The general building contractor may not count framing or carpentry in calculating the two unrelated trades necessary in order for the general building contractor to be able to take a prime contract or subcontract for a project involving other trades.
Class “C” – Specialty Contractor
A specialty contractor is a contractor whose operations as such are the performance of construction work requiring special skill and whose principal contracting business involves the use of specialized building trades or crafts.C-2 – Insulation and Acoustical Contractor C-4 – Boiler, Hot Water Heating and Steam Fitting Contractor C-5 – Framing and Rough Carpentry Contractor C-6 – Cabinet, Millwork and Finish Carpentry Contractor C-7 – Low Voltage Systems Contractor C-8 – Concrete Contractor C-9 – Drywall Contractor C10 – Electrical Contractor C11 – Elevator Contractor C12 – Earthwork and Paving Contractors C13 – Fencing Contractor C14 – Metal Roofing Contractor [repealed] C15 – Flooring and Floor Covering Contractors C16 – Fire Protection Contractor C17 – Glazing Contractor C20 – Warm-Air Heating, Ventilating and Air-Conditioning Contractor C21 – Building Moving/Demolition Contractor C22 – Asbestos Abatement Contractor C23 – Ornamental Metal Contractor C26 – Lathing Contractor [repealed] C27 – Landscaping Contractor C28 – Lock and Security Equipment Contractor C29 – Masonry Contractor C31 – Construction Zone Traffic Control Contractor C32 – Parking and Highway Improvement Contractor C33 – Painting and Decorating Contractor C34 – Pipeline Contractor C35 – Lathing and Plastering Contractor C36 – Plumbing Contractor C38 – Refrigeration Contractor C39 – Roofing Contractor C42 – Sanitation System Contractor C43 – Sheet Metal Contractor C45 – Sign Contractor C46 – Solar Contractor C47 – General Manufactured Housing Contractor C50 – Reinforcing Steel Contractor C51 – Structural Steel Contractor C53 – Swimming Pool Contractor C54 – Ceramic and Mosaic Tile Contractor C55 – Water Conditioning Contractor C57 – Well Drilling Contractor C60 – Welding Contractor C-61 – Limited Specialty ASB – Asbestos Certification HAZ – Hazardous Substance Removal Certification
One of the primary advantages of incorporation is the limited liability the corporate entity affords its shareholders. Typically, shareholders and directors are not liable for the debts and obligations of the corporation; thus, creditors will not come knocking at the door of a shareholder or director to pay debts of the corporation. In a partnership or sole proprietorship the owner’s personal assets may be used to pay debts of the business. Maintaining the limited liability of a corporation requires that the shareholders and directors follow all the rules of governance, including holding annual meetings and maintaining meeting minutes, which is why we offer corporate forms disks and corporate kits as part of our complete incorporation package.
A corporation’s life is not dependent upon its members. A corporation possesses the feature of unlimited life. If an owner dies or wishes to sell his or her interest, the corporation will continue to exist and do business.
Ownership of a corporation is easily transferable.
Capital can be raised more easily through the sale of stock.
A corporation possesses centralized management.
S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.
To qualify for S corporation status, the corporation must meet the following requirements:
Be a domestic corporation
Have only allowable shareholders
May be individuals, certain trusts, and estates and
May not be partnerships, corporations or non-resident alien shareholders
Have no more than 100 shareholders
Have only one class of stock
Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations)