Business Succession Planning Article

Oakland Business Review: Business Succession Planning

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We are proud to announce that the Oakland Metropolitan Chamber of Commerce recently featured us in the September issue of the Oakland Business Review special section entitled, Law Offices of Oakland.

The article highlights how business owners often overlook succession planning when they first start out their businesses.  The reality is you can’t plan your path without first determining your ultimate destination. Are you building a company to pass down to your children or employees? Are you creating a business to be sold to a stranger? Without understanding your intention, you can’t develop or implement strategies and actions necessary to reach your goals. Nearly 80% of business owners say they want their businesses to survive them. And yet less than 25% have any type of written succession plan or “exit strategy”.  The all too frequent result is that businesses devolve into conflict and chaos when a founder dies, becomes disabled, or when business partners fail to share the same vision. Decades of blood, sweat and sacrifice go quickly down the drain, all for want of a simple plan.

A well crafted succession plan is as important as determining the type of entity best suited for the company; utilizing contracts and agreements that accurately reflect and protect business decisions; and understanding the legal requirements and procedures necessary to retain the financial and legal protections a business entity provides.

By preparing for the ‘What Ifs’ before they happen, business succession planning improves the likelihood of your company weathering the storms and quakes of an uncertain world. […] Click here to read more.

LLC or Corporation? Licensed Contractors Beware

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Many California licensed contractors are understandably interested in limiting their liability exposure by adopting a formal legal entity. The question arises whether a corporation or limited liability company best serves their needs.

Prior to 2012, licensed contractors were limited to incorporation due to restrictions in the 1994 Limited Liability Company Act. That is, contractors were permitted to seek issuance of a contractor’s license in the name of a corporation, or obtain transfer of an existing individual license, to a corporation but not to a limited liability company.

Starting in 2012, following a change in the LLC Act, the Contractors State License Board began accepting applications for LLC contractor’s licenses. So the question arises whether there are significant differences between a contractor’s license issued to a corporation vs. an LLC.  The answer is most definitely “Yes”.

  • LLC applicants or licensees are required to file a $100,000 surety bond with the Board to cover unpaid wages or other benefits owed to a contractor’s employees. Such a surety bond is not required of corporate licensees/applicants.
  • LLC licensees must maintain “errors and omissions” (also called E&O) insurance. For LLC’S with 5 or less owners, this minimum amount of insurance is $1 million. For each additional owner, the LLC must maintain an additional $100,000 of E&O insurance coverage. Again, this insurance is not required for corporate licensees.
  • If an LLC’s license is suspended because it fails to maintain its “good standing” with the Secretary of State’s office, the individual LLC owners may face personal liability of up to $1 million each for loss or injury during any period of suspension. Not so with corporations.

In light of these additional financial burdens and exposure, it will rarely make sense for licensed contractors to select the LLC form.

It must be understood that there are also restrictions and issues involved in contractor’s licenses issued or transferred to corporations, which must be reviewed and understood.

If you are a licensed general or specialty contractor currently doing business as a sole proprietor, please contact me to discuss whether incorporating would be beneficial to your company.