Often we write these blogs to inform readers about new statutes, regulations, or legal cases that might affect your company. But there are other times we see the need to remind construction industry professionals (or inform those new to the industry) about fundamental rules that many of us take for granted.
License Rule Not Just for Individuals
For example, most people know that the party promising to do the work in a construction contract of $500 or more must be a licensed contractor. Unfortunately, there appears to be some confusion when corporations are involved. If a corporation enters into a construction contract, that corporation must be licensed. It is not enough for a shareholder, officer, or employee to have an individual license.
The primary penalty is that an unlicensed contractor cannot sue to recover unpaid fees. So although a highly skilled employee of the corporation who holds an individual license may be doing or supervising the work on a construction project, because the corporation itself is not licensed, the California Business and Professions Code prohibits the corporation from suing to recover moneys owed to it. To make matters worse, the other party to the contract can sue for disgorgement of moneys paid to the unlicensed contractor.
No Protection from a DBA
Recently we have seen situations in which licensed individuals with DBAs (“doing business as”) form corporations with the same names as the DBAs and then enter into construction projects under those corporation names. That practice would be fine as long as those corporations also became licensed with the California Contractors State License Board (CSLB) before entering into the contracts.
Chose the Right Qualifier
As per the CSLB, to be licensed, a corporation must have a qualifying individual or “qualifier” who:
- Is listed in CSLB’s personnel of record [sole owner, qualifying partner, responsible managing employee (RME), responsible managing officer (RMO), responsible managing manager, or responsible managing member].
- Has demonstrated his or her knowledge and experience through the application process, and holds one or more license classification.
- Exercises direct supervision and control of construction operations.
These steps must occur or the corporation has no rights, and the licensed individual’s rights are difficult to predict.
The bottom line is that to protect your corporation and its right to be paid, you must make sure your corporation is appropriately licensed!