First of all, the California State Contractors License Board does not license limited liability companies, foreign or otherwise. It will only issue licenses to a sole proprietor, a partnership (also called a “copartnership”) or a corporation. [Business & Professions Code section 7065].
Second, California law provides that no contractor’s license is transferable. [Business & Professions code section 7075.1, subsection (a)]. By that it means licensees may not freely transfer, sell or assign their licenses to someone else without approval by the California State License Board. However, under certain specific instances, upon application, the CSLB will reissue or reassign license numbers to certain people or entities.
When it comes to an individual wanting to have her license reissued to a corporation, the CSLB will only do it if the individual contractor licensee controls the corporation, i.e. control is having at least 51% of the ownership of the corporation. [CSLB rules]. California law provides that the license may be reissued only if 1) the corporation is formed by an individual licensee and 2) the individual licensee maintains ownership directly or indirectly of shares evidencing more than 50 percent of the voting power. [Business & Professions Code section 7075.1, subsection (c)(4)]. One can only assume that this law is in place to prevent investors from forming a corporation, and, essentially, “buying” a license by issuing only a limited number of shares of the company to an individual contractor licensee.
One solution to this is for the LLC to incorporate as a “C” corporation in their home state and qualify to do business with California’s Secretary of State, or to incorporate in California. Then they may apply for a corporation contractor’s license with the California Secretary of State, and satisfy the new applicant rules.
An unlikely solution is for one of the owners of the LLC to buy out the other to the extent needed to achieve 51% or more ownership of the newly formed corporation. The selling LLC owner would not likely do this.
For contractors seeking to do business in California, it is wise to seek legal counsel to help smooth the transition and avoid hassles with the California State License Contractors Board and the California Secretary of State. Not doing the application correctly and not setting up the business entity in accordance with law can delay the process and cause the contractor to miss valuable bidding opportunities.