RME vs. RMO: Which License Qualifier Arrangement Does Your Solar Company Need?

Many solar and cleantech companies don't hold a contractor's license through their founder. Instead, they rely on someone else's experience and exam history to qualify the company. In California, that person is the company's qualifying individual, and for most corporations and LLCs the qualifier serves either as a Responsible Managing Employee (RME) or a Responsible Managing Officer (RMO).

Choosing between the two isn't a formality. Each comes with different eligibility rules, bonding requirements and risks for both the company and the qualifier. Here's what solar company owners and prospective qualifiers need to know.

What a qualifier actually does

Under California Business and Professions Code § 7068.1, a qualifier must exercise supervision and control over the company's construction operations to make sure the company complies with the Contractors State License Law. That includes supervising construction, making technical and administrative decisions, checking workmanship and supervising work on job sites, either directly or by monitoring and being available to the people they delegate to.

In other words, the Contractors State License Board (CSLB) expects real involvement. A qualifier who lends a license and stays out of the business is exposed. Violating § 7068.1 is grounds for discipline and is a misdemeanor, punishable by a fine of $3,000 to $5,000, up to six months in county jail, or both.

RME: the qualifier as an employee

An RME is a bona fide employee who is permanently employed by the company and actively engaged in the licensed classification of work. California law defines "actively engaged" as working at least 32 hours per week, or 80 percent of the hours the business operates, whichever is less (B&P Code § 7068).

Key points for an RME arrangement:

• Employment is required. The RME must actually be on the payroll and working in the business, not an outside consultant.
• Bond of Qualifying Individual. An RME must file a $25,000 Bond of Qualifying Individual with the CSLB, in addition to the company's own $25,000 contractor's bond.
• One company at a time, in practice. A qualifier generally can't hold another active license while serving as a qualifier, and because an RME must be a permanent employee working close to full time, serving as RME for more than one company is rarely workable.

RMO: the qualifier as an officer

An RMO is an officer of the corporation (or, for an LLC, a responsible managing officer, manager or member) who qualifies the company's license. RMOs are often owners or senior executives.

Key points for an RMO arrangement:

• Bonding depends on ownership. An RMO who owns less than 10 percent of the company's voting stock must file the $25,000 Bond of Qualifying Individual. An RMO who owns 10 percent or more files an exemption certification instead.
• Qualifying more than one company. An RMO may qualify additional firms, but only in limited circumstances, such as when the firms share at least 20 percent common ownership, when one is a subsidiary of or joint venture with the other, or when a majority of officers are the same. Even then, a qualifier may serve no more than three firms in any one-year period (B&P Code § 7068.1).
• Greater role in governance. Because RMOs are officers, they usually have more authority, and more exposure, in the company's management decisions.

RME vs. RMO at a glance

	RME	RMO
Relationship to company	Permanent employee	Officer (or LLC manager/member)
Minimum time commitment	32 hrs/week or 80% of operating hours, whichever is less	Must still exercise supervision and control
$25,000 qualifier bond	Always required	Required if owning less than 10% of voting stock
Qualifying other firms	Rarely workable	Allowed in limited cases, up to three firms per year

What happens when the qualifier leaves

This is where companies most often get into trouble. When a qualifier disassociates from the company, the company or the qualifier must notify the CSLB in writing within 90 days, and the company has 90 days to replace the qualifier. If it doesn't, the license is automatically suspended (B&P Code § 7068.2). A single 90-day extension is available only in narrow situations, such as a dispute over the disassociation date or the qualifier's death.

A company that loses its qualifier without a plan can find itself unable to sign new contracts or finish existing ones. A qualifier who leaves without proper notice can remain tied to a company they no longer control.

Why the arrangement should be in writing

Whichever structure you choose, both sides take on real risk. The company depends on the qualifier to keep its license in good standing. The qualifier's license, bond and reputation are on the line for work they must supervise. A written agreement should address:

• The qualifier's duties and the authority they need to exercise supervision and control
• Compensation, ownership and who pays for bonds and fees
• Indemnification and insurance protecting the qualifier
• Notice requirements and transition steps if either side ends the relationship
• For RMOs, how service as qualifier for more than one entity will be handled

Our Responsible Managing Employee (RME) Agreement and Responsible Managing Officer (RMO) Agreement are drafted for exactly these relationships. The RMO Agreement also includes clauses for an RMO who qualifies multiple entities. If you're launching a new solar company, the RME Agreement is also included in our Solar Legal Starter Kit for California.

This post is general information about California law and is not legal advice. Licensing rules change, so check current CSLB requirements or consult an attorney about your situation.

Are you a qualifier, or relying on one? What questions has the arrangement raised for your business?