SideCar and Lyft, which offer rides by ordinary car owners moonlighting as taxis drivers, have continued to operate in the city despite receiving cease-and-desist letters in August, said Frank Lindh, general counsel for the California Public Utilities Commission, which regulates livery services.

Framing it as a consumer safety issue, the state has been unsuccessfully pushing the car services to register as "charter party carriers," which would require them to scrutinize drivers' backgrounds and hold insurance policies that cover their fleets.

The two companies, which have smartphone apps that help users hail rides, are following in the footsteps of Uber, the unregulated limousine service that received a similar notice from the state in 2010 but has flourished and expanded to nearly a dozen cities.

Start-ups like AirBnB allow residents to list rooms for short-term rentals, a lucrative practice that is technically illegal but has flourished and has more than 5,000 listings available in San Francisco.

State regulators have held "productive conversations" with the car companies but have been reluctant to enforce the cease-and-desist orders through fines, resulting in a sort of deadlock.

"It's in the benefit of everybody to have this certification," Lindh said. "It's basic. It's not rocket science."

John Zimmer, co-founder of Lyft, argued that the certification would not apply to his company because it is a network of "community members" driving their own vehicles, not professionals.

Zimmer said his company purchased $1 million in excess liability insurance in September. He said Lyft scrutinizes its drivers' backgrounds and driving records more closely than some taxi companies. "We're doing this right, and we're doing this in a very thoughtful way," he said.

"Especially in a tough economy, these things help people save a lot of money," Zimmer said, referring to the income car owners can make by working for Lyft.

Lyft has enlisted more than 200 drivers ranging in age from the minimum 23 to over 70. They circulate in San Francisco in cars with pink, furry moustaches affixed to their grilles.

In a blog post on Monday, SideCar's Paul drew a distinction between regulated livery companies and SideCar by calling his company a "donation-based rideshare platform" run by volunteer drivers. He argued that regulations were outdated and impeded technological innovation.

"We can now trust one another, through online reputations and the social graph, enough to share resources, to provide for one another, and to give rides to each other without institutions created during the industrial age having to step in," Paul said.

Transportation upstarts are taking root in other U.S. cities despite opposition from regulators and traditional taxi companies.

San Francisco-based Uber has been locked in a well-publicized battle against the Washington D.C. taxi commission, while in Chicago a coalition of taxi companies sued Uber last Thursday for trademark violations and consumer fraud.

In San Francisco, a city with a taxi system so frequently criticized that it surfaces as a local campaign issue, these unlicensed car services have built up a fan base.

Tami Twarog, a graphic designer who lives in San Francisco's Russian Hill neighborhood, said in a telephone interview on Monday that although she worried about services like SideCar and Lyft carrying adequate insurance, she enjoyed using them as a way of "high-tech hitchhiking".

She said she hoped they would become a licensed and legitimate part of city life.

"I can't tell you how many times I'm way down in the Mission waiting for a bus, and I think, 'Why can't I just jump in one of those cars?" Twarog said. "It's about the better use of resources."

(Reporting By Gerry Shih)

• A Permanent Economic Emergency