The six steps of business license compliance

If your business is not compliant with licensing requirements, it could face penalties, fines, interruptions to business growth, and adverse publicity. To help avoid such outcomes, here are six steps for creating a business license compliance plan.

Why business license compliance is complex

The sheer number of agencies at the federal, state and local levels gives rise to a maze of licensing, registration, and permit requirements for businesses. These requirements apply to all entity types (whether an LLC, corporation, or other business structure) and can vary by location, industry, and type of business activity. In fact, there are over 300 license types across 110-plus industries and 8,300 jurisdictions.

In addition, business licensing regulations are do change. Businesses are affected by both updated and new requirements each year. Changes to business operations, locations, or offerings can trigger new licensing requirement, and enforcement actions against business license violations are also increasing.

The six steps of business license compliance

Step 1: Have an inventory of current licenses

Effective business license compliance begins with knowing what licenses you have, which business locations those licenses are attached to, and other details. For example, a retail operation with stores in different cities can have a business license requirement for each of those stores, along with other licensing requirements. There should also be a centralized system for this licensing information.  

• Document existing licenses for all business locations and their renewal dates
• Create a list of all the information that must be reported with each filing
• Compare this list to the information you’ve gathered in the first step, and document potential gaps

This exercise helps you to understand and account for specific licensing requirements in varying locations.

Step 2: Map out the process for business license management

Map out your current process for managing business licenses in order to see how effective it is at uncovering new licensing requirements and keeping existing business licenses up-to-date.

• Identify all individuals and departments that contribute to the licensing process and include them in the discussion, such as tax, legal, corporate secretary office, controller, etc.
• Engage company leaders to gain executive sponsorship
• Task each group with mapping out the steps in the business license filing process
• Identify gaps, team overlap, and opportunities for improvement
• Establish a list of priority compliance needs, broken down by operations, industry, and ownership

Step 3: Identify triggers for new compliance actions

The following business changes and events generally trigger a course of action, such as having to apply for a new license or permit, or cancel an existing registration.

• Business name change
• Ownership changes
• Change of principal business address
• Building remodeling
• New product launch
• Stopping certain business activities
• Entity conversion
• Expanding to a new location
• Foreign qualification
• Merger or acquisition
• Closing a location

Do you have a process to track such changes to the business?

Step 4: Assess your compliance risk

Review your current process to identify any licensing compliance oversights.

• Determine the last time you evaluated the compliance status of your licenses
• Assess your current inventory of licenses based on priority
• Review any penalties and fees you may have received in the last 12 months
• Develop a response plan when non-compliance is identified
• Create an escalation process for non-compliance activities with key stakeholders

Step 5: Ensure due diligence moving forward

Gaps in compliance put your business at risk. Develop a process for conducting the appropriate due diligence that will help you assess and react to the licensing implications of the business compliance triggers listed above.

• Identify licensing requirements within your industry
• Preparing for growth or at times downsizing of your business requires time and diligence by researching the requirements before the change
• Consider reviewing the capacity of your existing team. Do you have enough support and regulatory expertise to manage the growth or a downsizing project
• Engage an independent third party to conduct a thorough license assessment strategy
• Leverage technology to create a knowledge base so you can keep better track of business license filings, management, and renewals
• Establish a process for reviewing license requirements on a regular basis (quarterly, semi-annually, or annually)

Step 6: Develop your compliance plan

Having an established plan helps prevent things from falling through the cracks. Consider the following as you create your license compliance plan.

• Engage and involve your executive sponsors. This helps drive transparency and ensures the compliance plan aligns with corporate initiatives
• To avoid overlap of license management, create a license support team and establish a clear escalation process
• Work with a partner to understand options for improving your business license compliance strategy. This might be a self-managed approach with the use of technology, working with a trusted compliance partner, or a hybrid of both.
• Implement a centralized process for easy review and access to all license data
• Document and share your plan with the corporate governance team

Mastering entity business license compliance

Regardless of the size or kind of business you operate, it is important to get your business licenses in order, as well as promote ongoing entity maintenance. As we previously mentioned, regulations are constantly changing, and enforcement is on the rise. Creating a business license compliance plan and strategy for all your licenses is key to lowering business risk.

Learn more

To learn more about how CT Corporation can help you manage your business license needs, contact a CT Corporation Service Representative today.