Business license requirements can be a compliance minefield. They vary based on your business activity, location, and government rules. Up to 65% of license registration requirements change each year.
Business changes that can impact business license compliance
Whether as small as a move to a new office location, or as monumental as a complete conversion of entity structure, changing an aspect of your business will require you to notify the regulatory boards that govern your business' licenses and registrations, and in some cases will require new filings.
For large businesses with a wide range of services spread across numerous geographic areas, these “change filings” can be a hefty project.
It is important to understand the change event requirements of every governing body under which your business has liability.
In this article, we address frequently asked questions about business license changes and triggers that can impact business license compliance.
Did you go through a business entity conversion?
Let’s say your business needs to change its entity type. For example, you're planning to convert your business from a limited partnership (LP) to a corporation (Inc).
First, check with your formation state’s Secretary of State to determine whether such a conversion can be done with a conversion filing, or if the state requires the dissolution of the old entity and the formation of the new. If you have employees, you will also need to obtain a new Federal Employer ID Number (FEIN) from the IRS.
Any professional business licenses held at the state and local levels will need updating. This may entail a simple letter to the governing board or an entirely new application for licensure.
Similarly, state tax accounts (sales tax, payroll tax, etc.) will likely need to be re-registered.
At the local level, most localities require applying for new business license accounts if a business' FEIN changes.
Was there a change in ownership?
If you change company ownership, it can impact your business license portfolio.
Since most business licenses and registrations are held in both the name of the business and the name of the owner(s), you are required by law to ensure that your licenses reflect the correct information.
While some authorities require new applications if you need to change the name on a business license, most require that you disclose new company ownership via a “Change of Ownership” filing. This may require background checks for new owners, fees, and recommitment to the rules that govern the license.
Was there a change in the qualifying professional employee?
Many professional business licenses require the employment of an adequately licensed individual to “qualify” that business. For example, a general contractor business must be qualified by a licensed individual builder and pharmacies must be qualified by a pharmacist-in-charge.
When the qualifying professional changes or leaves your business, you will need to update your business license to reflect the change. This typically involves filing an application notifying the governing board of the removal of the old qualifying party and the designation of the new. During this process the new individual's licensure will be verified and their background assessed to confirm they meet the eligibility requirements to qualify the business.
Did you make a change to your business name, doing business as (DBA) name or address?
If you change your business name or address, you need to notify or file that change with the issuing licensing or registration authority. For example, if you change your business name, first file that change with the Secretary of State in your state of formation, followed by a notification filing with the IRS to update the FEIN.
All business names require some sort of approval, but if your business is in a heavily regulated industry like finance, insurance, or a technical profession like architecture or engineering, your new business name may also need to be approved by the relevant professional licensing board before the name change can be accomplished.
For less stringently regulated industries, official letters notifying the governing body and providing proof of the new business name may be required.
If you change your business address, you will typically need to update the issuing authority for each license.
Many licensing authorities even require updates for mundane changes like the addition or removal of business officers or other staff members.
Did you make temporary remote workers permanent?
It’s important to consider if employees are working from home temporarily or if this will be a more permanent solution. If it’s the latter, you may need to conduct license research at the town, city, or county level to determine if they require a home occupation or remote employee license and/or permit.
Many municipalities require that home-based workers obtain a home occupation permit. Certain states have very strict permitting and licensing requirements — especially at the local level. You may run into issues if you are paying payroll taxes in these states and do not have any local-level, home occupation permits.
There are some states that do not have requirements for remote employees.
Did you undergo a corporate reorganization?
If you reorganized your business — through spin offs, carve outs, or separations — to improve efficiency or realize new revenue, you will likely need to revisit your business license portfolio. A reorganization may include a change of name, address, tax ID, or FEIN or the transfer of a business license to a new entity. Check with regulatory boards to determine what any initial post-reorganization filing, amendment filings, or license closure is required.
Did you merge with or acquire another company?
If you merge your business with another or acquire another business, you must ensure that the new entity is properly licensed. M&A is an area where it’s very easy to fall out of compliance — especially if the two entities were in different states. Each state, county, and municipality has their own rules and regulations for business licensing.
Conduct due diligence and take inventory of the license portfolio across both organizations and identify the appropriate licensing authority for each license. Check to see if you need to transfer, amend, close, or file for new licenses in the jurisdiction where the new entity will operate. If transfer or amendments are not allowed, be sure to factor in sufficient time before the merger or acquisition is complete to file for new licenses. Then continue to conduct your due diligence after the merger or acquisition is complete to ensure renewals happen in a timely manner.
If you change your business name, follow the guidance provided above: “Did you make a change to your business name, doing business as (DBA) name or address?”
Why is licensing important for a business?
Ensuring your company is properly licensed helps to bring protection to yourself, your employees, and your customers.
Having the correct license will ensure your personal assets are protected in case of a lawsuit as well as providing protection for you if your business is damaged.
Business license management is challenging. It can be confusing understanding exactly what type of license you need and how to register your business. CT Corporation is here to help you with your business license needs with a highly reliable process.