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Greg Corombos: Hi, I'm Greg Corombos. Our guest in this edition of Expert Insights is Claire Corbin. She is Content Management Associate within the Knowledge Specialist team at CT Corporation. Today, Claire joins me to discuss business licensing requirements for architectural firms. And Claire, thanks so much for being with us.
Claire Corbin: Thank you for having me.
GC: Well, before we get into the details of licensing, why is obtaining a business license and knowing how to obtain one so important for architectural firms?
CC: Yeah, absolutely. So, as you plan to start an architectural firm or grow the business, it's important to consider the legal ramifications involved. The architecture industry is highly regulated. Requirements and application processes vary by state, so what works in one state doesn't necessarily apply to the next. Holding the proper licenses lets customers and prospects know that you’re a professional organization with a degree of expertise. In some jurisdictions, it's illegal to operate without the required licenses.
GC: So it sends a signal to your customers, potential customers, and it makes the state happy. So that's always good, too. So let's get into it. Now, how are architects and architectural firms regulated in the United States?
CC: So in the United States, the licensing and certification requirements for practicing architecture are determined by each state jurisdiction and the District of Columbia. If your firm is considering work in another jurisdiction, be prepared to meet demands. Practicing as a firm involves different rules and licensing and certification. If you go outside of your state, you get into roles that encompass ownership, management, name, and other characteristics.
GC: You mentioned ownership there, Claire, what are some of the rules we need to know concerning ownership?
CC: So you might have a state that requires a certain percentage of your owners or directors to be licensed to practice in that state. These requirements do vary by state. So for example, for a standard business corporation in Pennsylvania, at least two thirds of the directors must be licensed in a state to practice architecture, engineering, or landscape architecture. And at least one third of the directors must be licensed in the state to practice architecture. At least one director will need to be a licensee of the Pennsylvania Architect’s Licensure Board, at least two thirds of all classes of voting stock issued and outstanding at any time are owned by architects, engineers, or landscape architects.
Lastly, at least one third of each class of voting stock issued and outstanding at any one time, are owned by individuals licensed in state to practice architecture. Because of these requirements, firms may need to form a new entity under a different mix of owners to work in a particular state.
GC: So that's some of the ownership background. What about business structure restrictions? What do we need to know about that?
CC: In some states, not all business structures may legally provide architectural or other professional services. For example, in New York, generally, licensed professionals may not set up a general business corporation as far as an S or C Corp to provide professional services. They must form either a professional corporation, design professional service corporation, or professional limited liability company.
GC: How can a firm name be a problem in all this?
CC: States often have unique name requirements, which may limit the names under which an architectural firm may provide services such as requiring and restricting the use of certain words, requiring approval from the State Board of Architecture, and so on.
For example, in Nevada, any request to use the plural term “architects” or “registered interior designers” or “residential designers” must have more than one VAT registered employed by the firm. The rules can also depend on the type of entity you choose. For example, California general stock corporation as a C Corp may use the terms “architect” the term “architecture” or variation of the term “architect” or “architecture.” However, a registered limited liability partnership may not use the word architecture or similar in the business name.
GC: Very interesting. I would not have guessed that. But another challenge is keeping up with important changes to your firm or those who work there. So what kind of diligence is required to stay compliant on those fronts?
CC: Any amendments to your business entity — corporation or LLC — may require you to amend your formation documents, such as your articles of incorporation or your articles of organization. You will also need to file the change with the issuing license or registration authorities. Firms must also be vigilant in tracking the licenses of qualifying architects and properly reporting changes in their information or status to the state agencies. If a qualifier leaves, the firm has limited time to appoint a replacement or risk forfeiting the certificate of authorization.
GC: Claire, what are the penalties of licensing noncompliance?
CC: All states prohibit the unlicensed practice of design professional services. Repercussions range from fines to misdemeanors to felonies. In many states unlicensed design professionals lose their right to sue for services performed and must refund any payments made for services performed. It is in every design professional and design professional firm’s interest to verify current licenses, renew licenses properly, or obtain a new license when performing or offering to perform services in a foreign jurisdiction. Design professionals must pay attention to any change in state licensing, board rules, or state statutes in all jurisdictions where they are licensed.
GC: Claire, we've covered quite a few topics today and certainly staying compliant for architectural firms is a critical issue. So, I know CT Corporation has resources and personnel to help. So what services do you provide?
CC: Yeah, absolutely. CT Corporation can help by outsourcing business registration and license research. They can help with applications, management, and with renewals, which can help take the pressure off internal resources with your business. By working with a full-service management provider who specializes in the efficient processing of business licenses, permits and registrations, you can free up your time and focus on starting and growing your business while ensuring you keep up with changing compliance requirements.
GC: Claire, like we just said, it's a lot to consider but it's also very important information to make compliance as stress free as possible. Thanks so much for your time today. We really appreciate it.
CC: Thank you.
GC: Claire Corbin is Content Management Associate within the Knowledge Specialist team at CT Corporation. I'm Greg Corombos reporting for Expert Insights. For more information on this topic, please call CT at 844-787-7782.