State and local regulations can make business license compliance challenging for architecture and engineering firms. Meeting these requirements is a tedious and complex endeavor, and the work only multiplies if a firm plans to operate in multiple states.
ComplianceCorporate07 november, 2022|Bijgewerktnovember 07, 2023
Business license pitfalls for architecture and engineering companies
Regulations do change. Plus, certain changes to your business operations, location, or services can trigger new licensing requirements.
These obligations can be easily overlooked as companies often do not allocate sufficient time and resources toward licensing compliance. But failure to comply with laws and regulations can lead to significant consequences, including:
- Late fees or fines
- License revocation
- Negative publicity
- Cessation of the business
- Criminal and administrative sanctions
- A failure to enforce payment rights
In this article, we explore several major licensing pitfalls and challenges for architecture and engineering companies operating in one or more jurisdictions.
Meeting bid requirements
If an architecture or engineering company fails to show that it has obtained the proper authorizations and business licenses, it may be prevented from bidding on projects.
Even if a bid is initially successful, the fact that a company is not properly licensed or otherwise legally permitted to offer services could be an opportunity for competitors to challenge the bid.
Multi-state licensing for architecture and engineering firms
When an architecture or engineering firm expands into another state, the business may need to confirm that it has the right licensing in its domestic state. That means that it must have already completed or obtained the following in its domestic state:
- Business entity formation
- Professional engineering or architect firm license (if required by the state)
- Professional engineering or architect licenses for individual engineers or architects employed by the firm. These licenses may require education, experience, and testing.
Once a company holds the proper license(s) in its home state, it can proceed with obtaining a business license (or Certificate of Authorization) to provide architecture or engineering services from other states. To do this, it will generally need to provide:
- Proof of foreign qualification
- Proof of registered agent
- Home state license verification
- Description of business activities
- Corporate documents
Also be aware of the following additional considerations and nuances:
- Ownership license requirements: Some states may require one or more owners of the firm to be licensed to practice in that state.
- Unique naming requirements: An application for an out-of-state license may be denied if the firm’s name conflicts with a state’s specific naming requirements.
- Scope of services: If the firm provides both architectural and engineering services, it may need to apply for a separate license for each discipline.
Don’t forget, the company may be subject to payroll taxes, sales tax, and local business license requirements in each state in which it operates.
Note: Firm licensing is separate from individual licensing. The licensing of individuals within a firm will not satisfy firm licensing requirements in another state. It is also prohibited for architects and engineers, who are not licensed in a state, to rely on the licensing of their firm in that state in order to practice there.
License renewals
Regulatory agencies are scaling back their role in providing renewal and compliance notifications. This means it’s up to the architecture or engineering firm to understand its business license obligations and ensure that they are met in a timely manner.
Renewals must typically be processed two to three months before the existing license’s expiration date.
Be sure to check whether the licensing board requires license renewals annually, biannually, or at some other point.
Note: Approximately 65% of license registration requirements for all industries change each year. Stay up-to-date on renewal requirements before submitting an application, check status updates, maintain license records, and stay on top of fee renewal requests.
Continuing education requirements
The majority of state licensing boards require architects and engineers to complete continuing education requirements to renew their licenses.
Business amendments or changes that trigger a license update
Certain business activities and changes can trigger the need for a license amendment or update. These include:
- Change in ownership: In most cases, business licenses and registrations are held in both the names of the business and the owner(s), so it is imperative that the licenses reflect the correct information.
- Company name change: This change must also be reflected on business licenses and registrations. Some states require prior approval from the licensing board for a name change.
- New product line or service: This could trigger the need to obtain additional licenses or Certificates of Authorization. For example, in New York, a firm must have a Certificate of Authorization to provide professional engineering services. If the firm chooses to add surveying services, it must obtain another Certificate of Authorization for that new service.
- Business entity conversion: Check to see whether the state(s) in which you operate restrict certain business structures from legally providing architecture and/or engineering services. For example, in California, LLCs are not permitted to provide these services. Other considerations include the following:
- Verify with your formation state’s Secretary of State to determine if such a conversion can be completed without a conversion filing or if the state requires the old entity to be dissolved and a new entity formed.
- If you have employees, you must also obtain a new Federal Employer Identification Number (EIN).
- Any professional business licenses issued by a state or local agency will also require updating.
- State tax accounts (sales tax, payroll tax, etc.) generally must be re-registered.
Read more: Business changes that can impact business license compliance and Understanding business license requirements and obligations
Change in the qualifying professional employee
For a business to qualify for an architecture or engineering license, it is often necessary to have an appropriately licensed individual. An architecture or engineering firm license must be updated if the qualifying professional changes or leaves the business.
License reciprocity/comity
Having a license in one state does not allow an architect or engineer to practice in another. Several states offer other licensing options — such as reciprocity, comity, and endorsement — for individual architects and engineers who are already licensed in one state.
As part of the licensing application, state boards typically accept a council record from the National Council of Architectural Registration Board (NCARB) or a record from the National Council of Examiners for Engineers and Surveyors (NCEES).
In addition, a design professional may need to supply an affidavit or certification that they hold an active license in good standing in another jurisdiction and pay a fee.
Canceling a license
Business licenses can be canceled or surrendered in a variety of ways, but voluntarily canceling a license typically involves a cancellation request. Dissolving a company or withdrawing from doing business in a state involves additional steps. For more information, refer to this article on corporate dissolution vs. withdrawal.
Learn more
Business license management is challenging. It can be confusing to understand exactly what type of licenses you need and how to register your business. CT Corporation is here to help you with business license compliance with a highly reliable process.
Learn more about how CT Corporation can help with your business license needs. Call us at (855) 316-8948 (toll-free U.S.) or visit our Business License Solutions.
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