Business changes that can impact business license compliance

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.

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 common business change events that can trigger license changes and impact business license compliance.

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.

In addition, you may need to file a beneficial ownership information (BOI) report for the new entity with FinCEN unless the company qualifies for an exemption.

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.

Other steps may include filing Articles of Amendment with the formation state and submitting an updated BOI report.

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.

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 adding or removing business officers or other staff members.

Also, if your company had to submit a beneficial ownership information report with FinCEN, you will need to submit an updated report if any of the required information on the company changes.

New product or service

If you expand or modify the types of products or services offered, you may need to update your current business licenses or obtain a new one.

Expanding to new location

When expanding to a new location, you will need to meet the permit and licensing requirements for that jurisdiction. Keep in mind that you may need to get prior zoning approval.

In addition, you may also need to update licensing at the state level. For instance, in California, if you operate multiple business locations on different premises, you may need a separate permit for each one.

New remote worker hires

When hiring remote workers, you may need to conduct license research at the town, city, or county level to determine if that jurisdiction requires a home occupation or remote employee license and/or permit.

While there are some states that do not have requirements for remote employees, many cities and towns require remote workers obtain a home occupation permit. Some states have particularly stringent permitting and licensing requirements, especially at the local level. You may encounter problems if you are paying payroll taxes in these states without having the required local-level home occupation permits.

Besides a home occupancy permit or remote licenses, there may be additional licensing and registration requirements for both your company and your employees. These requirements can vary based on the city or county, the business activities involved, and whether your company is already registered to operate in that state. For more information, see Business license requirements for remote workers.

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. You may also need to submit an updated or new beneficial ownership information report to FinCEN.

Merger or acquisition with another company

If you acquire or merge your business with 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 are in different states. Each state, county, and municipality has its 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 on time.

If you change your business name, follow the guidance provided above: “Change to your business name, doing business as (DBA) name, and 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.

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Business license management is challenging. It can be confusing to understand 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.

Learn more about how CT Corporation can help with your business license needs. Contact a CT Corporation business license specialist or visit our Business License Solutions.