The effects of key business changes on license compliance are often overlooked, so being aware of the changes that can affect compliance across a license portfolio is important for businesses of all sizes.
In today's business landscape, the demands of compliance continue to grow larger and more complex. The financial penalties that accompany compliance failures can be costly, time consuming, and damaging to a business's reputation. Maintaining compliance for a license portfolio requires attention and expertise in three key areas: renewal requirements, regulatory changes, and changes in information related to your business.
The effects of business changes on license compliance are often overlooked. From expanding locations to mergers and acquisitions, large and small changes can trigger the need for an update or new licensure on the federal, state and local level. These events require research, strategy and assessments to ensure compliance is maintained during and after any business changes and transitions. Here is an overview of the key business changes that can affect compliance across a license portfolio:
Large-Scale Changes That Can Affect Your License Portfolio
Business Structure Changes
A change in the way you conduct business, the services or products you provide, or the size of your company can all require a change to your business's structure. Entity conversion can have a significant impact on a company's license holdings across all markets and categories. You will need to notify the IRS of your change, and depending on the type of change, you may need to apply for a new EIN. You will also need to notify the Secretary of State, as you may need to apply for new licenses. A business transition can have a downstream effect on licensing, and often requires research and a strategy to ensure licenses are updated in an efficient and cost effective manner.
Changes to Ownership
Ownership changes can be complex, and the implications on licensure are not always straightforward. The structure of your business and the nature of the change in ownership will have a significant impact on licensure and compliance.
In some cases, the new owner will need to merely update the registration with proof of closing. But in other cases, the original owner will need to inform federal, state, and local agencies of their sale or transfer of the business, and the new owner will need to register with these agencies. Ownership changes can completely alter the way the reporting or filing needs to be done, so it is important that the appropriate research be done to understand federal, state, and local license requirements. Most often, new applications are required.
Mergers and Acquisitions
Mergers and acquisitions (M&A) are often headline news. While these deals are highly scrutinized by corporate attorneys on both sides of the transaction, business license requirements are usually an afterthought at the boardroom table.
The complexity of mergers and acquisitions from a licensure standpoint is not realized unless all moving parts of the deal are analyzed: knowing what, if any, business licenses the recently acquired company holds and if the licenses are at all valid after the conditions of the M&A are met. Furthermore, what constitutes a "valid" license is determined by a myriad of federal, state, county, and city regulatory bodies and is based on many variables. Factors impacting licensure may include:
- Ownership change percentages
- Changes in the board of directors
- Changes to the legal business name
- The status of a qualifying agent for a professional license
An M&A can also add a new business activity to a company's portfolio, requiring new license filings.
Expanding (or Downsizing)
Expanding your business into a new state, county or city is much like opening a new business. New business locations will need to be registered with the appropriate agencies and the licensing rules for that area will need to be researched. Most licenses, especially federal, are location-specific and cannot be transferred to new locations.
Expanding into a new state can require foreign qualification in that state. Foreign qualification is the process of registering your business entity in a state other than where the entity was formed. This registration allows the business to legally operate within the state, and is often a prerequisite for obtaining licenses. Foreign qualification typically requires the business to appoint a registered agent to accept service of process on behalf of the company; it can be a third-party company that provides this service or an individual affiliated with the company. This person or agency must be located within the state the application is being submitted.
Any time a business launches a new product/service or remodels an existing location, updates to licenses or new licensure could also be required. On the converse, closing a location or stopping certain business activities can also affect licensure and will need to be recorded with the appropriate agencies.
Small Business Changes That Can Affect Your License Portfolio
Name or Address Change
The process of changing your legal business name or address can be complicated. There is no streamlined way to change a business name or address; every agency and/or jurisdiction your business maintains licensure with will require adjustments. The usual place to begin is with the state of formation and the IRS, and then the secretary of state. Every state requires a corporation or LLC to register with the secretary of state prior to doing business in that state. A business must keep the state informed of any changes to the name, address, registered agent, and owners of the business.
For all other licenses and registrations, the process begins with finding the appropriate method for notifying each agency of the change. Additionally, many states have different forms for different requests (i.e. change of name form, change of address form, etc.) and the changes will not be accepted if an incorrect form is used. Many states require a nominal fee that must be submitted to the appropriate agency, and most states require these updates to be submitted within 30 days of the change, but that can be even sooner for regulated licenses.
Some agencies will send out an updated license or registration in the mail reflecting the change, while others will only update their internal records. Obtaining confirmation of receipt and processing of the change is always key in the event there is a problem later on.
Changes in key positions could trigger the need for an update to existing licenses, or even the need for additional licenses. Adding or removing corporate officers are changes that must be recorded at the state and local level, often through an amendment form. If the officer was registered with the state as an agent of the corporation, that status must also be revoked by an official filing.
Some industries, like construction and finance, require a qualifier or designated responsible person. Changes to a Qualifier/Designated Responsible Person can be very complex and sensitive. Businesses must submit the proper notifications and documentation to make the change. Additionally, timing is very important in this case; if there is a lapse between the two designated persons, you could fall out of compliance and potentially lose your license.
How You Can Effectively Manage Your Compliance
Compliance failures can result in costly fines and damaged reputations. As regulation continues to grow, businesses must find ways to effectively manage compliance while moving themselves forward. Renewals, regulatory changes, and changes to business information can all trigger the need for updated or new licensure, with resulting licensure changes ranging from minor to extremely complex.
Businesses must utilize expert knowledge and the proper technology infrastructure to ensure their compliance management is both effective and efficient. ADP's small business services offers expertise and streamlined solutions for payroll, taxes, and compliance management. Additionally, clients of ADP's small business services have access to LicenseLogix (LLX) services, a premier provider of outsourced business licensing services, including license research, application filings, full license audits, tax registration, and business formation.
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