Following business license requirements is crucial for compliance. Here's what you need to know.
While all businesses are regulated at some level, certain professions receive extra government scrutiny, usually to protect the public or uphold professional standards. In these professions, managing all of the business license requirements, registrations and permits required at the federal, state and local levels can be a challenge.
Many of these requirements overlap with aspects of compliance managed by accountants. This creates a potentially lucrative line of business that CPA firms can tap into. Here's a summary of state license and registration requirements in regulated professions for CPAs who are considering expanding their offerings.
Each state has its own list of regulated professions. Some highly regulated industries include architecture, construction, engineering, health care, pharmacy, staffing, real estate, finance and private investigation, among many others. Businesses in these industries must consider not only tax compliance and HR compliance but also three levels of state licensing, including:
- Registration with the secretary of state (SOS) as a domestic or out-of-state ("foreign") entity
- Individual professional licenses issued by state boards
- Firm licenses, also issued by state boards
Regardless of industry, most businesses must be authorized to provide services within a state by registering with the SOS. Sole proprietors operating under their own names are sometimes exempt from these requirements. Usually, SOS registrations precede professional firm license requirements, but in some cases the order may be reversed. Often businesses must register each branch office with the state individually.
Individual Professional Licenses
In regulated professions, individuals must usually obtain professional licenses before offering services or practicing within a state. Offering services encompasses everything from a professional designation on a LinkedIn profile to a title featured on business cards or resumes.
Firm licenses are a common state requirement in regulated industries. Where required, as with individual licenses, they generally must be in place before the business offers or provides services.
Often a designated licensed professional is required to oversee services provided by the firm. For that reason, firm licenses are usually dependent upon underlying individual licenses. When key staff move or leave, follow-up may be required with the state board and the SOS.
Requirements for firm licenses often touch on entity management issues, including:
- Corporate structure: Some states impose different requirements on businesses based on their corporate structures. As a result, firms may need to form a new entity to do business in a state. Many specific requirements also apply to documents such as articles of incorporation and board resolutions.
- Ownership and management: In addition to structure requirements, many states require that a certain number of officers, managers or owners of a business be licensed professionals. Once again, this may require forming a new entity.
- Firm name: Some states have special requirements based on whether firm names refer to licensed professions. Including the names of individual professionals in the company's name may also trigger specific requirements. Sometimes firms must register a new name to work in the state.
Renewals and Updates
Licenses generally require maintenance. Most individual and firm licenses require periodic renewals on a specific schedule set by the boards, and annual reports must be filed with the SOS to maintain good standing. In addition, businesses generally need to notify both the SOS and state licensing boards of matters that affect their licenses, including any changes in address, key staff members, ownership or structure. In most cases, disciplinary actions must also be reported to state agencies wherever the business is licensed.
To ensure compliance across these criteria, it's important for clients to notify their compliance provider whenever changes occur that might affect their status.
Benefits of Providing License Management Solutions
Licensing is complex, and business license requirements can be overwhelming for companies operating in numerous states, causing uncertainty, risks and administrative costs far out of proportion to the fees for the licenses themselves. By providing comprehensive solutions for business licensing through strategic partnerships, CPA firms can help clients turn a source of frustration and expense into an investment with substantial bottom-line returns.
This article provides general information and should not be construed as legal, HR, financial, insurance, tax or accounting advice. You should consult with your own legal counsel, human resource, accounting or other professional advisor for circumstances pertaining to your business.
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