How Are Contractor Licenses Affected by Changes in Business Entity?
Contractor Tips , Posted by Nicole Zemaitis on
A common mistake made among business owners is to assume that they and their business are the same. For independent contractors and sole proprietors, the distinction between person and company can be tricky to parse.
Though an independent contractor likely operates their business entity and could very well be the only person to work there, their personhood and their company’s status must remain discrete from one another.
Licenses are designed to be associated with the business entity and never simply with an owner or qualifier. Functionally, this means that a new license must be obtained whenever changes occur within the business entity, such as its classification or its fundamental business structure.
Read on for a complete guide to all the business entity categories and their stipulations.
Sole Owner Licenses
The Sole Owner License is the type of license most commonly issued to independent contractors, mainly because it entails business entities completely owned and operated by a singular individual.
These licenses are issued specifically and directly to the independent contractor, or sole proprietor, at hand. You must be either the owner or the Responsible Managing Employee (RME) to qualify.
Because this license is tied very closely to the specific qualifying individual, it can never be transferred or sold to anyone else.
A Partnership License is similar to the Sole Ownership license in that it is dependent on the specific individual(s) who file for it.
The Responsible Managing Employee (RME) can qualify for the license, but so can a Qualifying Partner so long as they are an active component of a partnership structure within the business. The distinction is necessary because the RME is a company employee and therefore can’t be considered part of the partnership structure.
Within Partnership Licenses, there are two further classifications — the General Partnership and the Limited Partnership.
The General Partnership License entails at least two or more general partners. When it comes to changes in the business entity, the license must be canceled if any partner leaves.
The Limited Partnership License consists of one or more general partners plus one or more limited partners (a partner who does not partake in the business’s daily operations and is only involved on the level of their financial interests.)
Limited partners can be removed or added with a simple form. However, the partnership license must be canceled if all limited partners leave.
A business entity classified under a Corporate License will be issued a license number assigned by the Secretary of State’s office upon registration. Importantly, these licenses are tied to the number, not the business operations of an individual.
Situations that call for canceling the license altogether include merging, dissolving, or surrendering business rights. Upon enacting changes to the original business under the purview of the registration number, a new one will be required.
Joint Venture Licenses
A Joint Venture License may be requested if two or more companies seek to combine their companies to some extent. Examples of combined company operations could include sharing a workforce, co-marketing, or even cross-promoting each other’s services or products.
Both large and small companies can apply for a Joint Venture License, so long as they plan to operate in tandem with one another.
Limited Liability Company (LLC) Licenses
When you think about a company, what probably comes to mind is the type of operation that would qualify for a Limited Liability Company (LLC) License. These companies have a standard structure of employees, employers, managing infrastructure, and potentially, partners.
While different states might have differing requirements, the standard is that a license must be canceled and a new one applied for in the instances of significant operational or structural changes. Mismanagement, cash flow issues, partnership separations, negligent accounting, or even failure to name a successor are all valid reasons to call for an LLC to be canceled or dissolved.
When Is a New Contractor License Required?
Simply put, a new contractor license is required at the onset of any construction venture that plans to take in money. If cash flow is anticipated in return for contractor services, then registering as a business of some sort is an absolute must.
Once again, the rules might vary state-to-state, so best to check thoroughly.
When Can a Contractor License Be Reassigned?
A contractor's permit can be reassigned in the instance of a Sole Proprietor License.
Reassignment is reserved for situations when the fundamentals of a business remain the same. Still, the proprietor needs to hand it over for reasons of death and inheritance, illness, injury, or otherwise.
When it comes to registering your business entity, there are so many different paths to take. Depending on your business’s size, scope, and management structure, you might have no idea what type of license you even qualify for.
Changes to most business factors can be grounds for a new or altered license. Knowing the basics of each type of license will help you navigate the complex world of business registration, renewal, and alteration.
If you need assistance getting started, we offer a 30-Minute Start-Up Consultation, where we answer any questions you may have about licensing and help you streamline the application process. This consultation call comes with a $79 discount code that can be applied to your next course or Application Processing Service purchase, making this consultation FREE!
We look forward to helping you get your contractor’s license and take the next step towards starting your contracting business.