Best practices for engineering firm licensing and management
Engineering firms may be required to obtain company licenses or complete other registrations. It’s vital to stay informed on best practices and how to properly manage your engineering firm before providing services.
Understand the three layers of licensing engineering firms must manage.
Identify common events and milestones that trigger licensing requirements.
Learn tactics for protecting firms against the risks of unlicensed practice.
While the path to individual licensure will be familiar to many engineers, firm-licensing requirements are not as widely understood within the profession. In addition to individual professional licenses, 42 states require engineering firms to obtain company licenses (certificates of authorization) or complete other requirements before offering services within their borders, and the District of Columbia will begin requiring a firm license in July 2018. Understanding the several layers of licensing that apply to the practice of engineering from state to state can help professional engineers and engineering firms anticipate their needs, successfully navigate requirements when working across state lines, and avoid hazards of unlicensed practice, such as penalties and license suspensions.
Three layers of licensing to consider
There are three layers of potential licensing requirements that engineering firms must address, which are listed below.
The first and most familiar layer of licensing is individual professional engineer and structural engineer licenses. In all 50 states and the District of Columbia, engineering firms must have a licensed engineer on staff. In many instances, it is illegal to advertise or provide engineering services, or even use the title “engineer,” without a license.
The second layer of licensing is registering the business entity with the state through its secretary of state office. The state will issue a certificate of authority for your firm to transact business. As part of registering with the secretary of state, firms must appoint a registered agent to receive legal notices and other important documents.
The final layer of licensing to address is firm licensing that is administered by state engineering boards. Thirty-seven states require engineering firms to obtain licenses, generally called certificates of authorization, and another five states require similar registrations. These company-level licenses qualify a firm to offer engineering services within the state.
Wherever firm licenses are required, the firm must appoint a licensed engineer in charge of the firm’s services. It’s important to note that firm licenses are always dependent on those underlying, individual professional licenses.
Events and milestones that trigger license requirements
Below are instances that may result in a firm needing to acquire a license. Click here to view full-size table.
Bidding and offering services: All relevant license requirements must be met before advertising, bidding, submitting proposals, or providing engineering services in any jurisdiction. Individual engineers and firms have been cited for using the term “engineer” on business cards, letterheads, resumes, websites, LinkedIn profiles, and other social media without an active license to practice in that jurisdiction.
Maintaining existing operations: All three layers of licensing that were previously mentioned generally require maintenance to remain active. Firms must keep updated records with the secretary of state and file periodic reports to maintain good standing. Firm licenses and professional engineer licenses must be renewed, generally on an annual basis, and these engineers also must meet their continuing education requirements.
Expanding into new states: With each new state they do business in, firms must obtain a certificate of authority from the secretary of state through a process known as foreign qualification. There are a lot of considerations in this step, because each state has different name, management, and ownership requirements for engineering firms.
In addition, firms must apply to the engineering board for a license (certificate of authorization) or to file other documents as required. In some states, qualification is required prior to obtaining the firm license, and in other states the license must be obtained before qualifying with the secretary of state.
In each state, firms must maintain their licenses and good standing by maintaining accurate records with authorities, submitting annual reports and other required corporate filings, and renewing firm licenses on time.
Staff turnover: One frequently overlooked aspect of licensing is the dependence of firm licenses on the individual licenses of engineers in charge. If a responsible engineer leaves a firm or suffers a license lapse, the firm must promptly appoint a replacement or risk forfeiting their license to provide services in that state.
Opening branches: Generally, any changes in office locations must be recorded with the secretary of state as well as state engineering boards. In some states, branches must be registered separately, and some may require an engineer in charge for each location.
Withdrawing from a state: Firms that are no longer active in a state should close down their presence with state authorities and the engineering board. Leaving a state without meeting tax obligations, closing tax accounts, and officially withdrawing your entity’s registration can lead to substantial annual penalties that keep compounding year after year.
Licensing best practices to protect engineering firms
Firms can eliminate the risk of unlicensed practice by adhering to a few best practices that are listed below.
Plan early for licensing. Licenses take time to acquire, so it’s important to include licensing due diligence as an early step in sales and growth plans. By planning ahead, firms can avoid having to choose between passing on a prime opportunity or bidding without a license, both of which jeopardize profitability and growth.
Track licenses and deadlines carefully. Use appropriate software to track all professional and company licenses throughout your entire operation. Set up automated notices of renewal dates and other important deadlines.
Pay special attention to licenses of responsible engineers and other qualifying professionals. Remember, any lapse in an individual license can pose a risk to your firm licenses.
Ensure that your branch offices are registered to meet all of the relevant state requirements when operating across state lines. Each state treats branch offices a little differently; this scenario is a common source of licensing gaps and errors.
Consult a compliance professional whenever you need guidance or support with engineering licensing. With different regulations in every state, navigating the complexities can be challenging for nonspecialists.
Jerri-Lynn Wier is an attorney and compliance specialist for Harbor Compliance, a leading provider of license and entity management solutions for businesses. She has 20 years of experience in insurance, business, and election compliance, and she has licensed numerous large construction, engineering, and architectural firms. Detailed, specific state-level licensing information is available via the company’s engineering guides. Harbor Compliance is not an accounting or law firm and does not provide tax, financial, or legal advice.