Business licensing for engineering firms


Greg Corombos: Hi, I’m Greg Corombos. Our guest in this edition of Expert Insights is Hans Howk, Manager of Content Management, Governance, Risk, and Compliance at CT Corporation. Today, we’re going to be discussing the business licensing process for engineering firms. And Hans, thanks so much for being with us again.

Hans Howk: Always a pleasure, Greg.

GC: Well, before we get going on some of the regulations and the process here, let’s define who we’re talking about, what are the different types of engineering firms?

HH: Yeah, so engineering defined generally is the science and technology concerned with the design, building using engines, machines, and structures, but there are a bunch of different kinds of engineering. I mean, we have architectural engineering, which a lot of folks are probably familiar with, but there’s also civil engineering, mechanical, and electrical engineering. And there’s even a whole slew of specific types like fire system engineering. And when you start to get into highly regulated industries, a lot of times there are specific types of engineering per that industry.

GC: Well, you mentioned that they’re highly regulated. So, let’s get into it. How are engineering businesses generally regulated?

HH: Yeah, that’s why we’re here, right? So, you know, as is the case with many industries, each state really has a unique regulatory landscape that individual engineers and engineering firms have to navigate before offering services. Now, in the U.S., registration or licensure of professional engineers, and engineering practices, it’s really governed by the individual states. So there’s not an overarching federal license. And like I mentioned, states are going to have different requirements for engineers.

Now, all states require individual engineers to be licensed to practice. Most states also require engineering firms to obtain a license as well, which is sometimes called an engineering firm license, an engineering business license, or a certificate of authorization. Now, keep in mind that each registration or license is valid only in the state where it’s granted. So if you operate outside of your domestic state, you might run into different licensing and certification rules. For individual engineers, for instance, you probably won’t be granted any sort of blanket reciprocity from state to state, meaning you’ll need to apply for a license in each state that you want to practice.

However, the application process for already licensed engineers typically a lot easier than applying for your license for the first time. And that’s because a lot of states will accept exam results and other prerequisites from other states, which makes the process a lot easier once you do hold an initial license. But again, just because you hold a license in one state doesn’t mean that you can automatically practice in all states. You do still need to obtain a license in each state you intend to practice.

As for engineering firms, states might have different rules for what your business name can be, how your management structure can be organized, and other matters, such as what percentage of your ownership must be licensed individual engineers, for instance.

GC: Let’s talk a little more about business structure restrictions for engineering firms. We talk about formal business entities on this podcast all the time. So, when it comes to engineering firms, what do you have to keep in mind?

HH: So, some states restrict certain business structures from even providing engineering services. For example in California, engineering limited liability companies are not recognized. So, if you want to start an engineering company in California, the only entities available are sole proprietorship, partnership, limited liability partnership, or a corporation.

Sort of the same deal in New York. Not exactly, but engineering firms in New York must adopt a certain business structure as well. So in their case, you need to register with a state as a professional corporation, a PC or a professional LLC. And I think there are a couple of other options there. But an engineering firm can’t just be a garden variety corporation or LLC, it needs to actually register as a PC or a PLLC, which entails that a certain percentage of its ownership is made up of licensed engineers. So, there are some different types of restrictions when it comes to actually structuring your business If you want to be licensed, and legal as an engineering firm.

GC: As you’ve already explained here, Hans, there are two different levels to look at this from. One is the individual engineer, and the other is the engineering firm. So now that we’re ready to talk about the licensing process, we need to explain that that is two different things. So, let’s go over both of those first with the individual engineers.

HH: Yeah, so for individual engineers, before you can apply for a license, the licensing board in your state will generally require that you have graduated from an accredited school with an accepted engineering program, that you’ve passed all necessary examinations, and sometimes that you’ve accumulated the requisite amount of experience. Once you’ve satisfied the prerequisites, the license application will then require you to provide proof that each of these requirements has been met, along with the completion of some basic paperwork. And sometimes you’ll be asked to provide other supporting documentation such as a personal or character reference transcript from your school, maybe an image of your professional seal, or other materials.

Now, for engineering firms, the first step is making sure your business structure is able to comply with the requirements for doing business in that particular state. So, as we said before, if I want to apply in New York, am I actually able to form a PC or a PLLC, right? Do I have the personnel needed to actually form a professional corporation? So that’s checkbox one. Once you’ve registered with the Secretary of State, your firm can apply for an engineering firm license through the state’s engineering board. I should say that’s usually the case, because it’s sort of a patchwork quilt of regulations here. In some states, it’s the reverse, and firms need to receive board approval before they can register with the Secretary of State. It’s really wild. The board approval that I’m talking about, it usually has to do with business name requirements, right? So a lot of states will have restrictions on what an engineering firm can call itself. And a lot of times before you can do anything, you’ll have to go to the state engineering board and say, “hey, I want to practice engineering as a business in your state; here’s what my business name is going to be,” and the board will either say, “okay, great proceed,” or they’ll say, “no, you can’t use that name.” You know, you can’t use the name Sarah Smith Engineering, if Sarah Smith herself isn’t a licensed engineer, or some other explanation like that. And only after you’ve obtained board name approval, can you then register with the Secretary of State, apply for the firm license with the board of engineering, and practice legally. So again, that’s the case in many states, but not all.

Now, some states may also require you to designate an individual licensed engineer for your firm as your professional engineer in Responsible Charge. That’s what it’s called. And that’s the person that’s going to qualify your engineering firm for a license, and may or may not need to hold a license in that particular state. So that’s a pretty common requirement also. So yeah, there are a handful of important hoops to jump through and a license can and will be denied if you don’t meet those requirements.

GC: Well, we not only like to talk about the proper practices in terms of getting a business license here on the podcast, but also the consequences for not doing it properly. So Hans, what happens in the engineering realm if you’re not properly licensed?

HH: If an engineering practice is not properly licensed, it could face negative publicity and penalties, your garden variety fines, cease and desist orders, even all the way up to criminal penalties. And I have a pretty interesting real-world example that I looked up before we started here: there was a case where the city of Wilmington, North Carolina contracted with a business to install a bunch of red light cameras within the city. And after the installation was completed, the North Carolina Board of Examiners for Engineers and Surveyors, NCBELS for short, notify the city of Wilmington and the business that installed the cameras that the installation of these 13 red light cameras actually, by definition, constituted engineering practices.

And the company that installed them—not being a licensed engineering firm in North Carolina—was technically not allowed to do so. Now, it turns out that the firm and the employees were indeed licensed in another state, but that didn’t do any good for North Carolina. And while the city of Wilmington initially told the business that engineering seals weren’t required for the camera installation, the state ruled that that wasn’t true, which means the cameras were installed in violation of state law. And when all was said and done, NCBELS issued a formal reprimand, a $5,000 fine, and ordered various engineers and company reps to complete an ethics course within six months. So yeah, things can get ugly for all parties involved when licensing requirements aren’t met.

GC: And so I think another lesson there is don’t necessarily listen to the municipality if you don’t know what the state rules are because ultimately, those are going to trump whatever the local rules are, right?

HH: For sure. Do your own research. Absolutely.

GC: Well, Hans, as we close here, what are some tips for staying in compliance with licensing regulations once you’ve gone through all that?

HH: Yeah, so as you can sort of glean from what I’ve said so far, engineer and engineering firm regulations are such a mixed bag, depending on the state in which you’re practicing. So, one of the most important things you can do is know the laws of the state in and out before you start a business there. Now, whether that means having someone on your staff who is versed in legal jargon and can understand state laws, or outsourcing that duty to a company like CT Corporation, it’s really essential to avoid slowdowns, penalties, and a loss of revenue.

Another big task is maintaining the good standing of your firm across the entirety of your licensed portfolio. And that means filing license renewal applications on time, managing changes in the licenses of your qualified individual engineers, you know, updating the board when an engineer is hired or leaves, tracking your firm’s continuing education credits—which we didn’t even mention but sometimes those are annual requirements where you have to fulfill some continuing education courses, things like that. And updating your records with state agencies in the event that things like the business address changes or contact information changes. And now for bigger corporate changes, like a business name change, you might have to go back and jump through a lot of those name approval hoops that we talked about in the beginning.

So really, all of this boils down to having a system in place for managing your licenses and those of your qualifying employees or partnering with a compliance firm like CT Corporation, who can handle that on your behalf. They handle initial license filings, handle those change notifications, they’ll streamline all your renewals, and make sure everything is all in one place, set up for success. And basically, all you do is sign on the dotted line.

GC: Well, it’s a lot to keep track of, but it’s very important to know about it before you begin the process, certainly, and before you open your business, and so a lot of headaches can be avoided. And it’s always good to know that CT Corporation is there to help along the way. So, Hans, excellent information. As always, thanks so much for your time today. We appreciate it.

HH: Appreciate it, Greg. Have a good one.

GC: You too. Hans Howk, Manager of Content Management, Governance, Risk, and Compliance at CT Corporation. I’m Greg Corombos reporting for Expert Insights. For additional information on this subject, please call CT at 844-787-7782.