Are you aware of the varying requirements across your license population when it comes to a merger, acquisition or other restructuring? Do you know what it takes to successfully transfer your tax, business and operational licenses during a restructuring event?
License transitions can be massive in scale, immediate in pace and overwhelming in nature. With countless licenses across federal, state and local jurisdictions, the requirements for complying with changes caused by a business event will vary across your license population.
The type of action required will depend on several factors, including:
1. Type of change
Do you have a stock transfer or asset sale? While an asset sale often requires a new license, there is a common misconception that a stock sale does not require any action. In fact, there are many instances where a stock transfer can trigger the need to supply licensing authorities with additional information or apply for a new license altogether. Further, in some jurisdictions, a simple entity conversion or change in officer can prompt the need to obtain a new license.
2. License type
License requirements vary widely depending on the license type. Licenses ranging from an obscure local egg permit to a heavily regulated statewide lottery license may require a specific action to be taken when a sale or other restructuring event occurs, and the level of effort required for each type will span the spectrum.
3. Jurisdiction
Jurisdictions can fluctuate significantly in their treatment of license transitions. A state-level lottery license could be treated differently than the corresponding local-level license within that state. For instance, one city may require a license to sell tobacco, while a neighboring city has no such license. Or some states may allow a licensee a more simplistic path for updating a license when a stock transfer occurs, while the local jurisdictions within that state require an entirely new license.
Navigating a license transition can be a daunting endeavor due to the critical impact on day-to-day operations. Any missteps can lead to a delay in license issuance, resulting in lost revenue and other business disruptions.
Knowing the keys to a successful transition can lay the foundation for a well-executed plan. These key actions include:
1. Communication
While it may go without saying that a business enterprise seeks to avoid any disruption, jurisdictions also want to avoid costly business disruptions. Any suspension of business activities results in interrupted tax revenue to the jurisdiction; thus, they are motivated to work with licensees to prevent this disruption. Some jurisdictions take additional steps to aid businesses going through a license transition; for example, Montgomery County, Maryland, provides a pre-licensing program for licensees going through the alcohol license process in the state to support businesses making a transition. Jurisdictions simply want to know what is changing within their district and who the responsible party is along the way. The key here is to communicate, communicate, communicate! Proactively reaching out and including the licensing authority throughout the process creates a collaborative environment, allowing the jurisdiction to support businesses throughout the transition and thereafter.
2. Plan for dependencies
In many cases, the final issuance of one license is just the first step in the procurement of another. Each license has its own specific process and order of requirements that must be followed. Dependencies are requirements needed prior to receiving an active license and include items such as bonds, inspections, public hearings and written advertisements. Often, submitted applications are rejected as incomplete when all dependencies have not been completed in the proper order. Understanding and planning upfront for these time-consuming tasks can avoid the unwanted situation of a business change poised for implementation but delayed due to an incomplete application.
3. Know the timing
Processing times can vary widely across license types and jurisdictions. Some licensing authorities accept only paper applications and check payments, which can result in a significant backlog of applications. Others accept only online submissions and credit cards, resulting in quicker turnaround times. In some local municipalities, licenses can be approved only at government hearings, which may be held just once or twice a month. To combat business downtime, jurisdictions may offer a transitional or interim license that allows the business to continue operations. Some authorities may allow businesses to operate under the previous license for a stated period of time, while still others may require an entirely brand-new license to be in place on day 1 of operations. These intricate details require awareness on a jurisdiction-by-jurisdiction basis of current applications' timing to ensure that all items and applications are submitted in a timely manner and to allow enough time from submission to approval and license issuance.
4. Completeness
License applications can be cumbersome and require a significant amount of information. There can also be a number of peripheral components required, such as inspection reports, officer and director personal information, lease agreements and detailed floor plans. One incomplete section or missing attachment could delay your application process anywhere from a couple of weeks to several months.
5. Teaming
With the considerable effort involved with a license transition, even those companies that have large, sophisticated licensing departments may struggle to find the resources needed to execute the plan. Companies may need to supply data such as square footage, sales tax permit numbers, projected gross revenue, certificates of occupancy or use, number of employees, zoning approvals and signage permits. As a result, the company's licensing department will need to team with other functions such as real estate, tax, human resources and others to ensure completeness in the data being submitted to the jurisdictions. In some cases, pulling resources from other departments or engaging a third party may be needed to handle the sheer volume of data collection and application processes.
A&M Tax Says
Managing license transitions during an ownership change or other restructuring is a multifaceted endeavor that demands careful attention to detail and proactive planning. Whether triggered by business expansion, contraction or restructuring, these transitions carry significant implications for day-to-day operations. Timely and thorough attention to licensing issues is paramount to mitigate potential disruptions and maintain business continuity.
By adhering to key strategies such as effective communication with licensing authorities, planning for dependencies, understanding the intricacies of timing considerations, adherence to completeness, and the embracing of both internal and external teaming, businesses can navigate these transitions with greater efficiency and confidence. By taking proactive measures and staying informed about jurisdictional requirements, businesses can minimize the burden of license transitions and emerge stronger in their new operations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.