Legal Question in Business Law in California
Operating Without a License
My father in-law has set up a corporation but has not received the actual corporate number and license for the business because the state is waiting for the fingerprinting to be completed but he has already set up the business and is operating it as the corporation, can he do this without the state or other agency coming after him for operating without the licensing that is required?
3 Answers from Attorneys
Re: Operating Without a License
Probably, in regard to the corporation. However, he may have some personal liability if it is not clear that he is acting through the corporation. In regard to the license issue, that can depend widely based on the type of license he is required to have in his business.
Re: Operating Without a License
Your father can conduct certain fuctions common to all corporations such as setting up bank accounts, etc. However, whether he can conduct the type business while his license is still pending will depend on the type of license and how tightly that industry is regulated.
If your father was a contractor, I would say contracts for construction work must not be with the corporation until the corporate license is officially in effect. Other industries may be different.
Re: Operating Without a License
The important thing here is to recognize the distinction between the corporation's existence as a corporation, and its right to engage in a business activity requiring a license.
As soon as a corporation is formed by filing the proposed Articles of Incorporation with the Secretary of State, it receives a corporate number. It can also do all things that a corporation can do, without a special license, and subject to any restriction on its activities set forth in its Articles.
If the corporation was set up to operate a business such as a contracting business, an alcoholic beverage business, or a real-estate business, it cannot engage in activites for which a license is required. It can, however, open a bank account, issue stock, apply for licenses, adopt bylaws, file for S corporation tax status, obtain an employer ID number, and any number of other things for which the special license is not required.
It would be illegal for the corporation to transact business for which a license is required prior to receiving the license, notwithstanding that an application has been made. In fact, premature engaging in licensed activities would be a possible ground for denying the license.
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