LLC for a Carpentry Business

Do you need an LLC for a carpentry company?

If you’re considering starting a carpentry company, you might be wondering whether forming a limited liability company (LLC) is necessary or beneficial for your business. In this guide, we’ll explore the key considerations and advantages of forming an LLC for your carpentry business. 

Forming an LLC for your carpentry company can offer several benefits that provide protection and structure to your operations. One of the primary advantages of forming an LLC is the limited liability protection it provides. By establishing your carpentry business as an LLC, you can separate your personal assets from the liabilities of your business. 

An LLC structure can also enhance your professional image in the eyes of clients, suppliers, and potential partners. Last but not least, an LLC gives you the benefit of tax flexibility, letting you choose the tax structure that works best for your unique financial situation.

In this guide, we’ll provide step-by-step instructions on how to form an LLC for your carpentry company. Whether you’re an experienced carpenter looking to formalize your business or considering entering the industry for the first time, forming an LLC can be a crucial step toward building a successful and sustainable carpentry business.

Why Starting an LLC for a Carpentry Business is Important

Personal Asset Protection

One top reason to form an LLC for carpentry businesses is to gain access to the personal asset protection provided by this business structure. Whether you operate your business as a solo carpenter or you’ve partnered with other carpentry professionals, you need the limited liability protections that an LLC can provide.

As an example, let’s say that you craft a faulty chair for a customer. That customer sits in your chair, falls over, and injures themselves. If you operate your carpentry business as a sole proprietorship or general partnership, your personal assets — like your house, car, or personal bank accounts — would be at risk if that customer decides to sue your business.

On the other hand, if you form an LLC for your carpentry business, and you operate and maintain that LLC in a compliant fashion, the scope of your customer’s lawsuit will usually be limited to your business assets. In other words, your personal assets will be protected by the business structure you’ve chosen.

Taxation

Another important consideration is the tax benefits of the LLC structure. An LLC actually provides its owners with a selection of options regarding how they want the business to be taxed, which can potentially save you a considerable amount of money compared to simply operating as an informal business entity.

Sole Proprietorship/General Partnership

Your carpentry LLC can be taxed as a sole proprietorship (for single-member LLCs) or general partnership (for multi-member LLCs), which is the default option. With this tax structure, your carpentry business itself does not pay taxes, but rather the profits are passed through the business entity and your owners pay taxes on that money when they file their own personal taxes.

C Corporation

You can also choose for your carpentry business to be taxed as a C corporation, although this option isn’t very popular because it subjects your business to what’s known as double taxation — meaning that your profits are taxed first on the corporate level and again on the personal level when they’re distributed to your owners.

S Corporation

The other option is S corporation taxation. There are quite a few limitations to electing S corp taxation, but most carpenters have no trouble meeting these requirements — your business can’t have more than 100 owners, they all must be either residents or citizens of the United States, and so on.

S corp taxation can help your carpentry business save money by reducing your self-employment tax burden. Instead of paying self-employment taxes (a 15.3% tax that includes the employer and employee portions of Medicare and Social Security) on all of your business income, you can pay yourself and your co-owners a reasonable salary for your roles and only pay self-employment tax on that portion of your income, while you can reinvest the rest of it into your business without paying this tax.

Compared to operating a sole proprietorship or general partnership as a carpenter, the S corp taxation model can potentially save you quite a bit of cash that you can use to buy materials and tools for your carpentry business, rather than writing a big check to Uncle Sam.

Enhanced Credibility and Name Uniqueness

Finally, an LLC structure can enhance the credibility of your carpentry business venture. Informal business entities don’t have exclusive assumed business names and typically operate under the personal name(s) of their owner(s). For instance, if your name is Johnny Smith and you operate a carpentry sole proprietorship, your company’s name is also “Johnny Smith,” which obviously isn’t a great name for a carpentry business.

In this scenario, you could register a DBA (doing business as) name to give your business the ability to operate under an assumed business name, but DBAs have no exclusivity regarding their naming rights in many states. This means that if another carpenter wants to use your DBA name as their own, they’re not only allowed to do so, but they can actually register a formal business entity with that name, preventing you from continuing to use your own assumed name.

With an LLC, you not only have the rights to exclusive use of a business name, but you will also have either the phrase “limited liability company” or the letters “LLC” in that business name. This provides your business with a jolt of respectability because customers respect the professionalism displayed by an LLC. Also, they typically feel more comfortable writing checks to a business entity rather than to an individual.

What is an LLC?

LLCs are formal legal entities that are typically taxed similarly to sole proprietorships and general partnerships, in that the owners include any company profits or losses into their personal returns — the LLC itself does not owe income taxes. An LLC may also elect to be taxed like a corporation, although this is not a very common option.

There are similarities to corporations too, especially when it comes to financial responsibilities. In an LLC, the owners or members are not usually personally accountable for the financial status of the business. This means that if someone sues your LLC, your personal assets are not at risk. For more information see our LLC definition page.

How to Start a Carpentry LLC

The formation process for LLCs varies depending on which state you’re forming one in, but in general, the process has some universal steps that need to be taken no matter what state your business is located in. If you want a comprehensive overview of all the steps required to form an LLC, check out our complete LLC guide on the topic. The basic steps in the LLC formation process in any state are as follows:

1. Choose an LLC name

Coming up with the perfect name for your new LLC is an important step. You’ll need to choose a name that represents your company and describes what you do, and you’ll also have to make sure it isn’t already in use by checking your state’s business database.

2. Designate a registered agent

Your LLC’s registered agent (which can be an individual or a professional service) is responsible for receiving important document deliveries from the state — like service of process or annual report reminders — and forwarding them to you. The registered agent helps ensure that the state always has a reliable point of contact for your business.

3. File your formation documents with the state

The form used to create an LLC is usually called the Articles of Organization, although the name can vary (some states call it the Certificate of Formation or something similar). You’ll need to provide the state with some basic information about your business and its owners. In exchange, the state will formally create your LLC.

4. Acquire an EIN

The Employer Identification Number (EIN) is a federal tax ID number that essentially functions as a Social Security number for a business. The EIN allows your business to hire employees, pay taxes, apply for bank loans, and more. You can easily obtain an EIN from the Internal Revenue Service free of charge.

5. Create an LLC operating agreement

Most states don’t require operating agreements, but every LLC should have one regardless. This is an internal document that outlines several key operational aspects of your LLC. The value of the operating agreement is how it can help prevent ownership disputes down the line by clearly explaining how the LLC will be run.

6. File a BOI report

As of 2024, all LLCs are required to file a beneficial ownership information report, or BOI report. This report is filed with the Financial Crimes Enforcement Network (FinCEN). When you file, you’ll be asked to provide information about your beneficial owners — the people who own 25% or more of the LLC, exert substantial control over it, or get substantial economic benefit from it. 

By requiring this filing FinCEN hopes to deter financial crimes like money laundering. It’s free to file the report online.

7. Create a financial infrastructure

You will need a business bank account for your LLC, and you’ll probably want a business credit card for work-related expenses, as well. It’s also a good idea to use accounting software like QuickBooks or even hire an accountant to handle your bookkeeping for you.

8. Handle taxes, licenses, and permits

Depending on your state, you may need a general business license to operate your LLC in compliance with state requirements. Each state has different licensing requirements when it comes to carpenters, so you’ll need to make sure you follow the rules for your specific state. The vast majority of them require some sort of licensing for carpenters, especially if you’re working on large projects. Don’t forget to check with your state to see if there are franchise or privilege taxes assessed on LLCs, and also see if your municipal or county government entities have any further licensing requirements.

9. Understand maintenance requirements (annual reports, franchise taxes, etc.)

Again, these requirements can vary by state, but most states require some sort of regular report to ensure that your LLC’s info is up to date in the state’s business database. Some states require reports each year, while others only require them biennially or not at all. No matter what your state requires, you’ll need to stay on top of it to keep your LLC in good standing.

Additional Resources for Starting a Carpentry Business

1. United Brotherhood of Carpenters (UBC)

This organization is one of the leading trade unions in the United States, with more than 500,000 members. Their resource hub has links to fitness initiatives, updates about UBC members, news, and their official magazine, Carpenter Magazine. The UBC is an indispensable resource for carpentry businesses in America.

2. North Atlantic States Carpenters Training Fund (NASCTF)

The NASCTF has quite a few resources for aspiring and current carpenters, but the one we’ve linked to is their carpenter’s tool list. Split into four categories — mill shop, pile driver, floor cover, and general carpentry — these tool lists have everything you need to get your carpentry business off the ground.

3. Reddit’s /r/carpentry board

For the most part, we don’t typically recommend that our readers get advice from Reddit. However, their Carpentry subreddit is an incredible resource for carpenters of any experience level. Here, you’ll find ideas for projects, tips for organizing your workspace, and all sorts of enjoyable anecdotes. Carpentry doesn’t always have to be serious business!

4. Fine Homebuilding

The legendary carpenter Larry Haun passed away in 2011, but his Fine Homebuilding videos live on, providing carpenters with an invaluable resource. Larry’s videos can teach you how to make just about anything as long as you have the right tools. Make sure to browse the rest of his website as well — every corner of the site is packed with useful information.