LLC for General Contracting

Starting a business in general contracting? Forming an LLC can fortify your venture, offering protection, credibility, and more. We’ll walk you through the benefits of this business structure and the details of the startup process.

Do I need an LLC for general contracting work?

Forming an LLC (limited liability company) for general contracting might seem excessive for some, especially when just starting. However, while the law doesn’t dictate that a general contractor must establish an LLC, there are many reasons why doing so is advantageous. An LLC serves as a sturdy business structure that usually protects you from personal liability. Imagine a scenario where there’s an accident at your worksite or a financial issue arises — with an LLC, your personal savings, home, and vehicle typically remain untouched. It’s this safety net that makes the concept of a general contracting LLC appealing to many.

Furthermore, establishing an LLC provides a professional image, signaling to potential clients that you’re serious about your work and its accompanying responsibilities. In an industry where trust is paramount, such indications can be game-changing.

Advantages of an LLC for General Contractors

LLCs present a lot of appeal for general contractors (or for any entrepreneur starting a business). That’s because LLCs present some significant advantages. Let’s walk through the specifics of those benefits.

Personal Asset Protection

One of the biggest advantages of setting up an LLC is the personal asset protection it offers. With this structure, there’s a clear separation between your personal and business finances. If your business faces a lawsuit or incurs debt, your personal assets usually remain safe. In the high-risk world of contracting, where unforeseen accidents can occur, this protective barrier is invaluable.

Tax Benefits

Taxation can be tricky, but LLCs have a unique edge. Profits (and their subsequent tax burden) from an LLC usually “pass through” the business itself directly to its members, meaning you’re only taxed once, unlike the double taxation (at both the corporate and personal levels) often found in corporations. Plus, you get to choose whether the LLC is taxed as a pass-through entity, a C corporation, or even an S corporation, giving you the flexibility to choose the most beneficial setup for your situation.

Credibility

Adding the “LLC” tag to your business name does more than just provide asset protection and tax benefits. It can elevate your business reputation, conveying professionalism and a commitment to quality work. It reassures clients that they’re dealing with a legitimate entity, thereby enhancing trust.

How to Start a General Contracting LLC

The process of starting a general contracting LLC is an important legal procedure. Technically, the process varies a small amount from state to state, such as the specifics of due dates, filing fees, and naming rules. But all in all, the basic blueprint of the process is similar. Let’s dig into that process, and you’ll be on your way toward running the newest general contracting business in your area.

Step 1: Choose a name for your general contracting LLC

Decide what you’ll call your business. Your business name acts as the storefront of your brand, making it one of the most important choices you’ll make. Begin by brainstorming names that are relevant to your services, distinctive, and easy to remember. Once you have a few choices, search your state’s business registration website to ensure your desired name isn’t already taken. Don’t forget, your name needs to include “LLC” or a variation of it (such as “L.L.C.” or “Limited Liability Company”).

Next, consider the long-term digital presence of your business. With the digital age in full swing, your online identity is crucial. Therefore, when confirming the availability of your business name in the state registry, you should also immediately check for available domain names. Securing a matching domain name before locking in your business name can save potential future branding headaches, making it easier for potential customers to find you online.

Step 2: Appoint a registered agent

Designate your registered agent. Every LLC requires a registered agent. This is a person or business entity responsible for receiving important legal documents on your LLC’s behalf — namely service of process. Your registered agent must have a physical address in the state where your LLC is registered — P.O. boxes aren’t allowed. The agent also has to be available at their registered address during all regular business hours.

While you can act as your own registered agent, there are benefits to hiring a professional service. For starters, no general contractor wants to be tied down to a single address during business hours. More importantly, if your business ever faces legal trouble, a notice of a lawsuit would be delivered to your registered agent. A third-party service like ours would handle and deliver this notification discreetly and professionally. If you serve as your own registered agent, you could be served in front of a client, business partner, or employee.

Step 3: File the Articles of Organization

Submit your formation documents. The Articles of Organization is the foundational document that brings your LLC into legal existence. Typically, it’s filed with your state’s Secretary of State office. It contains vital information such as the name of your LLC, its primary business purpose, member names, and the details of your registered agent.

Filing fees for the Articles of Organization differ from state to state, ranging from around $50 to $500 or more. The form itself is usually straightforward, but it’s crucial to fill it out accurately. Most states now offer online filing, making the process more convenient. After submission, your state will review the document, and once approved, your LLC will officially exist as a new legal entity in your state.

Step 4: Draft an operating agreement

Create an operating agreement to govern your business. An operating agreement is like an internal constitution for your LLC. While most states don’t legally require one, having an operating agreement is strongly advised. This document spells out the operational procedures of your LLC, including member roles and responsibilities, the process for adding or removing members, profit distribution, and dispute resolution. For example, if you’ll be a full-service contractor or specializing more in commercial projects, your operating agreement should explain that fully.

Even if you’re a single-member LLC, this document helps legitimize your business, especially in potential legal or financial disputes. When drafting it, ensure all involved parties have their expectations and responsibilities clearly spelled out to prevent future misunderstandings. Once agreed upon, all members should sign it, and each should keep a copy.

Step 5: Get an EIN and register for state taxes

Set up your business tax accounts on the state and federal levels. The employer identification number (EIN) is like a Social Security number for your business. Issued by the IRS, it’s required for tax reporting, and most banks will ask for it when opening a business account. Obtaining an EIN from the IRS is free. That said, if you’d rather avoid the hassle of getting your own, use our EIN service.

Once you have your EIN, it’s time to familiarize yourself with state-specific taxes. Beyond federal taxes, your state may require sales tax, employment taxes, or other state-specific taxes. Ensuring you’re registered for all the relevant state taxes from the outset will help prevent potential penalties down the road.

Step 6: Obtain necessary construction licenses and permits

Apply for the licenses and permits your contracting business needs. The general contracting industry is heavily regulated, helping ensure the safety and quality of services provided. To operate legally, you may need a general business license in some areas, and you’ll also likely require a general contractor’s license. This might involve passing a specific examination and providing evidence of insurance and bonding. There’s also a good chance you might need other construction-specific licenses. These requirements help ensure that you adhere to industry standards, protecting you and your customers.

Each state — and sometimes even individual cities or counties — has its requirements for commercial contractors. Check with local and state regulatory boards for specifics. Additionally, be aware of periodic license renewals to help ensure continuous, uninterrupted business operations.

Our business license report can be a helpful tool for this step. We’ll handle the research for you and give you a customized list of all the specific licenses and permits that apply to your unique business.

Step 7: File annual reports

Submit annual reports on time. Most states mandate that LLCs submit annual reports. This keeps your state updated on essential details of your business, like its current address, management structure, and business activities. These reports typically come with a filing fee.

Remember, deadlines for these reports are strict. Missing a deadline can result in financial penalties and, in extreme cases, administrative dissolution of your LLC. Mark your calendar, set reminders, or consider using professional services — like our Worry-Free Compliance service — that track these deadlines and help ensure complete and timely filings.

Common Mistakes to Avoid with Your General Contracting Company

The path to establishing a general contracting LLC can include missteps. Overlooking license renewals, neglecting annual report filings, or even just choosing an overly generic business name can hamper your business. However, with research and perhaps some professional guidance, these pitfalls can be avoided.