The Legal Aspects of Owning and Operating a Contracting Business
The field of contracting and construction is a very good one to go into, for many reasons. First, there will always be job stability because it’s not likely that we’re going to stop using businesses. It also doesn’t take but a couple of years (and way less money than college) to become a licensed contractor. General contractors also make very good money, especially if they go into business for themselves. If starting a contracting business seems like something you’d like to do, remember to do these things when you start your business.
You Must Register Your Business
All legitimate businesses must be established as a legal entity, meaning that you have to register your business with the state that your business will be operating in. Most business owners register their business as an LLC (Limited Liability Company), which protects personal assets, such as savings and your home, in case your business gets sued by an unhappy client. If your business carries any amount of risk, which a contracting company does, then this is the type of business structure to register your business as.
The other types of business structures include sole proprietorships and partnerships (which are considered to be informal business entities), and a corporation. Sole proprietorships and partnerships carry a small amount of risk compared to an LLC. Corporations are usually owned by shareholders and offer their own form of liability protection. The way you register your business will also affect how your business is taxed.
Make Sure That You Have Enough Insurance Coverage
All businesses also need business insurance in case of bodily injury or physical damage, but not all businesses may need the same type of insurance. Most businesses will need the basic types, but some businesses may need more than that.
You may have heard of General Liability Insurance or GLI, but LLC insurance is something you may want to look into as well. When you register your business as an LLC, your personal assets are protected in the event that your business is sued. However, your business assets aren’t protected just because you’re a Limited Liability Company. LLC insurance will help to protect your business assets.
Commercial Umbrella Insurance
When you have insurance that protects your business, the actual building that you operate from, any company cars, and your employees, you may think that you have all bases covered. While everything is pretty much covered, there can still be some out-of-the-norm events that could happen, costing you a lot of money. For this reason, commercial umbrella insurance extends the coverage that you already have, and some policies may even cover some extra bases.
Obtain the Proper Business Permits and Licenses
One permit that almost all business owners must have is a seller’s permit so that the state you’re operating in can collect taxes on the things you sell— or in a contractor’s case, the services you provide. Keep in mind that every location has its own set of specific rules, so check with your local government.
Another thing you’ll need to have is a Certificate of Occupancy, or CO. This is required by any business that operates from a physical location (which most contractors do), and it ensures that all local government building requirements are met. If you’re leasing or renting a commercial building, then the owner of the building is responsible for obtaining a CO. However, it’s your responsibility if you own the commercial building.
Other Licenses and Permits
As a general contractor, you’ll need to obtain building permits to work on and make specific changes to buildings. This gives you the authority to legal work on a building or to construct a new one. This is something that all contractors are aware of, as you’ll learn when going to school for your certificate. Failure to obtain proper permits will likely result in legal action, and you may even lose your business— even with insurance protection.
As far as licenses go, almost every state and city in the United States requires contractors to be licensed— which is something else that all contractors and soon-to-be contractors are aware of. However, if you’re only considering becoming a licensed contractor, you must also know that your contractor’s license must be updated every so often, depending on where you live.
The first thing to do when starting a business is to develop a business plan and figure out all of the financial aspects. Once you’ve done this and have all of the legal aspects situated, then you can focus on growing your business.