Starting your own construction company is an ambitious endeavor that has the potential to turn your passion and skills into a thriving business. This journey involves more than just mastering construction techniques, though — it also requires a solid legal and organizational foundation. That's why you should consider forming a Limited Liability Company (LLC) for your construction business.
By doing so, you can not only protect your personal assets but also set your business on a path to success. Here's why an LLC could be right for you, and how to start a construction company yourself in 10 steps.
Benefits of Choosing an LLC for Your Construction Company
If you choose to structure your construction company as an LLC, you'll be able to enjoy several valuable benefits. These include:
Limited liability: The main benefit of an LLC is arguably the limited personal liability it provides to its members (i.e., owners). In the context of a construction company, this means that your personal assets are usually protected from business-related debts and liabilities. So if the company faces lawsuits or financial difficulties, your personal assets — such as your home or vehicle — won't be at risk.
Flexible management structure: LLCs offer flexibility in terms of management structure. For instance, you can choose to manage the company yourself, or you can appoint managers to run the day-to-day operations. This allows for customization based on your specific business needs. And unlike a C Corp or S Corp, you won't have to worry about a board of directors or shareholders.
Pass-through taxation: LLCs are typically taxed as pass-through entities, which means that the business itself does not pay federal income taxes. Instead, profits and losses "pass through" to the individual members who simply report those profits and losses on their personal income tax returns. This can greatly simplify tax compliance, all while avoiding a separate corporate tax.
Easier record-keeping: Compared to corporations, LLCs usually have far fewer formalities and record-keeping requirements. This serves to reduce administrative burdens, making it easier to operate your construction business.
Credibility: Operating as an LLC can enhance your company's credibility in the eyes of clients, suppliers, and partners. It conveys a sense of professionalism and commitment to your business in a way that operating as a sole proprietorship may not.
Deductible business expenses: As an LLC, you'll be able to deduct a variety of business expenses from your taxes. For example, you can deduct construction materials, equipment, and other operational costs, which can reduce your taxable income by a considerable amount.
Access to funding: As formal business entities, LLCs can more easily attract outside investors or secure business loans than sole proprietorships. That's because they offer a clear-cut ownership structure and limited liability protection.
While an LLC may not be your only choice when picking a business entity for your construction company, those benefits make it easy to see why it may be the best choice.
How to Start an LLC for Your Construction Company
Here's how to start one yourself in 10 steps.
1. Choose a Standout Name
Select a unique name for your construction LLC that complies with your state's naming rules. For instance, most states stipulate that an LLC's name needs to include "LLC," "Limited," or a similar signifier.
Struggling to come up with a name you like? Use our free Business Name Generator to get the ball rolling. And once you've settled on a few top picks, check to see if they're available in your state by searching your Secretary of State's database. Or, just use Incfile's free Business Name Search tool to immediately find out if your name is available.
2. Designate a Registered Agent
All U.S. states require registered businesses to appoint a Registered Agent upon formation, so this is a step you can't overlook.
In short, a Registered Agent is an individual who accepts legal and official mail on your construction company's behalf. So if your state government sends you a letter about an upcoming due date, for instance, they'll mail it to your Registered Agent.
While it's technically possible to serve as your own Registered Agent, we don't recommend it. Why? If you use a professional Registered Agent service instead, you can be sure that no piece of mail gets overlooked or mixed up with your personal correspondence.
3. Pick a Principal Address (or Get a Virtual Address)
Next, you'll need to choose a principal address for your construction company LLC. In most states, this address will become part of public record.
But what if you run your construction company from home, and you don't want to share your personal address for business purposes? In that case, your best bet is to use a Virtual Mailbox service. By doing so, you'll be able to get a real street address in the state of your choice. You can legally use your virtual mailbox address to form your business, all while keeping your home address completely private.
4. Draft an Operating Agreement
Even though most states don't require LLCs to have an operating agreement, we strongly suggest creating one.
An operating agreement is a legal document that outlines the ownership structure, management, and operating procedures of your LLC. It's essential for clarifying roles and responsibilities among members, and it can save you a lot of confusion down the road.
5. File the Articles of Organization
You've laid all the groundwork, and now it's time to make your construction company LLC official.
In this document, you'll need to include core information about your company, such as its name, address, and owners. In most cases, you'll file it with your Secretary of State or another state government agency.
6. Get an EIN
If you plan on hiring employees to work at your construction company, you'll have to get an Employer Identification Number (EIN). This is a number the U.S. Internal Revenue Service (IRS) assigns to your business in order to identify it.
You can get an EIN on your own by applying directly through the IRS, or you can use our EIN service and we'll cut through the red tape for you.
7. Obtain the Proper Permits, Licenses, and Insurance
As the owner of a construction company, you'll almost certainly need multiple licenses and permits in order to run your business legally.
First, you'll likely need to get a general business license from your state, county, city, or all of the above.
Next, look into the construction-specific licenses and permits you're required to obtain. Depending on your location, for example, you may need to get any of the following:
General contractor license
Specialized contractor license
It can be complex and time-consuming to research all the licenses and permits your business needs, and it's easy to miss important requirements. Consider using our Business License Research Package to save time and reduce anxiety.
In addition to licenses and permits, you'll also need to obtain business insurance — this includes workers' compensation insurance if you have employees.
8. Register for State Taxes
Unless your construction company is based in a state that doesn't have income tax, you'll need to pay taxes to your state government as well as the IRS.
Many states make it possible to pay taxes online through their Department of Revenue, Department of Taxation, or other similar agencies. However, some states may require you to mail in a paper tax return, so be sure to check your local requirements — or, better yet, check in with an expert before tax season rolls around, as they can save you time and money.
9. Open a Business Bank Account and Credit Card
As mentioned above, one of the main perks of starting an LLC is the protection of your personal assets from business creditors, lawsuits, and the like. However, it's important to know that this is only true if you keep your personal finances and business finances separate.
One of the best ways to do so is to open a business bank account. Many of the available options have low or non-existent fees, and some even offer rewards for completing certain activities.
You may also want to get a business credit card while you're at it. This will serve to further separate your business from your personal finances, and it can also help you establish business credit.
10. Maintain Your Construction Company LLC
To keep your construction company compliant and running smoothly, be sure to complete the following tasks on a regular basis:
Submit your annual report: Most states require all registered businesses to file an annual report. This report typically includes basic information such as the business's name, address, and current owners.
Stay on top of your finances: With proper financial practices in place, you'll be able to manage your company's money like a pro and keep your budget in check. Research DIY business accounting if you want to do it on your own, or use an Accounting and Bookkeeping service to ensure maximum accuracy.
Renew contracts and licenses: All your construction business's licenses, permits, and contracts will eventually expire, so be sure to renew them in a timely manner.
FAQs About Construction Company LLCs
We have answers to some of the most common questions about creating a construction company LLC.
What Is the Best Entity for a Construction Company?
Many construction company owners choose to start an LLC thanks to the limited liability protection they provide. At Incfile, we offer free LLC formation.
Making sure that your business complies with all federal, state, and local regulations
What Are the Requirements for Starting a Construction Company LLC?
To open a construction company LLC, you'll need (at the minimum):
A unique business name
A business address
A Registered Agent
All the appropriate insurance, licenses, and permits
Build Your Construction Company LLC Today
Starting your own construction company doesn't have to be a dream. If you take all the correct steps to form an LLC for your business, you can become a construction entrepreneur in no time.
If you want to spend less time tracking down the right forms and more time planning your company's launch, you can form your LLC with Incfile. It's a 100% free service, so the only thing you have to lose is stress.
Carrie Buchholz-Powers is a Colorado-based writer who’s been creating content since 2013. From digital marketing to ecommerce to land conservation, she has experience in a wide range of fields and loves learning about them all. Carrie is fond of history, animals and beauty in equal measure. In her free time, she enjoys knitting, playing video games and exploring Colorado's prairies and mountains with her husband.