I am often asked, “What are the basic steps of starting a construction company?” We help with many of these steps, but we also advise clients how to do it on their own. Here are some of the basic steps.
1. Create Your Entity
Given the threat of personal injuries and property damages, construction contractors and subcontractors really should create an entity to do their work as opposed to acting as a sole proprietor. The Virginia State Corporation Commission website has a wealth of information, including links to entity formation, forms for both corporate and limited liability company (LLC) filings, and instructions for filing. For a modest fee, you can create your entity with the SCC.
The question of corporation versus LLC involves more detailed legal and tax analysis and is a case by case question. The time and energy for a lawyer to prepare and file the Articles of Incorporation (for a corporation) or Articles of Organization (for an LLC) is quite modest. Some clients use LegalZoom forms – for the articles, this is probably not a big deal, but why pay for the forms when the SCC has these forms available? Creating the entity is the biggest bang for your buck available to protect you for low expense. If timing is a concern, I have an SCC account that allows electronic filing which results in instant filing and formation.
Once you have the entity, there are definitely ramifications to keeping the entity intact and separate that are fodder for later discussion.
2. Obtain Your EIN
Each entity will need an employer identification number (EIN), aka a tax ID number. You can file paper forms or do so electronically with the IRS .
3. Obtain Your License
Virtually all construction work requires licensing in Virginia . Information on forms and applications is available from the Board of Contractors. The Board even provides a handy step by step guide to obtaining a license. If you need a license and fail to get it, it may mean you cannot get paid for your work. Take this seriously.
4. Get Your Business License
Virginia requires new businesses to file business license applications in their locality. Fairfax County, for example, includes quite a lot of information on business licenses and personal property taxes online. Please note – you should check with literally every jurisdiction where you have projects as performing construction work in a jurisdiction may trigger the need to apply for and obtain a business license in that jurisdiction.
There is obviously a lot more to starting and running a construction company; however, these are the basic first steps to forming the entity and obtaining required licenses. In future installments, we will discuss the next steps in establishing a successful construction business!
Image courtesy of JD Hancock