The Business Structure Of A Construction Company

Starting a business in construction? Find out why most construction companies choose to file their business as a corporation.

The Business Structure Of A Construction Company

Company owners involved in construction operations are faced with tough decisions when it comes to defining their business structure. In fact, there has been significant debate amongst those in the construction industry for years surrounding what the best type of business structure to help ensure success.

Sole Proprietorship

When choosing a business structure, many new owners select a sole proprietorship. However, this can cause problems for owners, especially for those working in an industry with tremendous liabilities like construction. That’s because a sole proprietorship does not distinguish between the company’s and the owner’s assets.

This means that there is practically no legal protection from lawsuits or debts that occur as a result of the company’s doing. A lot can go wrong during a construction project. Owners of construction companies should instead look at other alternative business structures that could perhaps provide more protection.

Partnership

Construction owners may choose a partnership if they enter into business with at least one other owner. When doing so, it’s crucial that the owners take time to define their relationship. Too often, those entering into a partnership fail to establish their business structure, which can lead to significant problems in the long run. Partners should draw up a written contract that states explicitly things such as how the company is set up, who will run the company, and how they will do so.

Corporation

Choosing to file as a corporation could provide business owners with a considerable amount of protection. The business owner’s personal assets are held separate from the company, meaning they are protected from debts and liabilities. Another benefit that sets corporations apart is the fact that business owners can offer stock options. Even if they do not do so initially, the possibility exists for them to do so in the future.

Many construction owners choose an LLC as their business structure. That’s because LLCs help shield owners from liabilities and debts, much like a corporation does. LLCs are an excellent choice for small businesses, especially those just getting started. As a construction company who may only work in one or two states, the LLC filing option could be an excellent choice.

Changing Business Structure

New owners should put considerable effort into choosing the proper business structure when they submit their initial registration filings to the state. However, if a business grows over time, or the owners determine that they would like to change their business structure, perhaps to protect themselves from debts and liabilities, they can elect to do so with their respective state’s Secretary of State Department. However, there is often extensive paperwork and filing fees associated with doing so. It’s better for business owners to have a sound understanding of the options available before registering with the state.

Licenses And Permits

It’s also worth noting that those in the construction industry must pay particular attention to licenses and permits. Not only does this include permits on the federal and state levels, but on the local county and municipal levels as well. Filing as a construction company may be more difficult than filing as a different type of LLC or corporation, such as a retail store. It’s imperative that construction business owners pay careful attention to the licenses and permits needed to work in the industry.

Additionally, construction companies must also pay attention to any licenses and permits they need to undergo new projects. For example, construction companies may need to secure permits before digging or dealing with plumbing. Failure to do so could put companies at risk of severe fines and penalties, which would inevitably result in project delays. It’s imperative that construction business owners clear all projects with state and local boards before breaking ground.

Lastly, construction owners should be aware that a licensing board often dictates the type of businesses that can obtain a construction license. For example, at one time, the state of California only issued contractors licenses to companies that had filed as a Corp.

Hiring A Third-Party Company Could Help When Registering A New Business

New construction business owners should consider hiring a third-party company, such as DoMyLLC, to help them register their company in their respective state. At DoMyLLC, we have extensive knowledge working in all 50 states, plus the District of Columbia. We have helped thousands of new owners determine their business structure and file the appropriate paperwork to help them hit the ground running.

Investing in our services at DoMyLLC could save significant time and money in the long run. Taking the time to determine the proper business structure from the get-go will help construction companies, as they’ll be able to focus on their projects instead of their official standing with the state.

Plus, if it ever comes time to expand the business into another state, our team at DoMyLLC will already have the construction company’s paperwork on file and can quickly register the construction company as a foreign entity in the new state. Imagine a construction company working on a project in North Dakota. A neighboring business in South Dakota catches wind of how successful the project has gone, and would like to work with the construction company.

This would likely be a tremendous opportunity for the construction company to help grow their business and clientele base. Instead of telling the South Dakota business that they are not authorized to conduct business in the state, the construction company’s owners can alternatively contact us to help them establish a new business entity in South Dakota so that they can begin work on the new project and increase their revenue. Developing a relationship and connection with us could go a long way toward a business’ success.

Lastly, our team is knowledgeable when it comes to construction companies. Not only can they help companies determine the proper business structure, but they can also help construction companies when it comes to filing licensing paperwork in their respective states. Again, we have experience working throughout the entire country and can point new business owners in the right direction when it comes to filing the correct paperwork, helping to ensure they remain in compliance in their respective states. For new business owners who are unfamiliar with the paperwork that goes into establishing a new business structure, having professional assistance could go a long way.

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