So you just got your contractor's license for the state.
You’re all set to get out there, make a million dollars, and buy a house on the lake, right?
Whoa, not so fast!
You forgot to do something that is critical, and if you don’t do this at the start, you are putting yourself at serious financial risk in the future.
You stand to lose everything you poured your blood and sweat in to earn because you skipped a step along the way. Because you thought, “Ehh, I’ll do that later.”
I’m talking about incorporating your business.
Sure, you can bypass this step. You’ve got your license so there’s nothing really stopping you from going out there and starting to give estimates and land jobs.
But the last thing you want is somewhere down the road, an unhappy homeowner with an axe to grind is taking you to court for something they think you screwed up.
Or maybe it’s a pissed off subcontractor suing because they think you owe them more money.
It could be one of a hundred reasons why someone is suing your company. God forbid they win the case and you don’t have the money to pay.
Without your business being incorporated, they can legally come for everything that’s in the name of your business AND in your personal name.
The truck. The house. You name it.
That’s why I always recommend for anyone that is just starting their construction business, you should absolutely take the time to fill out the paperwork to incorporate your business before going full-throttle with filling up your calendar with work.
Here’s how I did it:
First, I went to Legal Zoom. There’s a few different online services like this that you can use, but they are who I went with.
From here, you can go through their online process, which is relatively quick and easy to do.
To start, click the big orange "Start your business" button on their home page.
Next, you'll need to do decide what type of formation is right for your business. There are benefits to setting up your company as either an LLC or a corporation, but for most newer small businesses, an LLC is generally the right move.
If you are limited in terms of start up capital for your business, then the Basic option will take care of you. However, if you have the available start up money, then getting the Pro option is worth it for the EIN number. An EIN number will allow you to do other important things like opening a bank account for your business as well as properly file taxes on behalf of your company.
Next, you will have to provide the name of the business you want to incorporate. Ideally, the name on your contractor's license should also match the name of your business.
If you contractor's license has your personal name instead of a company name, you may want to consider creating a new business name now and then updating your license later so that your company name is on the license instead of your personal name.
Additionally, if you are picking your company's name for the first time right now, don't overthink it too much. The most straight forward approach is to follow the naming convention of (Your Last Name) + (What You Do). So if your last name is Smith and you specialize in excavation, "Smith's Excavation" is a perfect name. It tells prospective clients who you are and what you do. Keep things simple.
After you pick your company's name, now you need to answer where your business is located. The state you pick here will determine where your business will be formed.
As a head's up, you do not have to form your business in the same state as you will be working. A lot of business owners will form their businesses in a different state because another state will offer certain benefits to businesses that are incorporated there. Delaware is the state most frequently picked for owners who choose to incorporate outside of their own state.
Next, Legal Zoom will ask you for your contact information.
It's nice that this part is optional in case you are uncomfortable with providing these two bits of information, but from my experience, the only phone call I received from them was directly after I finished all the paperwork and a real human called to guide me through the next steps of the process. Emails have been largely limited to alerting me to either a part of the process had finished.
Next, you will be asked to describe what your business does.
You can keep this as simple as inputing "construction" or if for example you specialize in concrete work, you can type in "concrete construction" and that may be a valid option for you to choose.
The reason why you are being asked for this is because this will help Legal Zoom assign the proper NAICS code to your business. NAICS codes are used both by the federal government and banks to identify what your business does.
After that, you will be sent to a screen that alerts you to the next parts of the formation process. Simply click the orange "Next" button.
The next step is assigning a registered agent to your business. A registered agent acts as the main point of contact for a business for anything involving legal documents or processes from the state.
You can either have Legal Zoom assign one for you for a fee or you can appoint a different one yourself. Personally, I'd rather pay a little extra to have Legal Zoom take care of this for me and keep me in compliance with the state rather than trying to do it all on my own. However, if money is tight, you could probably get by doing it yourself.
If you choose for Legal Zoom to handle the registered agent, you will be brought to this page.
Click the orange "Take my included trial" button and continue onward.
Next, you will be shown a few of the extra services Legal Zoom offers: tax and legal.
Clicking the orange "Next" button will provide you more details on these services.
Personally, I opted for the "No thanks, I'll handle my taxes" tax advisory option. By all means, go with the choice you are most comfortable with and have the budget for.
The additional legal services looks like this:
It doesn't hurt to take the included trial, but if you do, you may want to set a reminder for yourself to cancel the trial if you do not plan on keeping it.
After this, you will be presented with business bank account offers. Like incorporating, this is something I would strongly recommend doing for your business. It will make your life much easier in terms of tracking money going in and out of your business. Also, if the IRS comes knocking on your door, it will save you a few headaches with dealing with them.
With that said, you don't have to act on these offers right now. I waited a couple of weeks after incorporating my business to open my business bank account and the bank presented me with the same offers.
After the bank account promo offers, you will also be presented with a couple more upsells.
I declined both of these as they really weren't necessary in my opinion. It took about a week for Legal Zoom to get my paper work approved with the standard processing time option. For the Founder's Kit option, you will be able to download all the legal documents directly from your Legal Zoom account, so there really isn't a need to get a fancy kit unless you really want it.
From here, you will be shown an overview of the costs to finish setting up the business based on everything you selected during this process.
Click the orange "Continue to checkout" button.
Now all you need to do is select whether you want to pay for this in installments or pay it all at once. Select your payment method next.
If you are paying by credit card like I did, then fill out the shipping and credit card info.
Finally, click the "Agree and pay now" button to finish the process. From here, let Legal Zoom do the rest of the work. Once your formation papers are approved by the state, Legal Zoom will notify you that your LLC or corporation is officially set up.
While going through the process of incorporating your business may not be nearly as exciting as landing those first couple of jobs, you should find comfort that you've taken a huge step towards financially protecting yourself and your business.