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How To Start An LLC for a Drywall Businesses
With a steady demand for their services and a potentially reduced level of competition, drywall contractors have the opportunity to thrive in the construction industry. According to the Bureau of Labor Statistics, the demand for drywall contractors is expected to remain strong in the coming years—partly due to the projected retirement of many experienced workers in the industry. As a result, those who continue to offer their services in this field are likely to encounter fewer competitors.
That said, if you’re a drywall installer, there’s no better time to create a business for it than today. For its formation, a business structure you might be looking into is an LLC.
Definition
What Is An LLC?
Before starting a drywall contractor LLC, let’s talk about what an LLC is. A limited liability company, or LLC for short, is a business structure combining certain benefits from the other business types: sole proprietorships, partnerships, and corporations. In particular, LLCs offer their owners several advantages, including flexible management options and taxation choices.
LLC is currently the most popular business type in the US, and numerous construction companies in the US have chosen to register as LLCs. By forming an LLC, you can also enjoy these benefits for your new company.
Advantages
What Are The Advantages of A Drywall Contractor LLC?
Here’s a quick look at some of the benefits that your drywall contractor company will receive if it is registered as an LLC with your state:
A boost in credibility
Your LLC needs to be approved by your local Secretary of State before it can do business. Conversely, as an LLC registered in your state, you have your government’s approval to operate. This gives you a boost to your credibility as a business, allowing you to get more clients. Some of these clients include government organizations that prefer to enter into contracts with established legal entities only.
A separate entity
LLCs are considered an entity separate from their owners. This means it can acquire assets, make contracts, and open a bank account—all under its own name. Your LLC can even sue other individuals for any valid reason, such as unpaid services or breach of contract.
Personal asset protection
Drywall contractors can be sued for a number of reasons, most of them revolving around contract violations and defective work. If you operate as a sole proprietorship or partnership and lose a lawsuit, you may be personally liable and required to pay penalties using your personal assets. But if you offered those services as an LLC, you won’t have to. After all, by definition, LLCs provide their owners with something called “limited liability.” Courts can only seek compensation from the business itself, not its owner.
Get better deals with suppliers
As your drywall contractor LLC grows in reputation, you will also gain leverage to make better deals with your suppliers. This might mean discounts on the prices of materials regardless of drywall types, for example. Your LLC can also make better deals when working with other companies on joint projects such as building homes and the like.
Savings in taxes
By default, an LLC is considered a pass-through entity for tax purposes, meaning that the profits and losses of the business pass through to the individual owners, who report them on their personal tax returns. This avoids double taxation at both the corporate and individual levels. However, you can choose how the IRS taxes your LLC, allowing you to save some money depending on the profits you earn and the tax type you opt to adhere to during tax filing.
Disadvantages
What Are The Disadvantages of A Drywall Contractor LLC?
Of course, LLCs have their downsides, too—though most of them are not serious enough to become deal-breakers. Below are some of them.
Tax confusion
While LLCs offer a lot of flexibility in terms of taxation, failure to understand how it works will result in confusion. This could, in turn, lead to wrong tax filing and subsequent penalties. Fortunately, you can hire an accountant to consult with if you need assistance. They will ensure that you accurately report your income, take advantage of available deductions, and comply with all tax requirements, ultimately helping you optimize your tax situation and potentially save money.
Filing challenges
Registering an LLC with your state involves completing a lot of paperwork and submitting it to your local Secretary. It’s crucial to provide accurate information and meet the specified deadline when submitting the paperwork to avoid extra fees and penalties down the line. You can avoid errors by hiring someone to work on this as well.
LLC Formation
How To Create A Drywall Contractor LLC
It’s not that hard to start your own drywall contractor LLC. In fact, we’ll teach you the basics. Here’s what you need to do before opening your doors to customers:
- Identify your target customers
- Decide on the kind of services you will offer
- Choose a name for your drywall business
- Get a registered agent
- File an Article of Organization
- Get an Employer Identification Number (EIN)
- Draft an Operating Agreement
Identify your target customers
Given your skill, you can offer your services to a wide range of customers, including real estate, homeowners, and businesses. Narrowing down your target demographic to homeowners, for example, helps you market your services better. It also allows you to limit the number of jobs you will take at any time so that you won’t be overwhelmed.
Decide on the kind of services you will offer
Next, choose what kind of services you will offer your clients. Doing so allows you to specialize and establish a reputation for being the best in what you do. Some services you can consider include but are not limited to drywall installation, drywall repairs, and/or renovation and remodeling services. You can also offer different drywall types (regular drywall, soundproof drywall, mold-resistant drywall, and fire-resistant drywall) or specialize in one of them.
Choose a name for your drywall business
Then, choose a unique name for your new LLC. The name should not be used by any other drywall contractors or construction services in your state. Make sure to check your Secretary of State’s office to verify if your preferred name is still available.
It also has to clearly communicate what services you offer your clients and be easy to remember. For example, you can use names like “Expert Drywall Installation” or “The Drywall Installation and Repair Experts.”
Get a registered agent
A registered agent acts as your company’s representative when dealing with your local government. They receive legal documents pertaining to your drywall company and will interact with your local state offices on your behalf. Make sure they reside in the same state where your company is in.
File an Article of Organization
An Article of Organization is a document containing all the necessary details about your new LLC. This includes details about your business’ purposes for existence, its members (if it has more than one owner), and how you will go about your drywall contractor business. You need to file this with your Secretary of State before you can do any business.
Get an Employer Identification Number (EIN)
An Employer Identification Number (EIN) serves as a unique identifier for your business and is used for reporting employment taxes, issuing W-2 forms, and facilitating communication with the IRS regarding payroll-related matters. An EIN is needed when hiring employees (like drywall installers or renovation workers), setting up a payroll system, and paying taxes to the IRS. It is also needed when you apply for loans where your business has a bank account.
Draft an Operating Agreement
An operating agreement serves as an owner’s manual for your LLC. You use this to define the roles and responsibilities of each person involved in your drywalling business. It is also used to inform everyone as to how they will be paid for their work.
An operating agreement is a vital document that outlines the internal workings of your drywalling LLC, especially if it’s owned by more than one member. You can specify the ownership structure of the LLC, detailing the percentage of ownership held by each member or partner. This helps establish a clear understanding of the distribution of profits and losses among the owners. An Operating Agreement isn’t required in all states, but we say you draft one anyway to pre
LLC Taxes
How Are Drywall Contractor LLCs Taxed?
Now, let’s talk about how your drywall contractor LLC will be taxed by your state. LLCs are taxed differently depending on how you want them to be. But, by default, your state considers your LLC a “pass-through” entity, meaning whatever revenue your company makes, the profits are passed on to you and its other members.
Each member will have to report and file taxes for their pass-through income along with their income tax return. With LLCs, you are taxed only at the individual level.
Self-employment taxes
Aside from paying taxes for pass-through income, you will also need to pay self-employment taxes personally. This tax refers to Medicare and Social Services contributions. The reason for this is that self-employment taxes are not automatically deducted from the income being passed through to you.
Franchise taxes
Lastly, you might need to pay an annual fee called franchise tax if your state requires it. If you are registered in a state that does, you’ll need to pay about $100-$800. This is used to renew your LLC’s registration. Ask your local Secretary of State for details.
Costs
What Are The Costs Of Starting A Drywall Contractor LLC?
Starting your drywall contractor LLC shouldn’t cost you much compared to other businesses, but there are costs to remember, just like any other venture. Here’s what you need to spend to start your new drywall contractor LLC:
Filing costs
You must pay registration fees when you file your LLC’s Articles of Organization in your state. The amount varies with your state but will range from $50 to $800. Paying someone to file the paperwork for you will add to that, but submitting the documents on time and without any error is worth the cost.
Registered Agent
The registered agent you hire needs to be paid for their services. Depending on the organization they are affiliated with, the cost could be somewhere between $100 and $300.
Publishing costs
You will also need to spend to have notices about your new LLC published in the local newspapers. Some states require different duration periods, so make sure to check with your Secretary of State’s office to verify. The publication costs vary with newspapers as well, so ask several newspaper companies before deciding on where to publish.
Operating expenses
This refers to the equipment, tools, materials, and consumables or disposables you need to keep your drywall business running. You’re going to need to buy tools like tape measures and levels, personal protection gear like safety glasses and dust masks, and the actual drywall materials themselves. Add in a vehicle for your transportation, which could add up to more than $12,000.
Insurance
Lastly, you should get insured so that you will have additional protection in the event that something unfortunate happens while you take on jobs. There are several kinds of insurance that you can choose from:
- General liability policy: This type of insurance covers the basic risks and accidents drywallers face. For example, a customer slips on a joint compound, falls to the ground, and gets injured. This will cover their medical costs.
- Contractor’s tools and equipment insurance: Also known as inland marine liability insurance. Covers costs for repairing or replacing drywalling tools that are lost or stolen. This is perfect for tools normally taken to and from job sites.
- Workers’ compensation insurance: Covers you or your employees’ expenses that come as a result of work-related accidents. It includes coverage for medical bills and lost wages. This also covers legal costs if you get sued for valid reasons such as negligence.
- Commercial auto insurance: If you use a vehicle for your business, you need to get this. It covers property damage and third-party injuries caused by the vehicles you use for your business, whether to transport drywalling materials or not. This insurance also covers vehicle theft and vandalism.
It’s not easy to form your own drywall contractor LLC, but it’s worth the time and money. You gain a boost in credibility to help you attract potential clients. The best part is that you gain limited legal protection while doing business–without the added paperwork. As an LLC, you are assured of better opportunities to grow your name and expand your reach.
Comparisons
Is LLC The Best Entity For Me?
Maybe, LLC isn’t the right entity for you. Maybe it is a C-Corp. Only way to find out is to directly compare them all.
LLC vs Corporation (C-Corp)
Sole proprietorships and Limited Liability Companies (LLCs) are two of the most common business entities for individuals and small businesses. Learn what differentiates the two today.
LLC vs S-Corp
Not sure what business structure to choose? Learn about the key differences between LLC and S-Corp today.