Definition

What Is An LLC?

An LLC is a business structure that provides its owners with personal liability protection from debts and other obligations arising from the company. This means their personal assets are never at risk when banks ask for collaterals or when the company is brought to court for a legal issue.

An LLC also allows for lower taxes since profits and losses can pass through to the members’ individual tax returns. This can help your business avoid double taxation on corporate profits, making it an attractive option for small and medium-sized businesses looking to remain competitive.

Advantages

What Are The Advantages Of A General Contractor LLC?

Operating as a general contractor involves managing a variety of projects and risks. One way to protect yourself and your business is to form an LLC. Let us explore the benefits of creating an LLC for your general contractor business.

Disadvantages

What Are The Disadvantages Of A General Contractor LLC?

While general contractor LLCs offer numerous advantages in terms of operational simplicity and favorable tax policies, they may not be the most suitable choice for all businesses, particularly those with low capital requirements. Below are things to consider before forming your LLC.

LLC Formation

How To Create A General Contractors LLC

While some states may have variations in their specific procedures, they generally follow the same basic steps when it comes to forming an LLC. Here is a quick outline.

1. Choose a unique name
2. File Article(s) Of Organization
3. Choose a Registered Agent
4. Create an Operating Agreement
5. Get an EIN

Choose a unique name

When coming up with a name for your general contractor LLC, it’s important to come up with something unique and memorable. It should be easy to read and spell, as well as be something that speaks to the purpose of your business. Here are some guidelines for writing a great LLC name:

• Avoid using overly long or complex words and phrases. Instead, opt for something that people can easily pronounce and remember.
• Choose something specific to your business. Make sure it will not be confused with other LLC names in your area.
• Before settling on a name, ensure it is not already taken or used by another business.
• Check with the US Trademark Office to ensure you are not infringing on an existing trademark.
• Incorporate a keyword related to your business into its name. This can help customers and potential clients identify what you do.
• Ensure your LLC name follows all federal, state, and local laws.

Once you have settled on a name for your LLC, consider reserving it with the state. This will prevent someone else from registering the same or similar name. You will have to pay name reservation fees, so it’s important to ensure that your name is final.

File Article(s) Of Organization

The Article(s) of Organization is a legal document that formally establishes the company as an LLC the state of formation. It outlines the LLC’s official organizational structure, management process, and ownership responsibility. 

It contains the following: 

• The name of the LLC
• The purpose of the LLC 
• Management Structure 
• LLC Members
• LLC Address 

Filing an article of organization costs between $50-$300 depending on the state of formation, and you must submit it to the Secretary of State online or in person.

It is important to ensure that all information provided on the filing is accurate and complete to guarantee that the registration process goes smoothly. If any changes or modifications are made to any of the details regarding the LLC after filing, a Certificate of Amendment must be submitted for approval by the governing state authority, adding more fees into the mix.

Choose a Registered Agent

Choosing a registered agent for your construction industry is crucial for any LLC, as the registered agent serves as a point of contact between your business and state government entities. As such, it’s wise to research to ensure you choose the best agent with a license for you and your business. 

For starters, ensure that the registered agent is located in the same state where your LLC is based. Also, look into what services they offer and how reliable they are. Make sure to factor in qualifications such as any past experience acting as a registered agent and customer reviews that illustrate customer satisfaction levels. 

Last but not least, consider looking at their pricing structure to ensure it fits within your budget. After all, you don’t want to be hit with excessive payment later. Doing this due diligence before committing will set you up for success and provide peace of mind knowing that you’ve chosen the right professionals for your industrial LLC.

Create an Operating Agreement

Creating an operating agreement is an important step in protecting your rights while streamlining the process of running a successful business. The agreement should cover key issues such as indicating how contributions, profits, losses, and distributions will work. 

Operating agreement helps protect all employees’ interests in the project and must be kept up to date as the business grows and evolves. 

Your operating agreement should also include provisions for how to handle the dissolution of the companies in case the members decide to end their business relationship. Developing an agreement addressing all these points is essential to ensure full partnership protection moving forward.

Get an EIN

Getting an Employer Identification Number (EIN) is crucial to forming an LLC for general contractors. The Internal Revenue Service (IRS) issues this nine-digit number that identifies a business for taxation. It is also commonly used for opening a business bank account and other business needs such as filing for business licenses.

You can apply online or submit Form SS-4 to the IRS to apply for an EIN. You will need to provide specific information about your business, such as its name, address, and type of legal structure. In addition, you will need to provide the names and Social Security numbers of any owners or officers in your LLC.

Once you have submitted your application, the IRS will issue you an EIN within five business days. It is important to keep this number secure and readily available, as you will need it for all your business transactions, such as filing taxes and obtaining business licenses.

LLC Taxes

How Are General Contractors LLCs Taxed?

When you form an LLC, the taxation process can be one of the most intimidating parts of business ownership. As a general contractor, you must understand which taxes apply to your LLC and how to file them properly. Here we will discuss the franchise, corporate, sales, and self-employment tax that all general contractor LLCs need to know. 

Costs

What Are The Costs Of Starting A General Contractors LLC?

Forming an LLC can be much more cost-effective than forming a corporation. A key expense is the filing fee, which varies from state to state. Depending on your state, the initial filing fee can range from just $50 to around $300. Additionally, you will typically have to pay what is known as “ongoing fees,” such as state taxes, franchise taxes, and annual report filings, which will vary by company and where it’s based.

You should also consider professional service fees for legal help and accounting services. Forming an LLC generally may not be too costly, but ensuring all associated fees are accounted for should be considered before deciding whether this business structure suits your needs.

For a more detailed overview of forming LLCs in various states, check one of our guides below:

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.