More About Professional Corporations
Are you tired of doing contracting work for someone else, while they make all the money? Many contractors have ventured into business, so that they could earn more. Starting your own contracting company will provide you the freedom to make professional choices and help you achieve financial independence. After all, who wants to be an employee forever ? In this article, our experts have listed down basic tips for starting a construction company in California with the best business structure.
What is a Contractor Corporation?
A contractor corporation is a type of corporation that is officially registered with the California Secretary of State. A contractor corporation is additionally licensed by the California Contractors State License Board to provide contracting services that are in line with the specific type of contractors license associated with he contractor’s corporation.
There are three general groups of license classifications for contractor professions, and they are as follows:
A. General Engineering Contractor
B. General Building Contractor
C. Specialty Contractor
Between these three, there are 42 different types of specialty licenses that can be associated with a specialty contractor corporation. They are:
C-2 – Insulation and Acoustical Contractor
C-4 – Boiler, Hot Water Heating and Steam Fitting Contractor
C-5 – Framing and Rough Carpentry Contractor
C-6 – Cabinet, Millwork and Finish Carpentry Contractor
C-7 – Low Voltage Systems Contractor
C-8 – Concrete Contractor
C-9 – Drywall Contractor
C10 – Electrical Contractor
C11 – Elevator Contractor
C12 – Earthwork and Paving Contractors
C13 – Fencing Contractor
C15 – Flooring and Floor Covering Contractors
C16 – Fire Protection Contractor
C17 – Glazing Contractor
C20 – Warm-Air Heating, Ventilating and Air-Conditioning Contractor
C21 – Building Moving/Demolition Contractor
C22 – Asbestos Abatement Contractor
C23 – Ornamental Metal Contractor
C27 – Landscaping Contractor
C28 – Lock and Security Equipment Contractor
C29 – Masonry Contractor
C31 – Construction Zone Traffic Control Contractor
C32 – Parking and Highway Improvement Contractor
C33 – Painting and Decorating Contractor
C34 – Pipeline Contractor
C35 – Lathing and Plastering Contractor
C36 – Plumbing Contractor
C38 – Refrigeration Contractor
C39 – Roofing Contractor
C42 – Sanitation System Contractor
C43 – Sheet Metal Contractor
C45 – Sign Contractor
C46 – Solar Contractor
C47 – General Manufactured Housing Contractor
C50 – Reinforcing Steel Contractor
C51 – Structural Steel Contractor
C53 – Swimming Pool Contractor
C54 – Ceramic and Mosaic Tile Contractor
C55 – Water Conditioning Contractor
C57 – Well Drilling Contractor
C60 – Welding Contractor
C-61 – Limited Specialty
What are the California State Laws that Contractor Corporations Must Abide by?
All construction companies are regulated by these California State Laws and Codes:
- Corporations Code
- Business and Professions Code – BPC Division 3. Professions and vocations; Chapter 9. Contractors [7000 – 7191] also known as the Contractors’ State License Law.
- California Code of Regulations
You can read the full text of these laws and codes by scrolling down to the bottom of this page.
What California State Agency Regulates Contractors?
All corporations in California must abide by the rules and regulations of the government agencies that regulate their respective licenses. Contractor corporations are regulated by the California Contractors State License Board.
What is the Best Business Structure for a Construction Company Based in California?
The California Contractors State License Board issues licenses to four types of business entities. The best business structures for a construction company in California include the following:
1. Sole Proprietorships
A sole owner license is issued to a specific individual. The license can be qualified by the owner or a Responsible Managing Employee (RME). The license cannot be sold or transferred to another individual.
2. Partnership
A partnership license is issued to a specific General Partnership or Limited Partnership structure. The license can be qualified by a Qualifying Partner or Responsible Managing Employee (RME). A Qualifying Partner must be a General Partner of the partnership structure. An RME is an employee of the company, and not considered a part of the partnership structure.
3. Corporation
A corporate license number is issued exclusively to a specific corporate registration number assigned by the Secretary of State’s Office. If this registration number changes, a new contractor license number will be required for the new corporation. If a corporation dissolves, merges, or surrenders the right to do business in California through the Secretary of State’s Office, the contractor license must be canceled.
4. Limited Liability Company
A limited liability company can be composed of a single member, two or more individuals, or a corporation. An LLC is considered a pass-through entity, which means that all profits and losses of the company are passed to its members. These members settle the profits and losses through their personal income tax.
Want to know the steps in forming a corporation? Learn about them by clicking here!
CLIENT QUESTION
Hi! I am a general contractor who recently moved to Orange County. Can a general contractor, like me, form an LLC in California?
ANSWER
This is rather a common question. And, the answer is yes.
The passage of Senate Bill 392 (Statutes of 2010, Chapter 698) authorized the California Contractors State License Board to issue contractor licenses to limited liability companies or LLCs.
However, this may not always be the best choice for a contractor who wants to form a business entity. Effective January 1, 2016, the required amount of a contractor’s bond increased from $12,500-$15,000. Moreover, most contractors are not aware that in addition to the $15,000 contractor bond, there are more fees to consider. A $100,000 surety bond is required for the issuance, re-issuance, reinstatement, reactivation, and renewal of an LLC license. This is for the benefit of any employee or worker that has been damaged by the LLC’s failure to pay wages, interest on wages, or fringe benefits, as well as other contributions (not required for inactive LLC licenses).
For this reason alone, most of our contractors who are looking to form business entities prefer to form corporations. This business structure is the best option for a construction company in California because it allows them to avoid the $100,000 surety bond requirement.
Things to Consider When Forming a California Construction Company with the Best Business Structure – a Contractor Corporation!
A contractor corporation is the best type of business structure for a construction company based in California. If you’re planning to start your own contractor corporation, here are the most important things to consider:
What are the Restrictions in Naming a Contractor Corporation in California?
According to the Secretary of State’s office, contractor corporations have specific requirements and restrictions for choosing a business name. Interested parties should contact the Secretary of State’s office and/or the California Contractors State License Board directly for full information about contractor corporation business name issues.
In essence, a contractor corporation is not allowed to use any business name that indicates the company is qualified to perform work in classifications other than those issued for that license. A construction company must not use any business name that is incompatible with the type of business entity it has been licensed.
Moreover, a construction company in California must not conduct business under more than one name for each license.
Can a Construction Company Use a Fictitious Business Name?
Yes. Contractor corporations in California are allowed by state laws to use a Doing-Business-As (DBA) or a fictitious name.
Why Should a Construction Corporation Set Up Bylaws?
A set of bylaws should be properly established at the start of any business so that the company can operate efficiently. The formation of bylaws in a construction company in California should include the rules and guidelines for addressing issues, such as the tasks of the board of directors, the frequency of shareholder meetings, the requirements for selling stocks, etc.
Who can be a Shareholder in a Contractor Corporation?
A licensed contractor can be a shareholder, director, or officer in a construction corporation. However, unlike with other types of corporations, persons who are not licensed contractors can also be a shareholder, directors, or officers in the construction company.
Do I Need to Get a New License for my Contractor Corporation in California?
When a change occurs in your business structure and a new license is required, you must complete and submit an Application for Original Contractor License or an Application for Original Contractor License (Exam Waived). You will be required to pay all fees, post new bond(s), and provide proof of workers’ compensation insurance. You will also be required to file a workers’ compensation exemption form for the new business.
Do I Need a Qualifying Individual for my Contractor Corporation License?
Yes, you do. All contractor corporation licenses must be qualified by a responsible managing employee (RME) or responsible managing officer (RMO).
Who Must be Listed on the Personnel Records
Every person who is an officer or director must be listed on the personnel record of all limited liability company applications.
CLIENT QUESTION
Hello! I am a specialty contractor based in California. Can I form a contractor corporation of people who are general building contractors or general engineering contractors?
ANSWER
Yes! Specialty contractors can form professional construction corporations, which are similar to the corporations formed by General Engineering Contractors and General
Building Contractors.
Below is a complete list of the specialty contractors who can form contractor corporations
Yes! Specialty contractors can form professional construction corporations, which are similar to the corporations formed by General Engineering Contractors and General Building Contractors.
(A) General Engineering Contractor
(B) General Building Contractor
(C) Specialty Contractor
C-2 – Insulation and Acoustical Contractor
C-4 – Boiler, Hot Water Heating and Steam Fitting Contractor
C-5 – Framing and Rough Carpentry Contractor
C-6 – Cabinet, Millwork and Finish Carpentry Contractor
C-7 – Low Voltage Systems Contractor
C-8 – Concrete Contractor
C-9 – Drywall Contractor
C10 – Electrical Contractor
C11 – Elevator Contractor
C12 – Earthwork and Paving Contractors
C13 – Fencing Contractor
C15 – Flooring and Floor Covering Contractors
C16 – Fire Protection Contractor
C17 – Glazing Contractor
C20 – Warm-Air Heating, Ventilating and Air-Conditioning Contractor
C21 – Building Moving/Demolition Contractor
C22 – Asbestos Abatement Contractor
C23 – Ornamental Metal Contractor
C27 – Landscaping Contractor
C28 – Lock and Security Equipment Contractor
C29 – Masonry Contractor
C31 – Construction Zone Traffic Control Contractor
C32 – Parking and Highway Improvement Contractor
C33 – Painting and Decorating Contractor
C34 – Pipeline Contractor
C35 – Lathing and Plastering Contractor
C36 – Plumbing Contractor
C38 – Refrigeration Contractor
C39 – Roofing Contractor
C42 – Sanitation System Contractor
C43 – Sheet Metal Contractor
C45 – Sign Contractor
C46 – Solar Contractor
C47 – General Manufactured Housing Contractor
C50 – Reinforcing Steel Contractor
C51 – Structural Steel Contractor
C53 – Swimming Pool Contractor
C54 – Ceramic and Mosaic Tile Contractor
C55 – Water Conditioning Contractor
C57 – Well Drilling Contractor
C60 – Welding Contractor
C-61 – Limited Specialty
Seek the Counsel of a Corporate Lawyer that Specializes in Forming Construction Companies in California
The process of forming a contractor corporation is best done through the help of an expert corporate lawyer. With the assistance of an attorney that specializes in forming construction companies in California, you can avoid a Pandora’s Box of legal issues in the future. Without a specialist lawyer, your company could have weak legal protection.
Incorporation Attorney has a stellar reputation of helping private contractors form independent construction businesses in California. Our lawyers specialize in contractor corporations. We’ll help you from the preparation of legal documents to the choosing of the perfect business name! You can be sure that our experts can help you start a successful construction company with the best business structure. What are you waiting for?
Full California Laws/Codes that Apply to Contractor Corporations
