Should I Form an LLC or Corporation for My Contracting Business?
The fact that you are asking this question means you are on the right track. Too many contractors never formalize their business, exposing them to significant legal risk. Failing to form means your personal assets are on the line, including your home, your retirement, and other personal assets. An LLC or corporation formalizes your company and helps protect those personal assets, as well as many other benefits. The question is, which one do you choose?
At Plumtree & Brunner, LLP, our California construction lawyers help you make this important decision. The answer depends on your business, the owners, and a benefit analysis of each business form. The advice of a skilled attorney is best not only in making the choice, but creating your legal entity correctly right from the start. Get in touch with our office today to make the right choice.
LLCs and California Contracting Companies
Choosing a limited liability corporation (LLC) is a very popular option. It offers simplicity as well as flexibility in how you handle things for your contracting business. It is especially popular for small to mid-sized firms without a need for larger ownership structures. California specifically permits contractors to license under an LLC so long as they meet the appropriate requirements, including bonding and insurance prerequisites.
Benefits of an LLC for contractors include:
- Limited liability protection to safeguard your personal assets from business liabilities
- Pass-through taxation that avoids double taxation
- Flexible management structure based on your forming documents
- Fewer formalities and annual meetings
Knowing all of the benefits and requirements can be tough to figure out on your own. Speak to a dedicated construction attorney in California to learn more.
Corporations and Contractors in California
A corporation comes with more corporate formalities, but also many benefits if it fits your needs. It is an even more structured business model, but is highly desirable for contractors looking to scale up. It can help attract employees, but especially investors. As your contracting business grows, corporate structures can help you do so intelligently and safely.
Key benefits of a corporation for California contractors include:
- Liability protections for shareholders
- Credibility for customers and investors
- More professional appearance
- Facilitates growth and offers tools to raise capital
- Corporate formalities offer safeguards against abuse or loss as you scale larger
While corporations can provide many benefits, they also present certain challenges. There is a lot more paperwork and corporate formalities to consider. You will have a board, annual meetings, bylaws, and detailed reports you must file. There is also the likelihood of double taxation, where the corporation pays taxes and the dividends to shareholders are also taxed. An S-corporation may limit the impact of double taxation, but comes with its own requirements.
How Do I Choose Between an LLC or a Corporation?
Knowing which to pick can appear daunting at first. If you try to make the decision purely on your own, it might be. Doing so with an attorney gives you access to a detailed analysis and legal advice based on years of experience working with California contractors. Our team understand how to analyze your needs and the benefits of each option.
After you have made your decision, your attorney will create your business entity. They will also educate you on how to comply with your legal requirements, ensuring your personal assets remain protected. Forming is just the first step, you must also continue to operate your business in a compliant fashion. The right attorney helps you every step of the way.
Get Help Choosing Between an LLC and a Corporation in California
Picking the right business structure for your contracting business is critical to protecting your personal assets and your business as a whole. Not only that, each structure carries several benefits to your contracting business you want to take full advantage of. An experienced attorney can help make that happen.
Our team at Plumtree & Bruner, LLP helps you make the right choice and stay compliant with all of your legal requirements. Contact us today for a consultation.
