Congratulations! You’ve decided to start your own construction or contracting business. You’ve written a business plan and lined up financing. Now it’s time to take care of the legalities. Most states, including Texas, have specific requirements you’ll need to follow to stay on the right side of the law.
Before doing anything else, you’ll need to decide on a business form and take the required steps to officially establish your company. In Texas, businesses can operate as sole proprietorships, limited liability companies (LLCs), corporations, limited partnerships (LPs) or limited liability partnerships (LLPs). Most small to medium sized Texas construction businesses run as sole proprietorships or LLCs.
Tell me about sole proprietorships
Sole proprietorships have the advantage of simplicity. On the downside, they leave your personal assets exposed in the event of a suit or insurance claim. Getting set up as a sole proprietor actually takes a fair amount of work. Here are just a few examples.
Plan to call your new business, “The Mean Green Lean Plumbing Machine.” Great marketing—but you’ll need to file an assumed name certificate (DBA) in the county where your business is physically located. If you don’t plan to have a physical business location (a reasonable choice for plumbers, electricians, painters and most other contractors), you’ll need to file one of these certificates in every county where you plan to work.
What about setting up an LLC?
Establishing an LLC requires you to file paperwork with the Texas Secretary of State
. Working as an LLC protects your house, savings, personal vehicles and retirement accounts if something goes wrong. Even individual contractors such as pipefitters, carpenters and laborers can operate as LLCs.
And corporations, LPs and LLPs?
Corporations are complex entities that have complicated reporting requirements, boards of directors, shareholders and legal responsibilities to those shareholders. Limited partnerships (LPs) work based on an agreement between two or more owners and essentially leave your personal assets open to seizure in case of a business issue. Limited liability partnerships (LLPs) have the benefits of partnerships but protect your non-business assets in the event of a suit or insurance claim. The state of Texas requires partners to enter into an agreement specifying how they plan to operate their business. Both oral and written agreements count.
A construction lawyer can help you navigate the set up process
Creating a written partnership agreement with the guidance of a construction attorney has several benefits. An effective contract sets out expectations and dramatically reduces the chances of future conflict between owners. An experienced construction lawyer can help you create a document that lays out responsibilities, so everyone is clear about who needs to do what from the get-go. Experienced construction attorneys also typically know where things can go wrong. During the agreement writing process, your attorney can call your attention to issues you might have overlooked and help you think through the best way to order things to maximize business efficiency and minimize internal conflict.
An experienced Texas construction lawyer can walk you through the pros and cons of each business entity form so you can make a fully informed decision as you set up your company. After you reach a conclusion, they’ll help you think through potential issues and guide you through the process of crafting things like partnership agreements.
Things need to be done right from the beginning
Whether you decide to operate as a sole proprietor, LP, LLP or LLC, you absolutely need to dot your i’s and cross your t’s during the set-up process. Fail to properly file a DBA certificate, and you could find yourself shut down mid-project. Make a mistake when filing your LLC paperwork, and you could open your personal assets up to legal claims. Your construction attorney will file the proper paperwork in the right places to make sure you’re set and ready to go when you get that first job.
Establishing a good working relationship with a construction lawyer is one of the smartest steps you can take as you get started in business. And when it’s time, they’ll help you stay on top of and compliant with insurance requirements, permitting regulations and employment rules.