February 22, 2024

The Nuts and Bolts of Setting Up a Construction Business

Starting a construction business can be legally complicated and involves several crucial steps. This guide emphasizes the importance of liability protection and risk management.

Setting up a construction business involves more than just hammers and hard hats. It entails navigating legal requirements and administrative tasks. From choosing the right business entity to obtaining essential identifiers like an Employer Identification Number (EIN) and setting up insurance coverage, each step is crucial for establishing a solid legal foundation and protecting your business interests. 

Many owners looking to start out on their own often just want to start taking on jobs and get after it, only to realize they have liability and issues they may not be aware of and potential risks with their business. Taking the time to properly follow a few steps can really make the life of a new business owner much easier. In this guide, we walk you through some of the key steps to properly set up your construction business.

Choose the Right Business Entity

Selecting the appropriate business structure is the first step in setting up your construction business. Common options include:

Sole Proprietorship: 

Simplest form of business ownership, but offers no liability protection.


Formed by two or more individuals, with shared profits and liabilities.

Limited Liability Company (LLC): 

Offers liability protection for owners (members) and flexibility in management.


Provides the highest level of liability protection but involves more complex legal and tax requirements.

Consult with a legal advisor or accountant to determine the best structure for your construction business based on factors like liability, taxation, and management preferences. Once you have formed the entity, you will need to register it with the state. 

Obtain an Employer Identification Number (EIN):

An EIN is a unique nine-digit number assigned by the IRS to identify your business entity for tax purposes. You can apply for an EIN online through the IRS website at no cost. Be prepared to provide information about your business, including its legal name, structure, and principal address. Once obtained, your EIN will be necessary for opening a business bank account, hiring employees, and filing taxes.

Set Up an Unemployment Number:

Depending on your location and the size of your construction business, you may need to register for an unemployment insurance account with your state's workforce agency. Unemployment insurance provides financial assistance to workers who have lost their jobs through no fault of their own. Contact your state's Department of Labor or workforce agency to inquire about registration requirements and procedures for obtaining an unemployment insurance account number.

Obtain a Sales Tax Number:

If your construction business sells tangible goods or provides taxable services, you may be required to collect and remit sales tax to the state. Register for a sales tax permit or certificate with your state's Department of Revenue or tax agency to comply with sales tax laws. Keep accurate records of sales and tax collected to ensure timely reporting and payment of sales tax obligations.

You can reach out to a local CPA or local state authorities to help answer any questions you may have about this. 

Woman calculating tax for business she owns

Open a Business Bank Account:

Separating your personal and business finances is essential for legal and financial reasons. Open a dedicated business bank account to manage your construction business's income, expenses, and transactions. Choose a reputable bank that offers business banking services and meets your specific needs. Be prepared to provide your EIN and other business documents when opening the account.

Get Insurance Coverage:

Insurance is a critical component of risk management for construction businesses. Consider obtaining the following types of insurance coverage to protect your business and assets:

General Liability Insurance: 

Protects against claims of bodily injury, property damage, and personal injury arising from your construction activities.

Workers' Compensation Insurance: 

Provides coverage for medical expenses, lost wages, and disability benefits for employees injured on the job.

Builder's Risk Insurance: 

Covers damage to buildings or structures under construction, including theft, vandalism, and natural disasters.

Commercial Auto Insurance: 

Covers vehicles used for business purposes, such as transporting materials and equipment to construction sites.

Consult with an insurance agent specializing in construction insurance to assess your risks and customize a policy package that meets your business's needs and budget.

By following these steps and prioritizing legal compliance and risk management, you can establish a strong legal foundation for your construction business and protect your assets and interests. Remember to consult with proper legal and financial advisors to ensure that your business operations are in full compliance with applicable laws and regulations. Also, feel free to reach out to state and local authorities with any questions you may have. They are able to help point new business owners in the right direction. With proper planning and attention to detail, you can build a successful construction business that will help you take your business goals to the next level. 


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