Construction is booming in Southeast Idaho which means it may be a good time to start your own business as a contractor. If that describes you, this guide will tell you what you need to know!

STEP 1: Choose an entity

You can operate as a sole proprietor, a partnership, a Limited Liability Company (LLC), or a Corporation. Here’s a brief explanation on those:

• Sole Proprietor: You are operating the business as yourself. As a sole proprietor, your personal assets are liable for the debts of your business.
• Partnership: If you start a business with someone else and do not register as an LLC or Corporation, you have a partnership. Under a partnership, the personal assets of the partners are liable for the debts of the partnership.
• LLC: The law treats an LLC as a separate legal entity from the owners (ie: the “Members”). This generally means that only the assets of the business are liable for the debts of the company. Absent an exception to the law, your personal assets are not liable for the debts of the LLC. Thus, the liability that is limited by a limited liability company is your personal liability.
• Corporation: A corporation is similar to an LLC in that it limits the liability of the owners (ie: the “Shareholders”). There are more formalities involved with a corporation and different tax treatment.

Choosing an entity has important legal and tax consequences. If you do not know what entity you want to select, you should speak with an attorney and CPA. More often than not, I would say to go with an LLC as it offers the same legal protections as a corporation but with less of the headaches. But keep in mind that I am not a tax professional.

If you select and LLC or Corporation, you need to register the business with the Idaho Secretary of State.

If you elect not to form an LLC or Corporation, you can skip to step 4.

STEP 2: Name Your Business

Naming your business is an important decision. It seems like a simple concept, but it’s not as easy as it seems. You need to select a name that does not infringe on another’s right to that name. For instance, if you want to operate as “Quality Contractors” and someone has already claimed that name, your use of that name may subject you to trademark infringement liability.

If you are a sole proprietor or partnership, you may want to consider whether you intent to operate under a different name. If so, you can file an application for an Assumed Business Name with the Idaho Secretary of State. An LLC or Corporation may also adopt and assumed business name. As with naming your business, your assumed business name should not infringe on another right to the name.

STEP 3: Obtain an Employer Identification Number (EIN) from the IRS.

You will need an EIN to open a bank account and to pay your taxes. The IRS provides information on how to obtain an EIN online.

STEP 4: Open a Commercial Bank Account

Not only does this make practical sense, but one of the easiest ways to lose the limited liability protections of your LLC or Corporation is to mix your personal and business accounts. So you need to open a separate account for your business.

STEP 5: Obtain Insurance

Idaho law requires a contractor to carry liability insurance of “not less than $300,000 single limit.” Idaho Code 54-5210. This protects both you and persons who may be damaged by your conduct (unfortunately that happens).

You must also obtain worker’s compensation insurance, or show that an exemption applies.

STEP 6: Submit an Application for a Contractors License

Under Idaho law, it is unlawful to operate as a contractor without a license. There are two types of licenses.

If you are doing HVAC, Public Works, Plumbing, or Construction Manager contracts, you must register with the Idaho Division of Building Safety (check under the licensing tab).

If you are doing work other than or in addition to HVAC, Public Works, Plumbing, or Construction Manager contracts, you must register with the Idaho Bureau Of Occupational License. All that is required is that you fill out the application, pay the fee, and show proof of liability coverage.

The license should process in 2-3 weeks. Again, you should not engage in contracting activity until you are actually licensed. In the event you application is denied, you may request an administrative hearing.

STEP 7: Run Your Business!

The hardest part about business is just getting started. The next hardest part is to keep going. Keep in mind that there are many people and professional who want to see your business succeed (so you can keep paying them for their goods or services). You may need help with financials, or contracts, or management. If you find yourself in need of help, please find someone to ask! A great place to start is your local SBA (Small Business Administration) office.

STEP 8 (Maybe): A Note on Bonds

In some cases, an owner of a project may require you to obtain a surety bond. A surety bond essentially provides the owner with a guarantee that a contractor will perform certain activities. In the construction arena, these bonds are typically payment bonds (guaranteeing that the contractor will pay employees, suppliers, etc.) and performance bonds (guaranteeing that the work will be completed). Please note that these bonds are primarily for the protection of others and not your business. In obtaining a bond, you will be required to sign an indemnity agreement which essentially states that you will reimburse the surety for any payments or expenses it makes on the bond. So you really need to protect your bond from claims or it can expose you to substantial liabilities.

Also, if you ever leave the business, you absolutely need to notify your surety! I cannot stress that enough! If you fail to notify the surety, you will likely remain on the hook for any bond claims even years after you leave the business.

Consultations Available

If you need help with getting your business started, please schedule a consultation. I offer free consultations of most Fridays.

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