How to Start a Construction Company

Starting a construction company comes down to four things: the right license for the work you take on, a company to sign the contracts, the insurance and bonds that let you on the job site, and the tax accounts that let you pay a crew. The order matters, because each step asks for something the last one produced. A license application asks which business entity holds it, the insurance carrier wants the company's legal name, and payroll cannot start without the company's federal tax number.

This guide walks through those steps for a general contractor or a small trade contractor going out on their own. Licensing is set by each state and often by each city, so the examples below name the agencies in a few large states and tell you what to look up in yours.

Decide what kind of construction company you are starting

"Construction company" covers very different businesses, and the licensing and insurance follow from which one you are:

• General contractor. Takes responsibility for a whole project, hires the trades as subcontractors and manages the schedule and the budget. Remodelers and home builders usually start here.
• Specialty or trade contractor. Does one kind of work, such as framing, concrete, roofing, drywall, electrical or plumbing. Electrical, plumbing and HVAC work is licensed by the state almost everywhere, even in states that do not license general contractors.
• Residential or commercial. Residential jobs come with homeowner protections such as written contract rules and recovery funds in some states. Commercial jobs bring bid bonds, payment and performance bonds, and contracts that require higher insurance limits.

Write down the kinds of jobs you will bid on in the first year and their usual size. Those two facts decide most of what comes next.

Contractor licensing: what to check in your state

There is no national contractor license. Each state decides whether it licenses general contractors at all, which trades it licenses, and above what job size a license is required. Cities and counties often add their own registration and always control building permits. Three large states show how much this varies:

• California licenses contractors through the Contractors State License Board (CSLB). Since January 1, 2025, work needs a license once a project's labor, materials and other costs reach $1,000, or whenever the job needs a building permit or uses employees. An LLC can hold a CSLB license, with extra conditions explained below.
• Texas has no statewide general contractor license. The Texas Department of Licensing and Regulation licenses electricians and air conditioning and refrigeration contractors, and the Texas State Board of Plumbing Examiners licenses plumbers. Cities such as Houston, Dallas, Austin and San Antonio run their own contractor registration and permit rules.
• Florida licenses contractors through the Department of Business and Professional Regulation's Construction Industry Licensing Board. A certified license, earned by passing the state exam, is good statewide; a registered license is issued on a local competency card and is good only in that jurisdiction.

Most state licenses are tied to a qualifying person: the owner or an employee who passed the exam and has the required experience. When the company holds the license, that person is named on it, and if they leave, the company has a set period to replace them. That is worth settling in the operating agreement before you file.

Why contractors form an LLC first

Construction is a business of signed contracts, borrowed equipment, crews on other people's property and warranty claims that arrive years after the job. Working as a sole proprietor puts all of that on you personally. An LLC is a separate company: it signs the contracts, holds the license where the state allows, owns the trucks and tools, and is the party a client or supplier sues. Kept properly, with its own bank account and contracts in its name, it keeps a bad job from reaching your house and savings.

It also makes the paperwork line up. Licensing boards, insurers, sureties and general contractors hiring you as a sub all want one legal name on every document. Forming the company before you apply for the license means the license, the bond, the insurance certificates and the bank account all carry the same name from day one, instead of being reissued after a switch.

Two cautions are specific to construction. First, in California an LLC license comes with extra requirements the CSLB lists on its LLC license page: a $100,000 employee/worker bond in addition to the $25,000 contractor bond, and liability insurance of at least $1 million for up to five personnel of record, plus $100,000 for each additional person, up to $5 million. Second, an LLC does not protect you from your own negligence on the job or from a debt you personally guarantee, and suppliers and lenders often ask a new company's owner to guarantee its credit account. The structure still matters for everything you do not guarantee.

How to start a construction company, step by step

1. Decide what work the company will do. General or specialty, residential or commercial, and the usual job size. These answers decide which license category you apply for and which insurance limits clients will ask for.
2. Check the state and local license for that work. Read the licensing agency's rules in each state where you will work, then the city or county building department's registration rules. Note the exam, the experience requirement, the bond and who will be the qualifying person.
3. Form the company and sign an operating agreement. File the articles of organization (or certificate of formation) with the state, name a registered agent with an address in that state, and adopt an operating agreement. The general filing steps are in how to start an LLC, and what the agreement should cover, including a clause on the qualifying person, is in do you need an operating agreement.
4. Get the EIN and the state payroll accounts. The next section covers why this comes early for a contractor.
5. Buy the insurance and bonds the license and clients require. General liability covers damage and injuries you cause on a job. Workers' compensation is required for employees in nearly every state, and construction is usually held to a stricter rule. A commercial auto policy covers the trucks; personal policies often exclude business use.
6. Open the bank account and set up job costing. Deposits, draws and supplier payments all go through the company account. Track each job's costs on their own, so you know which jobs make money and can support change orders with numbers.
7. Paper every subcontractor before they start. Covered below under subcontractors.
8. Pull permits and keep the company current. Permits are pulled by the licensed contractor, so the license has to be active before the first permitted job. Calendar the license renewal, the insurance renewals and the state's annual report.

The EIN step for a construction company

Many one-owner businesses can put off getting an EIN. A construction company usually cannot, because so much of the setup asks for it. Payroll is the clearest case: an employer must have an EIN to withhold and report employment taxes, and the state withholding and unemployment accounts are opened with it. Even a single-member LLC, which is ignored for income tax by default, is treated as a separate entity for employment taxes and files payroll under its own EIN.

Beyond payroll, the EIN goes on the documents that let you work: license and contractor registration forms that ask for the business's federal tax ID, workers' compensation and bond applications, supplier credit accounts, equipment financing and the business bank account. General contractors who hire you as a sub will ask for a W-9 before they pay, and handing over the company's EIN instead of your Social Security number keeps your personal number off a stack of vendor files. The rules for filling one out as an LLC are in how to fill out a W-9 for an LLC.

Apply only after the state has approved the company, and use the name exactly as it appears on the filed articles. The license application, the bond and the insurance certificates should all match it.

Working with subcontractors

Most construction companies, general contractors especially, pay subcontractors. Three documents protect you before a sub starts:

• A signed W-9. It gives you the sub's legal name and taxpayer ID. Under the IRS Form 1099-NEC instructions, for payments made after December 31, 2025 you file Form 1099-NEC for each nonemployee you pay at least $2,000 for services in the year, and backup withholding uses the same threshold. Collecting the W-9 before the first payment avoids chasing it in January.
• A certificate of insurance. If an uninsured sub is hurt or causes damage, the claim can land on you, and your own workers' compensation carrier may charge premium for the uninsured sub's payroll at audit.
• A written subcontract. Scope, price, schedule, change orders, insurance requirements and who fixes defects.

Be careful with who counts as a subcontractor. A worker who uses your tools, works the hours you set and does the work the way you direct is generally an employee, whatever the paperwork says, and misclassification brings back taxes and penalties. Some states go further in construction: in Florida, the Division of Workers' Compensation says construction employers with one or more employees must carry coverage, and it counts corporate officers and LLC members as employees unless up to three of them file an exemption. Its coverage requirements page has the details.

Safety rules from day one

Federal construction safety standards are in OSHA's 29 CFR Part 1926: fall protection, scaffolds, ladders, excavations, electrical work and more, and they apply as soon as you have employees on a site. Injury recordkeeping is a separate rule. OSHA's 29 CFR 1904.1 partially exempts employers with 10 or fewer employees at all times during the prior year from keeping injury and illness logs, but every employer must report a work-related fatality, in-patient hospitalization, amputation or loss of an eye. States that run their own OSHA plan can add requirements.

Paying yourself and growing

An LLC owner is not on payroll by default; owners usually take draws from the company's profit, while employees are paid through payroll. How that works for each tax treatment, and when an S corporation election starts to make sense for a profitable contractor, is covered in how to pay yourself from an LLC and LLC vs S corp.

As the company grows, two structural questions come up. Contractors who start taking jobs across a state line need a contractor license there and usually a foreign LLC registration, explained in foreign LLC registration. And owners who add a riskier line of work, such as demolition, or who buy property and heavy equipment, sometimes hold those in a separate company owned by the first, as described in can an LLC own another LLC.

What forming the company costs at the state

The state's formation fee and its recurring report fee are the fixed costs of the company itself, separate from license, bond and insurance costs. Here is what the ten most populous states charge.