What is the best legal structure for your construction company?

If the time is right for you to establish your own construction company, what kind of structure do you have in mind?

Liability issues are important to consider and the kind of work you do will help determine the structure of your new business. Here are three types to consider.

Sole proprietorship

Construction companies often begin life as sole proprietorships. Keep in mind that in the building industry there are many opportunities for lawsuits to arise due to construction delays, structural defects, change order problems, regulatory issues and more. In a sole proprietorship, your income, savings and personal possessions are at risk if you should face litigation.

Partnership

A partnership is a popular choice since the setup is easy, although there is no personal liability protection. Problems often stem from a lack of appropriate guidelines. Who leads the partnership and makes the major decisions?

LLC

Think of the limited liability company as a cross between a partnership and a corporation. Personal liability is limited, taxes pass through the LLC to its members and an operating agreement defines everyone’s responsibilities. The members are not liable for any business problems that arise. An LLC usually has a limited lifespan, but an attorney can draft the pertinent documents so that the LLC continues in perpetuity.

Making your choice

You may have many years of construction experience, first as a subcontractor and then as a general contractor. Owning a construction company of your own is the next logical step but one that comes with a great deal of responsibility. With legal guidance, you can choose the structure that not only is best for the kind of work you do but also affords you maximum protection.