Are you thinking of establishing your own construction company? Have you decided on it’s organizational structure yet? As exciting of a venture as it might be, your success, the extent of your tax obligations, and the overall operational ease hinge on the business structure you choose for the company. The structure you choose also impacts your liability and ability to raise capital. As a construction business CPA in San Francisco I have helped my clients choose the right structure. Let’s explore the various business structures available for your construction company and help you make an informed decision.

Types of Business Structures for Construction Companies

A clear idea about all kinds of business structures will help you make the right decision for your company.  

Sole Proprietorship

A sole proprietorship is one of the simplest business structures and is ideal for a one-person construction business. It offers complete control with unlimited personal liability. This means your personal assets are at risk if your construction company faces legal or financial issues, which can be a problem While it’s easy to set up a sole proprietorship, it may not be the best choice if you are planning to grow your business or aim to protect your personal assets.

Partnership

Business partnerships are similar to sole proprietorship but it involves two or more individuals sharing the ownership of the business. There are two main types of partnership:

– General partnerships

– Limited partnerships

In a general partnership, all partners share equal liability. While limited partners have liability protection, their involvement in business operations is limited. The good thing about the partnership is that it offers shared decision-making. However, it can lead to conflicts if there are loopholes in the structure. It is crucial to draft a comprehensive partnership agreement to outline each partner’s roles, responsibilities, and profit-sharing arrangements. My team at Basta & Company can help you with that if you agree to move forward with a partnership arrangement.

Limited Liability Company or LLC

An LLC is a popular choice for construction companies because it combines the simplicity of a sole proprietorship with liability protection. LLC owners have limited personal liability, which means their personal assets remain protected from business debts and lawsuits. LLCs are flexible. They offer various management structures and allow pass-through taxation. The profits and losses are reported on individual tax returns, making tax filing easier for small construction businesses.

Corporation

Forming a corporation is one of the most complex processes. However, compared to other business structures, this one offers distinct benefits. With a corporation, you get strong liability protection. Your personal assets remain separate from business debts and liabilities. The corporation is a separate legal entity, owned by shareholders. With a corporation, you can easily attract investors. So, if you plan to raise capital for large construction projects, go with a corporation business structure. Basta & Company will help you streamline complexities.

Limited Liability Partnership or LLP

An LLP is a hybrid structure suitable for construction firms that have multiple partners. It provides limited liability protection to all partners, similar to an LLC. LLPs are often chosen for professional services since they protect individual partners from malpractice or negligence of their colleagues.

On a Concluding Note

When choosing the business structure of your construction company you must consider consulting with a legal or financial advisor to evaluate your specific needs and goals. Remember that your choice isn’t set in stone; as your construction company evolves, you can reevaluate your business structure to ensure it aligns with your objectives. Each business structure has its advantages and disadvantages. At Basta & Company, we have experienced CPAs, specialized in construction business who can help you understand and choose a structure that would best suit your construction business needs.