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Selecting the Right Business Entity for General Contractors

Entrepreneurship comes with a lot of responsibility. And those in the General Contracting space are no exception. While it may sound attractive to form a sole proprietorship or general partnership, those business entities provide no legal protection between the business owner and the company. For example, if someone sues the company, the business owner’s personal assets are at risk.

4Corner Business Service recommends that blue-collar business owners set up their companies as either an LLC or an S Corp. You are probably asking yourself, “What is an LLC?” and “what is an S Corp?” Great questions. Learn more about the differences and which option may be best for general contractors.

Related: How Does My Business Structure Affect My Taxes?

What is an LLC (Limited Liability Company)?

An LLC, or Limited Liability Company, is a business entity that combines a sole proprietorship with a corporation. An LLC separates an owner from their business and offers protection against lawsuits and business debts.

For general contractors, forming an LLC is the easiest and least expensive way to structure their business. Knowing that a business has been registered as an LLC also provides peace of mind for customers, partners, and anyone else looking to use their services. Additionally, an LLC offers blue-collar business owners with extra protection personally, should their company be sued for liability.

LLC’s can be owned by more than one person, and is referred to as a “multi-member LLC.”

If this is your first time as a business owner, filing your general contractor company as an LLC is likely the smart choice.

What is an S Corporation?

An S Corporation (S Corp) is often more enticing to business owners with several years of experience and a large number of shareholders. Keep in mind that to qualify as an S Corp, general contractors must be based in the U.S. and have less than 100 shareholders. Similar to an LLC, registering your blue-collar business provides owners with liability protection.

Many general contractors believe that filing their business as an S Corporation will be more attractive to potential investors. Additionally, S Corps only need to file taxes annually and are exempt from double taxation.

If your general contractor company has been in business for several years and already has a large number of shareholders, registering as an S Corp is something to seriously consider.

LLC vs. S Corp for General Contractors in Colorado

Starting an LLC or an S Corp in Colorado is an easy process and our 4Corner BusinessTax Advisors are happy to help walk you through each step. Our Business Tax Advisors can also assist General Contractors with tax preparations, business planning and more. Contact us today to get started!



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