The construction business is full of potential hazards. No matter how many precautions are taken, accidents can and will happen. If an accident occurs on your construction site, it is not unusual for your insurance company to refuse to cover all of the damages. This can leave your personal assets at risk.
This exposure is generally the number one reason contractors choose to incorporate their businesses. Incorporating can provide asset protection for contractors, legally separating your business from your personal assets.
The Capital Management Group has done extensive work with for people who want to protect their assets, including general contractors. The Capital Management Group has worked with a number of general contractors who have chosen to protect their assets by utilizing liability-fortified vehicles™ for their contracting businesses, and point out some important factors to consider.
Why General Contractors Incorporate
Contractors tend to be familiar with worker’s compensation, but do you know worker’s compensation is one of the main reasons you should consider incorporating your contracting business? Generally, if your employees or temporary workers operate any of your equipment, you could be held personally liable for any injuries they receive while using said equipment. Additionally, if your equipment injures someone who is not in your employment, your personal assets could also be at risk. If you incorporate your business and purchase your equipment in your company’s name, then in the event of a lawsuit, usually only your business assets are at stake.
Worker’s compensation laws vary from state to state. In some states, an employer can still be held liable for larger claims if an employee is injured on the job. If you’re operating as a sole proprietorship, all of your personal assets could be vulnerable in the event one of your employees is injured on the job. Other states often require sole proprietors with no employees to obtain worker’s compensation, but some states will not require you to pay worker’s compensation for yourself if you form a corporation or LLC.
In addition to the benefits regarding worker’s compensation, forming an LLC or corporation lends your business a certain level of prestige. Many businesses prefer to work with other businesses, and having the abbreviations “LLC” or “Inc.” appended to your company’s name implies you are a serious business professional. In the event you should ever require a loan for your business, this may also speed up that process, as a number of lenders are more comfortable lending to a company rather than a sole proprietorship.
How to Set Up Asset Protection for a General Contractor
The typical first step in setting up asset protection as a general contractor is to incorporate you liability-fortified vehicle™. Many businesses choose to incorporate in Delaware, because the state of Delaware has established a reputation around the world as one of the best and most business-friendly states in which to incorporate. More than 60 percent of all Fortune 500 companies and over half of U.S. publicly-traded companies are incorporated in Delaware. The cost to form a Delaware corporation or LLC is one of the lowest in the world, and there is no state income tax for Delaware companies that operate out of state.