Construction Business Environment 289
12.4 BUSINESS FORMS, TAXES, LICENSES, PERMITS, AND INSURANCE.
As a business owner you are obliged to understand and comply with government laws and regulations
that apply to your business and are designed to protect you, your customer, and any employees. Hav-
ing taken the decision to start a new business, you may now need to obtain a number of licenses and
permits from federal, state, and local governments. Since licensing and permit requirements for small
businesses can vary from one jurisdiction to another, it is important that you contact your state and lo-
cal government to determine the specific obligations of your new business. For example, in California
you would need to take the contracting license exam before you can become licensed.
Name and Legal Structure.
At this point, a decision must be made on the proposed name and legal structure of the new business.
There are advantages and disadvantages of each type of business structure. The structure chosen will
depend on the needs of your business and will have a fundamental effect on how you do business. You
basically have four choices when selecting a legal structure: sole proprietorship, partnership, limited-li-
ability company (LLC), and corporation or S-corporation.
An individual proprietorship is a business owned and operated by one person. It is the simplest form
of business organization and the form of entity frequently used by small businesses at start-up. If you
need additional capital or expertise, a partnership may be the best entity. You can always incorporate
later if practical. The expense to incorporate a small business is nominal, but unless incorporating in-
creases your chances of success or better protects your investment, there is not much benefit in form-
ing a corporation. Even though there is limited liability as to your personal assets when obtaining out-
side financing or in the event funds are misused, you can still be personally liable.
Before deciding consult with an attorney and check with your Secretary of State—almost all states
now are online—look for the corporations division to find the form for either Articles of Incorporation (to
form your own corporation) or Articles of Organization (to form a Limited Liability Company). Many en-
trepreneurs today prefer forming a LLC to incorporation, partly because it requires less paperwork to
maintain. While waiting for the Secretary of State to send the charter, you should contact each of the
city, county, and state tax departments.
A limited-liability company is a new business entity that every entrepreneur should understand. It
combines the best aspects of incorporation with the tax advantages of partnership without the red tape
of either. This combination of benefits has never existed before in such a simple and effective way. Any-
one starting a new business must separate his or her personal assets from his or her business ventures.
A limited-liability company contains personal protection in its purest form.
Licenses and Permits.
These refer to the various federal, state, and local licenses and permits you may need to acquire prior
to opening for business.
A basic business-operation license is a license granting the company the authority to do business
in that city or county and should be issued from the city in which your business will operate or from the