Creating A Business Entity For Your Virginia Contractor's License

A contractor license is issued to a business, not a person, therefore THE FIRST STEP IS TO CREATE THE BUSINESS ENTITY THAT WILL APPLY FOR THE CONTRACTOR LICENSE.


  1. Decide on the NAME of your business o If you want the name of your business to serve as a marketing tool, it must tell what you do, who you do it for, where you will do it and something unique that sets your business apart from the competition.

  2. Decide on the ADDRESS you will use for your business.

  3. The actual physical location/address of your business must be approved by the local zoning department. It is imperative that you check with that zoning department to be sure the desired address will be approved BEFORE you start putting that address on forms you need to complete regarding your business.

  4. Create the legal business entity. This will be one of the most important decisions you will make regarding your new business because of the consequences of this decision: Consequences of the Legal Structure Decision

  5. Liability: Who or What will be liable for the actions of the business?

  6. Taxes: How will taxes be filed (what tax form) and what rate of tax will be paid?

  7. Benefits: What dollar amount if any can be expensed for benefits (health, life, disability insurance, retirement programs)?

  8. Duration: Will the business have a separate legal identity and therefore continue to exist after you no longer operate it.


What are your options:


  • Sole Proprietorship

  • One owner who is 100% liable for the actions of the business

  • Taxes are paid on the owner’s tax return (Schedule C attached to 1040) at the owner’s tax rate which is usually higher than the corporate tax rate

  • Small dollar amount, if any allowed, can be expensed for benefits

  • No duration: Business ceases to exist when sole proprietor ceases to operate it.


  • Partnership

  • Two or more owners who are called partners

  • General Partnership and Limited Liability Partnership

  • Limited Liability Partnership formed by filing with SCC

  • General Partnership MAY file with SCC but it is NOT MANDATORY

  • General Partners in both are 100% liable for the actions of the business, the actions of all of the partners and ALL OF THE DEBT

  • Taxes roll over to personal tax returns of all partners

  • Small dollar amount (if any) can be expensed for benefits

  • No duration if two-person partnership AVAC Pre-license Basic Business Course 7


  • Corporation

  • Created by filing Articles of Incorporation with SCC

  • Owners are shareholders: May be one shareholder holding 100% of shares or multiple shareholders each holding a percentage of shares

  • 100% of the liability for the actions of the Corporation rests in the Corporate entity

  • Taxes are reported on a Corporate tax return and paid at the corporate tax rate

  • The IRS allows the corporation to expense the highest dollar amount for benefits

  • The corporation has a separate legal identity thus it continues to exist if a shareholder dies or sells


  • S Corporation

  • A Corporation may elect (file) with the IRS to be taxed as a Small Business Corporation (taxes roll over to the shareholders ‘personal tax return(s)

  • Election to be “S” corporation allows corporate losses to roll over to the shareholders’ personal tax return(s)

  • Avoids double taxation on dividends (EXAM)

  • Election can be changed one time only


  • Limited Liability Company

  • Formed by filing with the SCC

  • Owners are called Members

  • May be one or multiple members

  • 100% of the liability for the actions of the business rests in the Limited Liability Company entity

  • The LLC elects how it will be taxed: Either as a Corporation, Sole Proprietorship or Partnership

  • The IRS allows for a certain dollar amount to be expensed for benefits

  • Duration can be achieved in multimember company


The 8 Hour Pre-License Course Is A Requirement For Obtaining Your Virginia Contractor's License. During AVAC Education's 8 Hour Pre-License Course, We Go Over The Different Types Of Legal Structure For Your Business, And Help You Answer Any Questions You May Have.


SUGGESTION: CONSULT AN ACCOUNTANT OR ATTORNEY WHO SPECIALIZES IN BUSINESS TAXES TO HELP YOU MAKE THE DECISION AS TO WHETJER YOU SHOULD CREATE A CORPORATION OR LIMITED LIABILITY COMPANY AND ADVISE YOU AS TO HOW THAT ENTITY SHOULD BE TAXED.


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