The Essentials: Forming a Finish Carpentry & Millwork Business

Do you need a contractor license for finish carpentry?

It depends on the state and the job size. California, for example, requires a CSLB license for projects of $1,000 or more in labor and materials, and its C-6 classification covers cabinets, millwork, trim and finish carpentry. Other states exempt small jobs up to a dollar threshold, require a license only for general contractors, or license carpentry at the county or city level. Check your state licensing board and local building department rather than relying on a general rule, because an unlicensed contract can be unenforceable and can expose you to fines.

Is an LLC enough, and what does it cost?

An LLC is the standard for a trade with ladders, power tools and work inside someone's home. State filing fees range from about $50 to $500, some states charge annual reports or franchise taxes, and a registered agent service costs roughly $100 to $150 a year. The LLC separates business debts from personal assets, but it does not protect you from your own negligence, so pair it with insurance and written contracts. Open a business bank account and keep money from jobs and tool purchases separate.

What insurance will builders and lenders require?

General contractors almost always require a certificate of insurance showing general liability, typically $1 million per occurrence and $2 million aggregate, with the builder named as additional insured. Solo operators often pay $500 to $1,500 a year, though premiums rise with payroll and revenue. Workers' compensation is required in most states once you have any employee. Add an inland marine floater for tools, since a standard liability policy will not pay for stolen equipment.

What lead-paint rules apply to remodeling trim?

Under EPA's Renovation, Repair and Painting rule, firms disturbing more than 6 square feet of interior paint, or 20 square feet of exterior paint, in housing built before 1978 must be EPA-certified, and work must be overseen by a certified renovator who completed an 8-hour course. Firm certification costs $300 and lasts five years. The rule covers removing old trim and sanding paint, so it applies to many renovation carpenters.

Do permits apply to trim and millwork?

Pure cosmetic trim rarely needs a permit. Moving a wall, altering a stair, removing structural elements, or adding electrical or plumbing to a built-in typically does. Ask the local building department before quoting anything past cosmetic work, and never let a homeowner's permit substitute for your own license if your state requires one.

How should you register the business after the LLC?

After forming the LLC, get a free federal EIN from the IRS, open a business account, and register with your state tax agency if you collect sales tax on materials or labor (rules vary; in some states installation labor is taxable, in others only materials). Check for city or county business licenses, which often cost $50 to $200 a year. Keep a calendar of renewals: the LLC annual report, contractor license, business license and insurance.

What contract and lien documents should be ready at formation?

Have a written agreement template, a change-order form, a lien waiver form for progress and final payments, and a warranty statement. Home improvement contracts in many states must include specific notices, such as a right to cancel within three business days when signed away from your office under the FTC cooling-off rule for door-to-door sales. Have an attorney review the template once, since a clause that is unenforceable in your state can cost more than the review.

What is the order of operations for getting legal?

Follow a simple sequence. First, call the state contractor board and local building department to confirm license and permit rules. Second, choose the business name and check availability. Third, file the LLC and get an EIN. Fourth, open the bank account and buy general liability insurance. Fifth, complete any exam, bond or lead-safe certification your state requires, and then register with the tax agency. Sixth, print your contract and lien-waiver templates. Allow four to eight weeks if a licensing exam or bond is involved, because processing times vary and you cannot legally bid some work until it finishes.

What ongoing compliance should you calendar each year?

Set reminders for license renewal (often every one to two years), insurance renewal, EPA firm certification (every five years), the LLC annual report, and estimated tax payments in April, June, September and January. Missing a license renewal can void your contracts, so put the date on two calendars.

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