LLC vs S-Corp for Your Commercial GC: Entity Setup, Licenses, and Bonds

LLC vs S-Corporation: Which Is Right for a Commercial GC?

Both structures protect your personal assets from business liabilities, but they differ in tax treatment and administrative overhead.

LLC (Limited Liability Company): The most common choice for small to mid-size GCs. Simple to set up ($50–$500 state filing fee), flexible management structure, and pass-through taxation by default (profits taxed on your personal return, not at the corporate level). An LLC can elect S-Corp tax treatment once your net profit exceeds roughly $60,000–$80,000 per year, saving on self-employment taxes.

S-Corporation: Preferred by many established GCs for the self-employment tax savings. An S-Corp requires you to pay yourself a reasonable salary (subject to payroll taxes) and distribute remaining profits separately (not subject to SE tax). More administrative overhead — payroll, quarterly deposits, and annual S-Corp tax return (Form 1120S). Best set up from day one if you have a CPA experienced in construction who can manage payroll.

Recommendation for most startup commercial GCs: Form an LLC first. Once your first full fiscal year is complete and a CPA can see your actual profit level, make the S-Corp election if the math supports it.

State Contractor License: The Non-Negotiable

Commercial work requires a valid state contractor license in nearly every state. You cannot legally pull commercial building permits, sign commercial contracts, or advertise GC services without one.

Key licenses by state: - California: Class B General Building Contractor (CSLB) — $800 application fee, exam required, $25,000 bond - Oregon: Commercial Contractor registration (CCB) — exam required, $20,000 bond - Florida: Certified General Contractor (DBPR) — exam required, financial statement required, $30,000 bond - Washington: General Contractor license (L&I) — $12,000 bond, no exam required - Texas: No statewide GC license, but city-level registration required in many municipalities

The license must be in the legal name of your business entity. If your LLC is 'Smith Commercial Builders LLC,' your license application must match exactly. Inconsistencies delay approval and can trigger audits.

Contractor Bond: Your State-Required Surety

Every licensed state requires a contractor license bond — typically $15,000–$25,000 depending on the state. This is different from a performance and payment bond on a specific project. The license bond protects consumers and the state if you fail to complete a project or violate contractor law.

The license bond costs you roughly $100–$300 per year (the premium is typically 1–2% of the bond amount). You get this from a surety company through a broker. Keep it active — a lapsed bond means your license is suspended.

Do not confuse this with project surety bonds (AIA performance and payment bonds), which are project-specific instruments required on public works and many larger private commercial projects. You will need a separate bonding relationship with a surety broker for those.

Workers' Compensation: Mandatory Before Your First Permit

In every state, workers' compensation insurance is legally required before you can employ anyone — and most commercial building departments require proof of workers' comp before issuing a permit to pull. Even if you plan to operate as a one-person GC using only subcontractors initially, you need a workers' comp policy.

For a startup GC with no employees (sole owner operating through an LLC), most states allow you to obtain a workers' comp policy with a minimum premium — often $1,000–$2,500 per year. As soon as you hire a W-2 employee, your premium recalculates based on payroll and job classification codes.

Get workers' comp through a broker who specializes in construction. Rates vary significantly by state and trade classification. Compare quotes from at least three carriers. Keep in mind that some states (like Texas) make workers' comp optional for private employers, but commercial building departments and GC contracts will almost always require it regardless.

City and County Business License

In addition to your state contractor license, most cities and many counties require a separate local business license or business tax certificate. This is typically a simple annual registration ($50–$500) with your local city hall or county clerk.

If you will be working in multiple cities or counties, you may need separate local licenses for each jurisdiction. This is common for GCs operating across a metro area — for example, a GC based in Los Angeles who takes projects in Culver City, Santa Monica, and Pasadena may need four separate local licenses.

Check with each local building department where you plan to pull permits. They will tell you exactly what local business registration is required.

Registered Agent and Operating Agreement

Your LLC is required to have a registered agent — a person or service with a physical address in your state who can receive legal documents on behalf of the business. You can serve as your own registered agent (using your business address) or hire a registered agent service ($50–$150/year from services like Northwest Registered Agent or Incfile).

For an LLC with multiple members (partners), a formal Operating Agreement is essential. It defines ownership percentages, decision-making authority, how profits and losses are distributed, and what happens if a member wants to exit. Even for a single-member LLC, an Operating Agreement signals to banks and surety companies that your business is organized and professional.

Have a construction-experienced attorney draft or review your Operating Agreement. Template agreements available online often miss construction-specific provisions around project liability, equipment ownership, and buyout triggers.

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