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CSLS Construction Connection

Contractors State License Services is committed to the continued growth and education of your career as a licensed contractor. It is our intention to provide you with valuable information of what's new in the construction industry, important events that you may want to attend, and helpful business and exam preparation tips. You can also stay connected with CSLS through Facebook, Twitter, Linked in and You Tube.

IN THIS ISSUE
FEBRUARY 2011

• SETTING UP YOUR BUSINESS
• INSTRUCTOR'S CORNER
• WHAT DOES SUCCESS LOOK LIKE TO YOU?
• CONSTRUCTION MATH MADE EASY
• CSLS SCHOLARSHIP
• INDUSTRY NEWS

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Setting Up Your Business – Types of Entities
Once you have decided to get your contractor’s license and start your own business you must decide your business' legal structure. The Contractors State License Board (hereinafter “CSLB”) issues licenses to 4 types of business entities: sole proprietors, partnerships, corporations, and joint ventures. Licenses are not transferable from one business entity to another and a new license is required whenever the business entity type is changed. This article will explain the legal structure options available to you, but keep in mind that each business has its own unique facts, and remember that laws constantly change. This is particularly true of tax law, one of the most important considerations in starting a small business. As a result, you should consult with your professional advisors (e.g. your accountant, insurance professional, and business attorney) to decide what will be most beneficial for you.

Sole Proprietorship (AKA Sole Ownership)

Many contractors begin their business as sole proprietor by default. A sole proprietorship is perhaps the simplest form of entity available to contractors, but in many cases the riskiest — nothing more than you, individually, doing business (whether under a trade name or not) without additional filings. This simplicity provides the proprietorship's greatest advantage: little paperwork or legal planning is required, taxes are reported on your personal return (but on a separate form), profits and losses come out of your own pocket and you, alone, make all the decisions.

Taxation of business revenue is consolidated with the personal return of the proprietor at individual tax rates. There is no separate taxation of business income or other business-related tax attributes. Additional excise or business-related taxes may be imposed in some local political jurisdictions. Forming a sole proprietorship means that you will face unlimited personal liability. All personal and business assets are at risk for business liabilities, regardless of whether used in the business or not. Business creditors can chase after your personal bank accounts, house and other assets unless you protect them in another way, such as joint ownership with a spouse in many states.

A contractor’s license issued to a sole proprietorship is not transferable. If a contracting business is purchased from the holder of a sole ownership license, the contractor’s license is not part of the purchase.

Partnerships

A partnership operates like a proprietorship conducted by two or more people. Partnerships come in two types: general partnerships, in which creditors can collect from all partners' personal assets (as well as the business assets), or limited partnerships, in which partners who agree not to participate in management limit their loss exposure to their investment in the business. Every limited partnership must have at least one personally liable general partner, although often the general partner can be a corporation or another limited partnership to control the risk.

As with proprietorships, the greatest benefit of a partnership is pass-through taxation. The entity does not pay tax itself, other than certain excise or franchise taxes. Instead, all tax attributes (income, losses, deductions, credits) can "pass through" to individual partners for use in their personal tax returns at individual tax rates.

The downside is that joint partners can still face personal liability. All personal assets of all general partners (including those not contributed to partnership), e.g., homes, bank accounts, are at risk.

General Partnership

The general partnership requires registration of the name of the business. You can have a formal, written partnership agreement or choose to be an "at will" partnership, with only an oral understanding. An "at will" partnership is simply two or more persons conducting business together under terms of an unwritten agreement (although the Uniform Partnership Act provides many "default terms" for the relationship) that any partner can terminate at any time, for any reason. A written partnership agreement specifies terms more precisely, including termination conditions, division of profit and loss, division of responsibilities for the conduct of business, etc. A lawyer should be used to prepare any written partnership agreement to protect the interests of all parties involved in the partnership.

When a contractor’s license is issued to a general partnership and a general partner leaves the business for any reason or the partnership wants to add another general partner, the license is cancelled. The remaining partners may request a 1 year continuance of the license in order to complete projects already in progress. The request for continuance must be submitted to CSLB within 90 days of the date the partner left.

Limited Partnerships

To obtain limited liability for the passive investor, or limited partners, a Certificate of Limited Partnership should be filed with the CA Secretary of State. A separate Agreement of Limited Partnership specifies all relevant terms of organization (management, distribution of cash, rights on liquidation, control and voting, etc.).

Limited partners are liable only to the extent of their capital contribution for their limited partnership interests. Limited liability is contingent upon total lack of involvement in business or management of enterprise. Limited partnerships require one or more personally liable general partners. A general partner may be a corporation with limited (but more than nominal) assets.

A limited partner may be added or deleted from a contractor’s license at any time by submitting a “Change in Limited Partnership” form to CSLB.

Corporations

Corporations, the most common form of organization for businesses, are a separate legal entity created by the government. Corporations require complex legal paperwork, in exchange for a major benefit for large and small businesses and their owners. Creditors of a corporation cannot collect from the personal assets of the owners, the "shareholders." Instead, creditors are generally left with only the corporate assets.

Liability is limited to assets that are owned by the corporation, with no personal liability of shareholders, officers, directors or employees, except in certain regulatory areas or as a result of the failure to maintain corporate form (also known as "piercing the corporate veil").

A formal document, the "Articles of Incorporation”, must be filed with the CA Secretary of State. After filing, the investors elect a board of directors to govern the business and adopt bylaws to establish rules. The board then picks officers — a president, secretary and treasurer — to run the day-to-day aspects of the business. The corporation has no fixed life and the death of a stockholder or the sale of one’s personal investment in the corporation will not disrupt the business.

If any of the officers listed in the CSLB records for a corporate license leaves the business, this change must be reported to CSLB within 90 days by submitting an “Application to Report Current Officers of a Corporation”. The status of the corporate license is not affected if officers are added or if officers leaves  the business, unless the person who leaves was serving as the qualifying individual.

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What does Success as a Contractor look like to you?

At CSLS we’ve seen thousands of contractors come through our doors and go on to getting their contractor’s license and developing their dreams of running their own business.  They come in for a variety of reasons: tired of working for someone else; they see opportunity to make more money; they are going into business with a partner. There are lots of reasons that people come to us but bottom line is that whatever the reason, the first step to becoming a successful contractor starts with getting your license. If you are sitting on the fence about getting licensed perhaps you should strongly consider the advantages.

Opportunity to Make More Money: There is a California state limit of $500 for labor and work that you can bid on as an unlicensed contractor. This severely limits the number of jobs that are available to you.  If you have the skills and expertise to work on larger jobs the cost of getting your license is a minimal investment to open the doors of opportunity.

Step Out of the Shadows:  If you are working “underground” on jobs greater than $500 you must realize that you are always at risk of being caught by the CSLB. First time offenders for contracting without a license or even illegal advertising can carry a maximum of six months in jail or and/or up to a $1000 fine. Additional convictions raise the fines to 20% of the contract price for the work performed, (or $4500), along with a 90-day jail sentence. (www.cslb.ca.gov) There is also the chance that your name will be published for this fine.

Legitimatize Your Business: Consumers have more information available to them through the internet than ever before and they are more educated on what to look for when purchasing services and products. A contractor’s license is the first thing they are taught to check on for any repair or home improvement. Don’t lose opportunities because your business isn’t licensed to do business in the state of California.

Protect Your Work: Did you know that legally a consumer does not have to pay an unlicensed contractor for work that is done? And you as an unlicensed contractor have no legal recourse to claim money for work done. If you are going to invest your skills and expertise on a project you want to protect your efforts. It’s not just the money you will lose but also the respect of a job well done.

At CSLS we want to support you in taking the first step to getting your contractor’s license and moving forward in your career. We value making a difference in people’s lives and we will work with you to ensure your success.  We have a variety of programs to match any budget and study need so you can start building your own success story today.

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Construction Math Made Easy

30 Percent of Students Report Having Math Anxiety

30 percent of students report having math anxiety. We believe those statistics may be even higher considering that most people who struggle with math avoid it like the plague. Therefore the percentages likely are much higher.

“When you’re building a house, you would never think of trying to put up the second floor before the first floor.Building is a sequential process. The same is true in math; each concept builds on the ones that came before. In history, you can understand the Depression pretty well even if you didn’t study World War I. But in math it’s different; you need to understand factoring very well or you won’t be able to solve equations.

This means that if you’re strapped for time, the one course that’s most dangerous to let slide is your math course. With other courses, if you don’t understand day 11 you can probably follow the lecture on day 12. With math, you have to understand day 11 or you’ll likely be lost in day 12. Construction Math is no different.

The moral is that you need to stay current. If ever you don’t understand something, get help on it right away. Otherwise you’ve just knocked away the first floor of your house, and you know what that will do when you try to put up the second floor. ”  [Stan Brown, Oak Road Systems]

Break the anxiety of Construction Math by:
1. Being prepared
2. Seek qualified instruction
3. Practice, Practice, Practice
4. Test your skill-set
5. Keep a positive frame of mind

The CSLS Construction Math Review course is targeted to provide the contractor professional with a foundation in basic math principles, concepts and formulas. These basics are required in many areas of construction and are imperative to accurate bidding and estimating. Important topics covered in the CSLS Construction review include:

• Using Basic Math & Your Calculator
• Conversions
• Board Feet
• Formulas for Areas & Volumes
• Application of Volume Problems
• Figuring Rise, Slope and Pitch
• On-Center Questions
• Using and Architect Scale

Review the video file and contact us for more tips!

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Contractors State License Services Honors Keith Butler with a Scholarship

Keith Butler is the recipient of a CSLS In-School Law & Trade License Exam Preparation program for getting his C-16 Fire Protection Engineer Contractors license. He has worked in the trade since 1990 and was previously a union worker; however he has been on the out of work list since April of 2010. It is Keith’s hope to earn his license so he can go out and solicit and bid jobs on his own.Having been in the industry so long he has many connections in the industry and he hopes that the new fire sprinkler requirements that have recently been adopted by the California State Building Standards Commission will open up more opportunities for him as a licensed contractor. 

 

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Industry News

CSLS introduces new partnership with American Home Inspection Training Institute
Contractors State License Services continually strives to bring new and additional value to its students.  As such, we are excited to announce our recent partnership with American Home Inspection Training Institute (AHIT). The institute was founded in 1993 when the need for comprehensive and professional home inspection training remained unmet.    Today, AHIT is the largest home inspection training company in North America, with over 28 training facilities throughout the United States and Canada.     

Partnering with AHIT, CSLS joins dozens of California Community Colleges and community colleges across the country to give you, our students, access to quality professional development and career enhancing seminars.  AHIT’s seminars are recognized by certifying and credentialing organizations in Home Inspection, Home Energy Auditing and Solar Installation. 

The seminars and distance education programs we will offer through AHIT are:

• HOME INSPECTION TRAINING
• ENERGY AUDIT TRAINING
• LOCKSMITH TRAINING
• SOLAR PV PHOTOVOLTAIC TRAINING

In the upcoming weeks, additional information will be available through our web site (www.makemeacontractor.com) and your local CSLS school location.  We look forward to the rollout of these programs and providing you with ongoing continuing education to increase your business opportunities!