The LLC Contractor’s License: Pros & Cons
If your business is growing and succeeding, you may be considering applying for an LLC contractor’s license. Before you make the leap, it is important to know exactly you’re getting into. There are some significant pros and cons that may inform you as to whether it’s the right time to take that next step. Here are some of the most important things to know:
Pro: The Tax Benefits
LLCs are eligible for what is called “pass-through taxation.” This means that an LLC does not pay taxes at the ordinary business level. Business income and loss is essentially “passed through” to the owners to be reported on individual tax returns. By having an LLC contractor’s license, a company with high profit levels can avoid high taxation, thus allowing more longevity and sustainability.
Con: The Costly License Bond
The most obvious downside of getting a license is the up-front cost. The price of applying a legal structure to your business is a flat $15,000, and some companies may require multiple bonds to satisfy all the legal requirements of the operation. The rates for this bond will depend on the credit score of the sole proprietor, but a cosigner may be used to get a better rate if credit is an issue. Remember, though, that your cosigner must be affiliated with the company.
Pro: The Protected Personal Assets
Creating an LLC can be a great way to protect your personal assets. The LLC acts essentially as a person or legal entity, thus freeing up the assets of the business owners. This means that even enormous business debts can always be resolved by bankruptcy of the LLC. With an LLC license, business owners are not personally liable to pay back business debts using their personal wealth and property. Especially when considering limited liability, members’ personal assets are usually exempt from any debt or lawsuit that incurs against the LLC.
Con: The Insurance Costs
In addition to the license bond fee, any company seeking an LLC contractor’s license is required to maintain a $100,000 surety bond. This very important bond is essentially a safety blanket for employees, which would cover any unpaid wages or benefits owed in the event that the LLC fails to pay.
On top of that $100k, the LLC must have a liability policy in the value of at least one million dollars. If the business has more than 5 employees, each employee requires an addition $100,000 of coverage up to five million dollars. Because of these additional costs, you want to make sure your company has a sustainable business plan for the long run before you get a license.
Pro: The Heightened Credibility
Since a license is fundamentally a formal commitment to the business, your business will enjoy better credibility to clients, investors, and creditors.
Contact Contractor’s License Resource Group to discuss an LLC contractor’s license for your business today.