Construction Business Management


Contractor Registration and Licensing

Contractors whose area of operations is limited to a single state most likely are familiar with all of the licensing and registration requirements pertaining to them. But the rules and regulations of the various states are anything but uniform and can be confusing to contractors whose work takes them across state lines. Most states require professional licensing of general contractors, and the direct and consequential penalties for non-compliance can be severe. Where a professional license is required, the applicant usually must take a written examination covering state law and administrative regulations as well as general and state-specific construction knowledge (e.g., earthquake, hurricane), and meet the state's financial criteria.

It may take several weeks or months to obtain a contractor license, including the time necessary to prepare the application, assemble the financial and other data required, and complete any required professional examinations. Be aware that the licensing authorities in some states require even bidders to have a license before submitting a bid. If you violate these laws and regulations, you may very well run into trouble. Among other serious consequences, you might not be allowed to use the state’s courts to sue for non-payment. This does happen. Operating under another contractor’s license may subject you to even worse problems, and the risk is not worth it.

Even in jurisdictions that don’t require professional licensing, you’ll have to register your business with the secretary of state, which often imposes a registration fee that can be substantial. This tells the state you’re working there and enters you on its tax rolls. Failure to register may subject you to penalties including inability to use the court system. You also must obtain a local business license.

The Associated General Contractors of America has simplified the problem of determining requirements for each state in the U.S. by publishing its State Law Matrix, which provides state-by-state information about the statutes that relate to the construction process. The Matrix is available by subscription in electronic form through the AGC. It includes information about the various states’ pre-qualification requirements, bidding requirements, lien laws, payment clauses, subcontracting requirements, and other information, and is updated periodically. For more information or to purchase this service, go to and search for "State Law Matrix" in the bookstore.

In addition to states, many individual cities and counties have their own codes and licensing regulations.

Don’t guess at the regulatory costs and tax liability in your own or another state you plan to do business in. Investigate them before signing an agreement to perform work in any state, as they can be significant.

The author of this article, Nick Ganaway, was a successful general contractor for 25 years. He is a consultant in Atlanta, Georgia, for contractors and other small business owners. Nick has described how to set up and manage a construction business that is profitable, enjoyable, and enduring in his book, Construction Business Management: What Every Construction Contractor, Builder & Subcontractor Needs to Know.


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