Business Ownership &
Legal Structure
How Do Contractors Get
Business?
Three most common methods:
A. Bidding on public work (competitive bidding)
B. Bidding on private work (select list)
C. Negotiating private work
How Do Construction Companies
& Contractors Promote Future
Business?
 Stable work force
 Actions outside of the work environment
PEOPLE LIKE DOING BUSINESS WITH
SUCCESSFUL PEOPLE!!
Good Subcontractor Relations
 Direct jobs well
 Plan well
 Timely payment
What kind of business
structures are most common to
construction companies &
contractors?
The Individual (Sole)
Proprietorship

There are no legal procedures necessary to begin
business.

There are few government imposed regulations.

The proprietor provides all capital, equipment and
property.

All assets are held in the name of the proprietor.

Personal assets are at risk if litigation occurs.
Advantages include:
 Simple organization
 Freedom of actions
 No legal formalities to terminate business
operations
Disadvantages include:
 Owner personally liable for debts of business

Liability extends to personal property
 Owner solely responsible for all management duties

Sickness or absence can devastate business
 Owner must pay income tax at individual rates:

Profits are added to his/her total personal income
The General Partnership
Advantages:
 Combined assets of multiple parties increases bonding & credit
opportunity
 Shared management responsibilities
 Partners draw from the company account for salary

Salaries are considered operating expenses and are tax
deductible
** Partners cannot sell, mortgage or assign any assets of the
business without consent of all parties of the partnership.
The Limited Partnership
 A limited partner:

Shares in the profits/losses of the business

Has no authority in management matters

Are liable for partnership debts proportionally to
their investment in the business
Legal aspects of a Limited
Partnership
 Contract is drawn between parties

% interest is assigned
 Limited Partnership Certificate must be filed with
designated public office (Secretary of State)
 Limited Partnership is not automatically dissolved
upon death
 The limited partner is immune from personal
liability
The Corporation
Features of a corporation are:

It can do business in its own name:

Own property

Enter contracts, etc.

A corporation has “perpetual life”

unaffected by death of participants

Corporations find it easier to raise capital

Sell shares

Find investors
A corporation is formed under
state law and receives its
“charter” from the state.
The Corporate Charter
 Specifies:


Corporation’s powers
Includes bylaws of business conduct
 The corporation is bound to the
provisions of the bylaws which define
how business is conducted
The Corporate Board Of
Directors

Bylaws define how Board of Directors is established:
 Usually by election

Directors cannot act individually
 cannot act as agents for the corporation
 can only act through majority vote of the board

Officers are appointed by the board of directors and are the
people who carry out routine administration for the corporation.
Dissolution of the corporation is accomplished by surrender or
expiration of the charter. Dissolutions are governed by state law.
The Joint Venture
 Temporary partnership between companies.
 Resulting entity is larger and stronger than either party acting alone

Ie equipment, facilities, personnel, assets and skills are pooled
 Large projects can be accomplished that could not have been
completed by the participants independently
 Companies use this type of contract to break into new areas of work
or new geographic locations
The Limited Liability
Corporation
What Is The LLC?
 A legal business structure
 Defines business as a “Legal Entity” separate from its
“members”.
 Hybrid between a Limited Liability Partnership and a
Corporation.
 However, most states and the IRS recognize the single-
member LLC as a legitimate business structure.
 Members are shielded from individual liability.
 Only the LLC is responsible for the company's debts
What Is The LLC?
 Most states require fewer formalities be
observed in an LLC in comparison to a
corporation.
LLC Management & Control
 Management and control of an LLC is
vested with its members
-UNLESS the Limited Liability Company's articles
of organization provide otherwise.
Voting Interest
 Voting interest in an LLC directly
corresponds to % interest held by each
member
-UNLESS the articles of organization provide
otherwise
Transferability
 Unlike a publicly held corporation No one can become a member of an
LLC without the consent of members
having a majority in interest.
Duration of the LLC
 An LLC does not have a perpetual life.
 The articles of organization must specify
the date on which the Limited Liability
Company's existence will terminate.
 An LLC is dissolved at the death,
withdrawal, resignation, expulsion, or
bankruptcy of a member.
Formalities of the LLC
 An LLC begins upon the filing of the
Articles of Organization with the
Secretary of State.
 LLC finances and records are
established and maintained
independently of the members' personal
financial records
Dissolution of the LLC
 LLC may be dissolved when:



(a) a life span specified in the articles of
organization expires,
(b) the members unanimously agree in writing that
it should be dissolved,
(c) a court rules that the LLC should be dissolved.
Taxation of the LLC
 Unless the LLC elects to be taxed as a corporation, a
single-member LLC is taxed as a sole proprietorship.
 A multiple-member LLC is taxed as a partnership.
Summary:
Some considerations when
contemplating a legal structure:
1. Taxation benefits
2. Risk & liability allocation needs
3. Need of continuity of the firm
4. Required administrative flexibility
5. Impact of structure on decision making
6. Means of attracting of capital