We cover the types of licenses commonly required, along with how to apply and what can happen if you work without proper licensing.
Table of contents
- What Licenses Are Needed To Start a Construction Business?
- When Does Your Construction Company Need a Contractor License?
- What Are the Benefits of a Contractor License?
- What Types of Contractor Licenses Do Construction Businesses Need?
- How To Apply for a Contractor License
- Penalties for Working Without a Contractor’s License
- Penalties for Working Without Other Construction Business Licenses
- Tips For Staying Compliant with License Requirements
- Manage Your Construction Company with Connecteam
You may be wondering what licenses are needed to start a construction business. Or, you might already have a construction business and want to know if you’re fully compliant with licensing requirements. The answers to both questions are complicated and depend on various factors—including your business’s location, the type of construction work you do, and the scale of your projects.
Ignorance of licensing requirements is no excuse for not complying with them, though, and penalties can be steep.
We’re here to help with this guide to construction business licenses. Our guide focuses primarily on how to get a contractor license, but we discuss other license types, too. From common license requirements to tips for staying compliant long term, we’ve got you covered.
- To start a construction business, you may need a business license, contractor license, and permits. Licensing requirements vary.
- A contractor license brings many benefits, including increased bidding potential and customer trust.
- The common requirements for a contractor license include a passing score on an exam and proof of insurance.
- Penalties for working without proper licensing include steep fines and criminal charges.
- To stay compliant with licensing requirements, research your local requirements, plan for application processing time, and more.
What Licenses Are Needed To Start a Construction Business?
There are various construction business licenses you might need when starting your construction company.
You’ll likely need to get a business license for your construction company. Many local governments require any business to obtain a general business license before they begin offering services or goods in the community. These are occasionally issued at the state level, but usually, your city or county will issue your business license.
In addition to having a business license for your construction company, you might be required to get a contractor license that permits your company to perform construction-related work. State and local rules dictate if and when you need a contractor license, as well as what type of contract license you need.
Depending on the work you plan to do, you might need additional licenses. For example, if you or your workers operate certain heavy machinery—like cranes, bulldozers, or excavators—you may be required to get specific operator licenses.
You might also need to secure permits to carry out your construction work. The permits you require will depend on the regulations in your local area, but may include:
- Building permits that grant permission to build on a property or conduct renovations.
- Zoning or land use permits that ensure your project follows local laws on how the property can be used.
- Health and safety permits that grant permission to remove hazardous materials or undertake activities that pose safety risks (such as erecting scaffolding).
- Environmental permits that set limits on how the construction project can impact the local environment.
💡 Pro Tip:
Consult with legal advisors, your city or county government, your local or state licensing authorities, or trade associations—like the Associated General Contractors of America (AGC)—to learn more about which licenses and permits your business requires.
When Does Your Construction Company Need a Contractor License?
Whether you’re required to apply for a contractor’s license will depend on the regulations in your local area. Oftentimes, the requirement is set at the state level. But occasionally, local jurisdictions require a professional license for contractors, too.
In areas that require a contractor’s license, you may be allowed to perform smaller projects under a direct contract with a homeowner or business without first applying for a license. Projects that exceed a threshold value—or that require specialized work like plumbing or HVAC—commonly require a license.
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What Are the Benefits of a Contractor License?
Even if your business isn’t obligated to obtain a contractor license, doing so could provide other benefits. For example, contractor and other construction licenses benefit you and your industry in the following ways:
- Increases bidding potential. Many large-scale projects require your business to hold a contractor’s professional license before your bid can be considered. Having a license in place opens doors to more construction clients and construction contract opportunities.
- Promotes industry integrity. Licensing requires businesses to prove they have a baseline level of expertise and dedication. Industries where a high percentage of businesses are licensed—like construction—are therefore less likely to attract bad actors who are just looking to make quick money. This helps build consumer trust.
- Protects customers. Since licensing boards require licensed businesses to prove their relevant knowledge and experience, customers know they’re hiring someone who can do the job when they hire someone with a license.
- Mandates insurance. Obtaining a contractor’s license means you’ll likely be required to carry insurance that protects customers and your business in the event of an unexpected event.
- May protect earnings. Having a professional license can help secure your payments in certain cases. In a few jurisdictions, licensed contractors can use a mechanic’s lien—a legal claim against a property where they’ve provided unpaid services. This lien prevents the property owner from selling or refinancing the property until they’ve paid the contractor.
- Establishes safe construction practices. A license shows that your business is knowledgeable on construction safety measures for you and your employees.
🧠 Did You Know?
Many licensing boards require you to carry worker’s compensation insurance to cover employees in the event of an accident. Help keep your insurance premiums down and protect your employees with a construction app that reduces the risk of accidents. Connecteam puts digital forms and safety checklists at your fingertips and lets you complete incident reports in real time.
What Types of Contractor Licenses Do Construction Businesses Need?
Construction companies generally fall into 1 of 2 types of license categories: general contractors and specialty contractors. Depending on the type of work your construction business performs, you may also need to look into local permits.
General contractor license
A general contractor will oversee all aspects of construction projects, such as obtaining building permits, hiring subcontractors, and keeping the project aligned with building codes.
Many states require a business or individual acting as a general contractor to apply for a license. For example, Nevada broadly requires any business that alters or constructs a building in the state to apply for a contractor license.
Other states require licensure only for certain types of projects or jobs with high values. This often varies depending on whether you’re completing residential or commercial projects. Mississippi, for instance, requires a contractor’s license only for those working on commercial jobs valued over $50,000 or residential remodeling valued over $10,000.
Specialty contractor license
Specialty contractors are experts in a specific area. For example, electricians, roofers, and HVAC technicians are often covered by specialty contractor licensing. States that license general contractors often have separate licensing requirements for businesses in specialist fields.
California is an example of a jurisdiction with many different types of contractor licenses to cover different types of contractors. The state currently has 42 separate license classifications just for specialty contractors. Meanwhile, Wyoming requires only electricians to hold a specialty contractor license (city or county governments in Wyoming may have additional requirements).
How To Apply for a Contractor License
Considering whether your construction business should apply for a general contractor or specialty contractor license? Research the requirements in your local area. The National Association of State Contractors Licensing Agencies maintains a guide to local licensing regulations that can help you find the right resource.
While licensing requirements vary, we lay out the common requirements you should expect and prepare for no matter where you’re located.
Common requirements for a general contractor license
These requirements must be met to obtain a general contractor license in most states:
- Individual licensees over age 18.
- Between 2 and 7 years’ work experience in construction or relevant work.
- Relevant education credentials, such as business training or trade certifications.
- Passing score on an exam that may cover trade knowledge, business knowledge, or legal requirements.
- Evidence of stable financial history or a financial bond (a guarantee to cover work if your business faces financial issues).
- General liability insurance.
- Worker’s compensation insurance.
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Insurance is a requirement in almost all jurisdictions that require contractors to hold licenses. Check out our complete guide to insuring your construction business.
Common requirements for a specialty contractor license
The requirements for specialty contractor licenses are even more varied than those for general contractors. You must check for local requirements for your specialty, but expect the following requirements:
- Individual licensees over age 18.
- Relevant work experience, though length of experience varies greatly by location.
- Passing score on an exam that may cover knowledge of your specialty, business knowledge, or legal requirements.
- Evidence of completed projects demonstrating work relevant to the specialty.
- Evidence of stable financial history or a financial bond.
- Evidence of adequate insurance if not covered by a general contractor’s insurance.
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Need more information on how to get a general business license for your construction company? You must typically contact your local or state department responsible for business licensing, fill out the necessary forms, and provide details about your construction business. Check out more in our guide on getting a business license in 2024.
Penalties for Working Without a Contractor’s License
Penalties for working unlicensed are set by local jurisdictions, but they can be severe and greatly damage you and your business. Let’s take a look at the common types of penalties imposed for conducting work without a license.
A fine may be imposed if you or your business works without a required license. For example, California issues civil fines for unlicensed work that can range from $200 to $5,000. Fines are often increased for repeated violations or when there’s evidence you ignored license requirements.
Most states consider working without a proper contractor’s license to be a criminal offense. In Texas, you could be charged with a Class B misdemeanor. This level of criminal offense can even lead to jail time for up to 1 year. Florida also charges unlicensed work as a misdemeanor, with similar jail time potential.
Forfeiture of mechanics liens
Contractors in many states rely on mechanics liens to secure payment for their work. Some states, like Florida and Georgia, will force you to forfeit your mechanics liens rights if you’ve worked without a required license.
Penalties for Working Without Other Construction Business Licenses
There are steep penalties for working without other construction business licenses, too. For example, companies that work with lapsed business licenses may face fines, legal action, or even a forced shutdown of ongoing projects. Meanwhile, fines and legal consequences can also result from a worker operating a crane without an operating license.
Penalties depend on the specific regulations of the jurisdiction, the nature of the violation, and in some cases, the extent of any resulting damage.
Tips For Staying Compliant with License Requirements
Construction business licenses, including contractor licenses, have ongoing requirements that require compliance efforts on your part—even after a license has been issued. For example, you may need to pay a renewal fee each year, report any changes in your business structure, or complete continuing education. Use these tips to stay compliant.
Research local requirements
Because license requirements can vary from state to state, and even from city to city, you must understand your requirements. For example, when determining whether to obtain a contractor license, you must understand which types of work require licensure in your area. Any time you consider bidding on a project in a new location, you should first check whether you’re a properly licensed contractor permitted to conduct that work.
Plan for application processing time
The path from determining that you need a license to receiving your license can take weeks or even months. Budget time for application processing before you start bidding on projects with licensing requirements.
Keep up with insurance requirements
In most places, you must show evidence of insurance before receiving many construction business licenses. The type of insurance required can differ based on the license type. For example, a contractor license might need general liability and worker’s compensation insurance, while a heavy machinery operator’s license could require other coverage. Take time to find an insurance broker you trust so you can get adequate insurance for your licenses and protect your business interests.
Track changes to licensing regulations
Regulatory changes aren’t uncommon. Keep on top of changes so you aren’t surprised when it’s time to apply for or renew your licenses. A good way to ensure you don’t miss a critical change is to join professional associations for the construction industry in your area. These associations often send out newsletters that highlight regulation changes.
Report business changes that affect compliance
Changes to your business name or leadership can trigger required disclosure to your licensing agency. For example, most jurisdictions require you to apply for a new business and/or contractor license and cancel your old license if you merge your business with another. Check with your local licensing agency if your business undergoes a significant change, and file required reports without delay.
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Manage Your Construction Company with Connecteam
Whether your business handles general construction or has a specialty, understanding your licensure requirements is a must. Take the time to research your local regulations to benefit both your business and the industry as a whole. Failing to do so could land your business, and you, in hot water.
Regardless of your licensing needs, your construction business will be more efficient with reliable management software. Connecteam streamlines your business, providing an ideal solution for construction companies. With features like safety checklists, paperless time tracking, and real-time communication right in the app, you can ensure your business’s success.
How do I get started as a contractor?
Start researching license requirements now. Typically, before you can even be eligible for a contractor’s license, you’ll need to gain hands-on experience, and you may need to complete education or training coursework. If you work with a more experienced tradesperson in your company, the business may be eligible for licensure based on their expertise.
Does a handyman need a license?
A handyman or general tradesperson is generally not a licensed occupation. Handymen who take on larger projects or engage in specialized work like electrical or plumbing will likely need a license before starting that work. Always check with your local licensing agency for the requirements in your area.
How much does it cost to get a general contractor license?
Not all states require a general contractor license, so your cost could be $0. For example, Texas requires specialty contractor licenses for some trades but doesn’t require a license for general contractors (this differs in some Texas cities). States that require a general contractor license charge license and exams fees that are typically less than $1,000.
The information on this website regarding licensing for construction businesses in the United States is intended as a general overview for informational purposes only. Licensing requirements and regulations in the construction industry are subject to change and can differ based on state or local jurisdictions, as well as the specific nature of the construction work. While we try to provide current and reliable information, we cannot assure its completeness, accuracy, or applicability to your specific licensing needs. We strongly recommend consulting with a legal advisor or a construction licensing expert to ensure your business complies with all relevant licensing requirements and regulations. Please be aware that we cannot be held liable for any decisions made or actions taken based on the information provided on this website.