How To Start a Construction Company in California

The Golden State has some of the strictest safety, energy, and labor regulations in the US.

Below, I’ll walk you through everything you need to know about launching your construction business in California to make the process feel less daunting. 

Key Takeaways 

• California has strict and complex licensing, permitting, and environmental laws. 
• In addition to state-level mandates, city and county rules, particularly in coastal areas, can be difficult to comply with. 
• To navigate the business environment and gain customers, join an association and build relationships with people in your area. 

Starting a Construction Company in California: A Step-by-Step Guide

Here’s what you need to know as you launch your California construction company.

• Understand the complex California construction market

The future of California’s construction market is uncertain. The vast majority of general contractors (GCs) surveyed by the Associated General Contractors of California are optimistic about business growth in the state. Yet, a persistent labor shortage has been worsened by the enforcement of immigration law. Both skilled and unskilled laborers are badly needed.

Regional trends are a bit clearer. The awful Palisades and Altadena fires in Los Angeles destroyed well over 15,000 structures, increasing demand in a market already characterized by a housing shortage. Meanwhile, Los Angeles is set to host the 2028 Summer Olympics, and city investments in public transportation and stadiums are well underway.

Due in part to high costs and regulations imposed by the California Coastal Commission, coastal construction is slow throughout California. 

Inland, however, it’s a different story. There’s simply much more land slated for development, and inland counties are significantly more affordable than coastal regions, making inland areas more construction-friendly. 

Statewide, Californians are dealing with aging infrastructure ranging from bridges to an unreliable energy grid. The state has committed $180 billion to infrastructure spending through 2035. Public projects are likely to fuel much of the state’s construction growth in the coming years. 

If you’re open to setting up shop anywhere, targeting high-demand niches and regions will give you a leg up. 

• Choose the right business name and structure 

Here are the business structures you can choose from when you set up your company in California, along with tax considerations.

Business Structure	Liability	State Taxes	Financing
Sole Proprietorship	You and the business are the same. If something goes wrong on a job, your personal assets (house, savings) are at risk.	All profit is reported on your personal tax return. No separate business tax, but you’ll owe income and self-employment taxes.	Based on your personal credit. Harder to get bank loans or outside investors.
Partnership	Each partner is personally liable. If your partner causes a problem on a project, you can be held responsible, too.	Profits are split and reported on each partner’s tax return. There’s no separate business tax.	Usually funded by partners’ own money or personal loans (outside investors don’t like the personal liability risk).
LLC (Limited Liability Company)	Your personal assets are protected if the company is sued, as long as you keep business and personal finances separate.	Profits can “pass through” to your personal taxes. California charges an $800 annual fee and extra fees if the business makes over certain amounts.	Easier to get loans than it is with a sole proprietorship, and you can bring in members as investors. (Some large investors still prefer corporations.)
Corporation (C-Corp)	Shareholders usually aren’t personally liable. Owners who sign personal guarantees can still be on the hook.	The corporation pays its own taxes, and owners also pay tax on dividends. This can mean “double taxation.”	Most attractive to banks and outside investors. Can issue stock and build credit more easily.
Corporation (S-Corp)	It offers the same liability protection as a C-corp.	California charges a lower corporate tax rate plus personal income tax on what owners earn.	Easier to add shareholders than it is in an LLC, but there are limits on who can own shares.

Pro Tip

Create a business bank account to keep personal and business funds separate. You can do this after registering your business (discussed below).

• Register your business 

The business registration process differs depending on what type of business you’re starting and where you start it. Here’s what you need to know about filing at the state level and getting an Employer Identification Number (EIN) from the IRS:

Business Structure	How to File	EIN Required?
Sole Proprietorship	No state filing needed. Just get a business license from your city or county, register with CSLB for your contractor license, and file a Fictitious Business Name (DBA/FBN) if you use a trade name.	No
Partnership	Make a Partnership Agreement (recommended, not required) and register an FBN if using a trade name. You must also file with the CA Secretary of State.	Yes.
LLC (Limited Liability Company)	File Articles of Organization with the California Secretary of State. File a Statement of Information.	Yes, so long as it has more than 1 member.
Corporation (C-Corp)	File Articles of Incorporation and a Statement of Information with the California Secretary of State.	Yes.
Corporation (S-Corp)	File Articles of Incorporation and a Statement of Information with the California Secretary of State.	Yes.

Things can get more complicated at the local level. Many cities and counties require LLCs and corporations to register locally. Visit your city and county government website or call the office to see if registration rules apply in your area. 

Also, note that registering your business is a separate process from obtaining your contractor license or permits. More on this below. 

• Obtain a California contractor license 

If all you want to do is invest in a construction company and let professionals run it for you, you don’t need a contractor license, but your business must still be licensed through a qualified contractor (more on this below). Virtually every contractor in California needs to receive a license from the Contractors State License Board (CSLB). 

The CSLB has 4 types of licenses, including 2 California general contractor licenses:

• A-License: General Engineering Contractors: For contractors leading large projects, typically related to public infrastructure.
• B-License: General Building Contractor: For general contractors on residential, commercial, and industrial projects.
• B-2 License: Residential Remodeling Contractor: For anyone principally involved in remodeling wood-frame residences. 
• C-License: Specialty Contractors. For specialists like plumbers, roofers, and HVAC technicians. 

As of January 1, 2025, unlicensed professionals may perform small jobs up to $1,000 in value. The prior limit was $500. 

Eligibility requirements

To get a contractor’s license in California, you must be at least 18 years old and have the requisite experience and skills. Typically, this means at least 4 years of hands-on experience as a skilled worker. 

Alternatively, your company may be represented by someone from your team with the relevant experience and skills, who’ll act as the qualified contractor, also called the Responsible Managing Officer (RMO) or Responsible Management Employee (RME). They’ll ensure that all construction work completed is compliant. 

To get a contractor’s license, you must also pass a criminal background check. 

In addition to experience, you must be bonded to $25,000 to receive your contractor’s license. A bond is a type of financial guarantee that protects clients if you, for instance, don’t complete a job. The cost of getting bonded varies based on credit, but it can be as low as a few hundred dollars a year. 

LLCs have a fairly substantial additional surety bonding requirement of $100,000. Again, that’s an additional requirement that stacks atop the $25,000 contractor bond, bringing the total to $125,000.

Pro Tip

Consider getting bonded for more than the CSLB minimum requirement. Gregg Cantor, President and CEO of San Diego-based Murray Lampert Design, Build, and Remodel, says, “A $25,000 bond…sounds like a lot, but it really isn’t…Unfortunately, $25,000 in the remodeling and construction world doesn’t cover a whole lot.” 

Application process

You can fill out and submit your application with the CSLB online. To be accepted, you must certify your work experience, provide fingerprints for your background check, and submit financial documentation. You’ll be asked about your criminal record and have the opportunity to request an accommodation for the exam in compliance with the Americans with Disabilities Act (ADA). 

Examinations

Every contractor must pass a business and law examination to earn a license. There’s also a second test they must pass that covers information relevant to their particular area of focus. The only contractors who don’t need to pass a second exam are those applying for the C-61 Limited Specialty Classification. 

The CSLB has study guides available for both the business and law and the trade-specific exams. 

Maintaining your license

You must return to the CSLB every 2 years to renew your license. Single qualifiers (a license with just 1 contractor) may renew their licenses online without submitting additional paperwork. However, licenses covering multiple people (for example, one person for general building and another for electrical work) must turn in a physical form, either by hand or by mail. 

License renewal for an active sole proprietor is $450, while an inactive renewal is $300. Fees increase substantially if you renew late.

Non-sole owner fees are $700 for active renewal and $500 for inactive renewal. Again, fees increase substantially if you’re delinquent. 

• Get the necessary insurance

All businesses with employees must submit proof of workers’ compensation insurance to the CSLB. Similarly, all construction businesses are required to carry commercial auto insurance on every vehicle used for business. 

However, other forms of insurance are optional. As Cantor explains,

“In California, general liability insurance is not required, but it’s something that is smart to have. It’s for both the homeowner and the company, because if there’s damage, it could put a company out of business if they don’t have insurance.

“The projects we do are larger projects and we require Course of Construction [sometimes called builder’s risk] insurance. This is sort of unrelated to licensing, but it’s a good practice [to have course of construction insurance] because general liability doesn’t cover everything. So, if there’s vandalism or let’s say there’s a fire, unrelated to the work that’s being performed but it destroys the work that was being performed, liability insurance doesn’t cover that, but course of construction [insurance] does.”

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Learn more about these types of construction insurance.

• Understand and comply with California labor laws

California labor laws are some of the strictest in the US, which you must follow if you bring aboard team members. Here’s a short breakdown of some major rules:

Wage and hour laws

The state minimum wage is $16.50 an hour in 2025, but many cities (including Los Angeles, San Francisco, and several Bay Area cities) set higher local rates. Contractors working across regions must adjust payroll to match each city’s rules.

Overtime rules are strict. Employees must be paid time-and-a-half after 8 hours in a single day or 40 hours in a week. Double time kicks in after 12 hours in a single day. Employers need accurate records to avoid underpayment claims. 

Did You Know?

Connecteam functions as an employee time clock and can help you track employee time and streamline compliance work by automatically logging hours and calculating overtime, and generating accurate reports for payroll and audits. 

Every construction business that hires employees must register with the California Employment Development Department (EDD). Employers are responsible for withholding state income tax and paying into unemployment insurance and disability insurance. 

Workplace safety laws

Cal/OSHA enforces standards for scaffolding, fall protection, equipment use, and handling hazardous materials. Employers must keep a written safety program and train workers on procedures. Inspectors have the authority to fine businesses or shut down unsafe sites. Moreover, OSHA requires a number of certifications, like those for crane operators. 

Pro Tip

Use a compliance solution like Connecteam to store your workers’ licenses and track their expiration dates. 

Hiring requirements

In California, all workers are considered employees (not independent contractors) unless they pass the “ABC test,” which is strict. Most workers in construction are considered employees. That means full payroll taxes, insurance coverage, and labor protections apply.

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Discover our tips for hiring construction workers.

• Meet state and local permitting regulations 

Most building permits are issued at the local level in California. That means that your local city and county government will have its own permitting process. Depending on the locale, you’ll likely need a permit for:

• New buildings. 
• Building add-ons. 
• Backyard projects like pools, patios, or retaining walls.
• Interior remodels.
• Electrical or HVAC work. 

Fees vary wildly across locations and work types. Similarly, approval timelines range from several weeks to several months.

One big barrier to construction in California is the state’s environmental regulations, including the California Environmental Quality Act (CEQA) and the green building standards of Title 24. For instance, if the state assesses that a given project falls under CEQA, it will prepare a study to see if significant environmental effects may arise from the project. 

Regulation-driven delays can affect your timeline and costs. As RAND reports, “The time to bring a project to completion in California is more than 22 months longer than the average time required in Texas.” 

In addition to local building permits and state-level environmental regulations, construction companies must be mindful of local licensing policies. All California businesses need a business license, typically issued by cities and counties. To check the rules in your area, head to your city’s and county’s websites, or call your city and county clerk’s office. 

• Fund and grow your business

Once you’ve attained your licenses and organized insurance, it’s time to fund and grow your business. Here are some practical ways to develop your California construction business. 

Funding

The following programs and resources are designed to help entrepreneurs start businesses in California:

Program	What it offers
IBank Small Business Loan Guarantee Program	State guarantees for bank loans, reducing lender risk. Helps small contractors qualify for financing.
California Small Business Loan Match	Online tool to connect businesses with vetted lenders in California. Not a grant but streamlines access to loans.
ERiCA Grant (Equal Representation in Construction Apprenticeship)	State grant to support minorities in construction apprenticeships and pre-apprenticeship programs.
California Grants Portal	Central hub of state grant opportunities, searchable by sector and eligibility.
Local or Regional Programs	City and county economic development offices sometimes run their own grants or low-interest loan funds targeted to contractors. For example, Los Angeles has a county grants page, as does San Francisco.

You may need some funding before completing the steps above, but unfortunately, you won’t be able to apply for many grants and loans until your business is fully established. Alternative forms of funding you might secure without fully setting up your business can include credit cards, money from family or friends, or your own savings. 

Networking

One great way to grow your construction business is to build relationships with people. Start with trade associations like the California Building Industry Association (CBIA). Local Chamber of Commerce chapters are another good place to meet peers, potential customers, or even future employees. 

Bidding

If you want to bid on public construction projects in California, start by registering as a Public Works Contractor with the Department of Industrial Relations (DIR) if you want to bid on any project worth $15,000 or more. Once registered, you can bid on state, county, and city projects, plus federal projects. (Note that you must have the correct license for the given bid.) 

Once you’ve completed those steps, you may still need to “prequalify” with your local government body. Standards and requirements differ from place to place.

This Might Interest You

Growing your business goes beyond networking and bidding. Learn more in our guides to marketing and growing your construction business. 

How Much Does It Cost to Start a Construction Business in California? 

Starting a construction business is a significant decision, and knowing what your costs might be is important for setting your pricing and estimating your likely profits. This is especially true in California, where state and local regulations play a major role in driving up construction costs. According to RAND, “Municipal impact and development fees average $29,000 per unit in California, compared to less than $1,000 per unit on average in Texas and $12,000 per unit in Colorado.”

Here’s some basic cost information:

• The average cost of the contractor license bond ranges from $150 to $2,500 a year, depending on your credit score. 
• General liability insurance costs a few thousand dollars for a small operation. 
• Workers’ compensation insurance sits at about 10% of payroll, which often comes to a few thousand dollars a year for a small contractor. 
• Registration and licensing costs $450 to apply, $200 for the initial license, and $150 for additional classification, plus $80 for the background check. 

The full costs would also include labor, equipment, and tools, plus the fees mentioned above. Here’s some insight into those costs:

• According to ZipRecruiter, the average construction worker in California earns about $25 an hour. 
• Very basic equipment for a small crew could set you back about $20,000.

Some general contractors could spend 6 figures in their first year. But of course, costs vary widely depending on the type of construction business you want to start.

Tips for Starting a Construction Business in California

• Start small. If you’ve never experienced the California permitting and regulatory process, you’ll likely be surprised by delays, unexpected costs, and difficult-to-navigate processes. It’s best to make your first mistakes when the stakes are (relatively) low and then apply the lessons you learn to bigger projects.
• Find a mentor, like a retired contractor or a seasoned veteran who knows the CSLB and Cal/OSHA regulations inside-out. Their experience can save you years of trial and error. The California Department of Transportation (Caltrans) Construction Mentor Protégé Program (CMPP) helps young firms get established on civil engineering projects. 
• Use construction management software. Basic spreadsheets won’t cut it. California projects involve job-cost tracking, lien laws, change orders, overtime mandates, and payroll rules that can sink you if you miss them. Connecteam’s construction app is free for teams of 10 and fewer.
• Work with trade schools: Offering internships or apprenticeships gives you consistent access to talent. 
• Offer good wages: While the California average for general laborers is $25 an hour, wages for roofers are about $33 an hour, and plumbers earn just over $30. If you post to industry-specific job boards like constructionjobs.com or tradehounds.com and offer above-average wages, you’re likely to attract more qualified candidates.

FAQs

Disclaimer

This guide is provided for general informational purposes only and does not constitute legal, tax, or professional advice. Construction licensing, labor laws, permitting requirements, and tax rules in California are subject to change and may vary by city, county, or project type. Compliance obligations also depend on the specific facts and circumstances of your business. Before taking action, consult with a qualified attorney, accountant, or the appropriate state or local authority to ensure you meet all legal and regulatory requirements.