The Importance of Getting Your License Before You Start Your Own Construction Business

Posted by on Jul 24, 2019 in Governance, Limiting Liability, Practice Pointers, Startup, Your Entity

Are you thinking about starting your own construction business? If so, whether in the commercial or residential setting, it is imperative to find out if you are required to have a license. Keep in mind each state has its own requirements. If you’re in Tennessee, it’s highly likely you’ll need one.

Under Tennessee’s Contractors Licensing Act, it is unlawful for any person or business to represent itself as a licensed contractor, or to act in the capacity of a “contractor” while not licensed. Now, you may be thinking “I am not a contractor. I am a designer, or a supplier, or a subcontractor, etc—so the contractors’ license requirement does not apply to me and my new business, right?” Well, not necessarily.

The term “Contractor” is incredibly broad under the Licensing Act. “Contracting” includes, among other things, bidding, offering to engage, supervising, overseeing, scheduling, directing or in any manner assuming charge of construction, alteration, improvement, or negotiating a price for projects of $25,000 or more (including all labor, materials, and equipment). Electrical, mechanical, plumbing, HVAC, and roof contractors must also be licensed when working directly with any contractor to perform projects when the total cost of that portion on the project is over $25,000.

Tennessee also regulates licenses for certain types of “home improvement” in most of the larger counties. For example, a home improvement contractor’s license is required for residential projects that range from $3,000 to $24,999 (i.e. projects designed for a residence or dwelling unit with no more than 4 units). Again, the term “home improvement” includes a vast array of construction-related work, all of which requires a license – such as repairs, replacement, remodeling, alterations, and more. 

Obtaining the appropriate contractor’s license before you start working is extremely important from a risk management standpoint. In fact, contracting in Tennessee without the appropriate license can expose your new business and possibly you, personally to significant liability. For example, to represent yourself as a licensed contractor without the required license, or to act in the capacity of a contractor without the required license, constitutes an unfair and deceptive act under Tennessee’s consumer protection law. This is significant, particularly to a business in its infancy, as you could end up on the hook for a dissatisfied client’s attorneys’ fees and triple their actual damages. 

While there are a variety of other matters that must be tackled before getting a new construction business off the ground, licensing is certainly an important box to check off the list. The guidance of an experienced construction attorney can help alleviate any worries you may have in navigating the laws that may apply to you. In addition, finding a well-versed construction attorney can assist a new business in a multitude of areas spanning from drafting of construction contracts, handling of construction defect claims, payment and lien disputes, and other related matters.

If you have questions specifically related to construction or general startup matters, please contact me or a member of Chambliss Startup group.

*This blog post is brought to you by Logan Threadgill.