5 Legal Tips for New Contractors
Starting out as a contractor can be intimidating, especially when it comes to the legal issues your business may face. We know that most contractors prefer to do what they love—building, renovating and helping customers—not dealing with contracts and legal issues. So in this video, Attorney Joel Ready gives you five simple legal tips for starting your new contracting or home improvement business. Here is a brief overview of what you’ll learn in this video.
1. Form an LLC and buy insurance
First and foremost, a contractor should seriously consider setting up an LLC and buying liability insurance. Doing this will protect your personal assets in the case of a lawsuit or mistake. Insurance may also provide counsel in the event of litigation. This will reduce your costs if a customer or subcontractor sues you after a job. LLCs protect you from a judgment, even if insurance doesn’t cover you. Having both LLCs and insurance in place will help you to focus on your business without fear of financial hardship.
2. Register with the attorney general as a contractor
Most states require that you register with the state as a contractor and get a “contractor number.” You’ll need this number everywhere, including on your advertising. Here in Pennsylvania, you must register with the attorney general. In some states, failing to register is a minor criminal offense. In almost all states, failing to register can subject you to fines and even adverse rulings in court if a customer sues you. It’s best to be covered, so don’t forget to register.
3. Draft a standard contract
Contracts are a part of life. But contracts are strongest when they’re written down. It pays to take the time now to draft a “standard contract” you’ll use with all your customers. In Pennsylvania, contractors who engage in home improvement are required to include a number of provisions in their contract, and prohibited from having other provisions. The statute governing these contracts is called the Home Improvement Consumer Protection Act (HICPA). HICPA provides fines and penalties if you fail to comply with it. Making sure you comply with this law will keep your contract legal and ensure that you don’t face penalties in court.
Oral contracts generally aren’t enforceable in the home improvement context, so don’t get caught unprepared. Have a formal contract ready to present to customers—it makes you look more professional and it will save you headaches down the road.
4. Learn to love “change orders”
Of course, customers change their minds! If you have a contract and a customer wants a change, don’t forget to put that change in writing as you go. This can feel time consuming, but it saves you trouble in the long run. In fact, change orders sometimes dissuade customers from making difficult changes part way through, as it presents a hurdle to changing things on a whim. More importantly, it protects you.
5. Mechanics’ Liens
States have laws allowing contractors to place liens, in certain situations, on the properties they have worked on if they don’t get paid. Mechanics’ Liens allow a contractor to place a lien on someone’s property before even getting a judgment in court. There are many rules governing these, so having a familiarity with how they work will allow you to have leverage with customers who threaten not to pay.
Conclusion
As always, this video and article are not legal advice, but we’d be happy to give you some if we can. Call Cornerstone Law Firm, LLC today to discuss your unique situation with one of our attorneys.