You need a contractor's license in order to start a contracting business in California. Anyone performing construction work in California that totals $500 dollars or more in labor and materials must be licensed by the Contractor's State License Board.
CSLB issues licenses to four types of business entities:
1) Sole Owner Licenses
A sole owner license is issued to a specific individual. The license can be qualified by the Owner or a Responsible Managing Employee (RME). The license cannot be sold or transferred to another individual.
2) Partnership Licenses
A partnership license is issued to a specific General Partnership or Limited Partnership structure. The license can be qualified by a Qualifying Partner or Responsible Managing Employee (RME). A Qualifying Partner must be a General Partner of the partnership structure. A RME is an employee of the company, and not considered a part of the partnership structure.
3) Corporate Licenses
A corporate license number is issued exclusively to a specific corporate registration number assigned by the Secretary of State's Office. If this registration number changes, a new contractor's license number will be required for the new corporation. If a corporation dissolves, merges, or surrenders the right to do business in California through the Secretary of State's Office, the contractor's license must be canceled.
4) Joint Venture Licenses
A joint venture license may be issued to any combination of two or more licenses issued to sole proprietors, partnerships, corporations or other joint licenses which are currently in effect and in good standing. The joint venture license may be issued in any classification held by at least one of the entities.
In addition to the foregoing, following the passage of Senate Bill 392, the CSLB will be authorized to issue contractor licenses to Limited Liability Companies (LLCs). California law says that CSLB shall begin processing LLC applications no later than January 1, 2012. But don't apply for an LLC license yet because CSLB is not issuing licenses to LLCs at this time.
Finally, please note that the company will need a Contractor's Bond, as well as a Bond of Qualifying Individual if the qualifier on the license is listed as a Responsible Managing Employee (RME) or as a Responsible Managing Officer (RMO) with less than 10 percent ownership of the voting stock or equity of the corporation for which he/she is qualifying.
Mr. Chen has given you a comprehensive and highly useful tutorial here. I write only to add that it is critical to comply in every respect with CSLB's rules and regs and the laws applicable to contracting. Violations of any of these -- even if by mistake rather than with an unlawful intent -- can be penalized by heavy fines -- in the thousands, not the hundreds -- jail time, restrictive probation conditions and a bar to future licensing in the State of California. Each act or incident can trigger these penalties, so the numbers in potential fines and days in jail move up very quickly. It's not worth it. Use the regs Mr Chen has provided, contact your local CSLB office if you have any questions, and proceed with caution and active respect for even the technical details in the state contracting laws.
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In addition to the warnings of the above respondents, be sure, if you have employees [such as the RME], that you carry worker's compensation insurance. If you fail to do so, any license you obtain using an RME will cause an automatic delicensure. Loss of license makes you subject to claims of disgorgement by the people who hire the company to do construction work.
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A non licensed person who wants to do contracting work must to form a corporation and then hire a licenced Responsible Managing Employee (RME) or a licensed Responsible Managing Officer (RMO). The RME has to work 80% of the contracting corporation's jobs. The RMO does not have to work the jobs, but is responsible for the work. The RMO generally must own 20% or more of the equity of the corporation. The other 80% does not have to be owned by licensed persons.
So you may form a corporation and own 80%, use an RMO who owns 20%, and then you do the work on the jobs under the supervision of the RMO.
See this application ofr a license, and search the word "responsible" to find the RME and RMO portion of the application.
I have done this a few times, and can tell you that you should use a lawyer to get the corporation formed correctly. The Bylaws and Minutes of Meetings are not the standard form you may find for free or cheap. You also need a lawyer to explain the rolls of the RMO and you, the forman.
Also look here. http://www.cslb.ca.gov/GeneralInformation/Library/FormsAndApplications.asp