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How to start a construction company?

You have decided to start a construction company. Now what? In this modern era where everything is changing so drastically, and everyone’s competing against each other. Is there even the slightest chance for you to get success in this industry?

Don’t get scared. After doing some research and gathering data on how to start a construction company from scratch without failure, here’s what I found: It doesn’t matter how you establish a construction company, but there are few necessary elements you need to focus on to start and build a strong foundation for your construction company that succeeds in the long run, such as making a solid plan, getting the company listed, securing license and purchase of essential equipment for your company.

This blog includes a step-by-step guide on how to start a construction company.

Let’s get into it. 

What is a construction company?

Construction means to build something. As the name suggests, a construction company is a business that is involved in the construction/development of buildings (Resident and Non-resident houses), manufacturing facilities, and infrastructure (highways, roads, and bridges).

The construction company can be classified into two types

  1. Contract/work contract

Contractors are the ones who take contracts for the construction and maintenance of bridges, roads, or houses. They have a team of labor that works together, and in the end, they receive the amount decided in the contract. 

  1. Builders

Well-established builders are the ones that acquire land, build projects, and then, in the end, sell them for earning profit.

Is it worth starting a construction company in 2021?

Due to the growth of population in 2021, construction companies are in high demand, and thus, the industry is growing. According to a report, It is expected that 590 Million people will shift to cities for living by 2030. It is a large number. Hence, the industry will keep growing.

So, Yeah, it is worth the risk to start a construction company in India today.

Is it difficult to start a construction company?

Nobody said it would be easy. Starting a company is a difficult task. But, difficulty depends on whether you are capable of handling difficult situations or not. From the outside, starting a construction company may seem easy. However, the industry has had its fair share of hustle. That is why it is profitable. With the right approach, a construction company can open up countless opportunities for your future.

Now, what is the right approach to start a construction company?

To get the answer, let’s move on to our next question.

Process of starting a construction company

Planning

The initial step toward starting a business is to create a plan/structure. It is the most crucial part. This step determines how well your business will perform and for how long? Thus, to start a construction company, you are required to have a detailed plan that includes, Business goals, budget, target customer, Source of equipment, building a network (it’s important to have a connection in this field), manpower, and source of raw materials.

Research

After planning, you should do a background analysis of market conditions. It helps in understanding rules and regulations set by the government for construction work. Check for available projects and types of sites since it helps in formulating better financial tactics.

Registration

According to Company Act 2013, a construction company should get legally registered under the MCA. MCA stands for Ministry of Corporate Affairs. Construction companies can get registered as a Proprietorship Firm, Partnership Firm, Limited liability partnership (LLP), Private Limited company, and Public limited company.

Labor

The workforce is crucial for the construction company. A construction company owner should hire efficient, skilled, and good-in-nature workers since they are the ones who will build strong relations among society (word of mouth works great for a construction company) and draw new clients. Always try to keep labors united. Otherwise, any construction company will collapse.

Vehicles

After acquiring the labor force, you need to contact the transport company (construction vehicle operator) and sign a partnership agreement. It will provide you with the necessary construction vehicles (heavy-duty vehicles).

Insurance

You should at least have general liability insurance to protect your laborers from any sort of accident and misfortunes. If you don’t have any insurance, then it can lead to hefty bills. So, it’s a wise choice to have insurance. Call your insurance agent and discuss the best insurance policy.

Loan 

There may occur various circumstances where you would require a loan for your construction company, and there are many banks that are ready to provide you a loan on different terms. It depends on you whether you need a loan or not.

How to Register a Construction company?

We have already discussed that you can register your construction company through the Ministry of Corporate Affairs. 

So, let’s talk about how you can register your construction company without facing any problems.

First of all, you would need to decide on your company name.

Next, prepare the required documents for the construction company.

Documents required 

  1. ID Proof – Aadhaar Card, Voter ID Card, and Driving License of the owner.
  2. Pan Card
  3. Address Proof – The electricity bill can work.
  4. Passport size Photo – Current photo of the candidate.
  5. Email ID – Official company email id.
  6. Rent agreement – If your office resides on someone else property (rented). 
  7. No Objection Certificate – Obtain NOC from the landowner.

You can hire experts according to your needs, such as CA for the smooth (without stress) registration of your construction company. It would cost 20k-50k for hiring CA.

Bank Account

You will need to choose which bank you want to open an account for your company. Since it’s compulsory, and when the registration process is complete, you will receive your Bank account number in your email id.

Apply for registration of your construction company

You can apply for incorporation of your company online through SPICe+.

A Company with an authorized capital of Rs 15,00,000 can enjoy zero filing charges.

Which is the most suitable legal entity for contractors and Builders?

  1. Work contract – You are a simple contractor and do not have any high-level work. Then, I would recommend having registration under a proprietorship firm or partnership firm. However, you should also apply for GST if your turnover is 40 lakhs. Otherwise, you can apply for MSME or Shop Act.

Note* – Apply for a partnership deed in case you are registering under a partnership firm.

  1. Builders – Builders should always register under a Private limited company (PVT. LTD. company) or limited liability partnership (LLP), as there are others involved like Partners, investors, and directors. They have huge expenses and revenue. Hence, it’s best to go with these entities.

Once the application is allowed by the Minister of Corporate Affairs, you will get a certificate for registering your construction company. 

What legal documents will you receive after your construction company is registered?

  1. Certificate of Incorporation of Company
  2. PAN of Company
  3. TAN of Company
  4. Provident Fund (PF) and Employee State Insurance (ESI) Registration
  5. Professional Tax (Maharashtra)
  6. GST Registration
  7. Bank Account of Company

What licenses are needed to start a construction company?

Gst registration, RERA(Real Estate Regulatory Authority), Trademark, ISO certificate, TDS, and Government work contract license are required to start a construction company. 

Gst registration

If your turnover is more than INR 40 lakhs, then you have to get GST for your company. Otherwise, not required. However, if you take government contracts, then GST is mandatory for your construction company.

Government Work contract license

The state government issues work contracts.

RERA (Real Estate Regulatory Authority)

The state government issue RERA. It is mandatory for builders and property agents. The government established the RERA law to help real-estate buyers and boost investment in the market.

Trademark and ISO

To maintain brand equity, builders trademark their company name and logo from the start of the company with an ISO certificate.

TDS and Income tax

For a company, it is mandatory to have a regular audit of the company. And so, they file TDS(Tax Deducted at Source). As for the owner, they are required to file their income tax.

Do you need insurance for your construction company?

Yes, You should have insurance for your construction company. There are many banks and insurance companies that offer various insurance policies to choose from;

There are 6 types of insurance available for the construction company.

  1. contract agreements
  2. Contractor license agreement
  3. Inland Marine Insurance
  4. Vehicle insurance
  5. General Liability Insurance
  6. Builders risk insurance

How much money is needed to start a construction company?

No exact number is available regarding the investment required. However, there is an estimate of 3 to 4 Crore for metropolises and 60 lakh to 1 crore for small cities.

How to get a loan for your construction company?

Working on a high level and for the purchase of equipment, a construction company requires huge capital. Due to this, business owners take loans from banks or private money lenders.

Many banks provide loans to construction companies. 

There are 5 types of loans from which a construction company can benefit.

  • Term loan
  • Equipment finance
  • Construction equipment loan
  • Working capital loan
  • Line of credit finance

The term loan and equipment loan is popular among construction companies.

Documents required for the loan.

  1. Owners income proof
  2. The electricity bill for the Address proof
  3. ID proof
  4. Application form
  5. Bank details

Steps to follow

Time needed: 1 day.

Follow these steps to get a loan from the bank for your construction company.

  1. Step one

    You can visit your nearest bank or check out their official website. 

  2. Step Two

    Download the loan application form. 

  3. Step Three

    Enter the required details in the form carefully.

  4. Step Four

    Attach the necessary documents asked by the bank and then submit them.

  5. Step Five

    Once the loan is approved, you will receive the amount in your bank. 

How to start a construction company Infographic | Made by MoneyOversee
How to start a construction company Infographic | Made by MoneyOversee

Is it possible to start a construction company with no money?

Yes, If you can take construction contracts on a small scale. However, if you want to work on a high-level project then it will be difficult to start a construction company without money.

6 tips on starting a successful construction company.

  1. Gather a good team of workers.
  2. Listen to your labors and lead them accordingly.
  3. Provide quality work to get more clients.
  4. Don’t ignore your client advise
  5. Deliver projects on time or before the deadline.
  6. Build connections

How much money can you make from a construction company?

According to Glassdoor, average construction owners make INR 4 lakh and at the lowest INR 1 lakh in India. However, the highest salary a construction company owner makes is about INR 36 lakhs.

Conclusion

To sum up the above, you need to plan accordingly and also get the legal documents required by the government; to officially become a construction company. You can start with small projects if you don’t have the capital for your business. If you are starting a construction company then, you should have managing skills as they may come in handy in difficult situations. 

Want to know more details on How to Build and Run a Construction Business? Then, I would recommend you a book that contains all answers you are looking for in easy language.

Check out the book mentioned below.

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Aman
"Aman is a Co-founder of Monyoversee | Digital marketer | Freelancer (on-page SEO, Content Writer, and Social Media). Pursuing Under Graduation (B.Com) from Patna University. A blogger at day and a reader at night. He has experience in reselling and making money online and shares his experience about his personal financial life and the book he peruses with the help of a blog. You can find Aman on LinkedIn."
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