One of the challenges in selling a construction company or contractor business is the Contractor’s Licensing requirements in California. At Pacific Business Sales, we specialize in the sale of construction-contractor businesses, which is why contractors & construction companies throughout California trust us to be their #1 referred construction business brokers.
Through our years of experience selling construction-contractor businesses, we have established relationships with SBA lenders that will finance the sale of these businesses. We are thoroughly familiar with the licensing requirements for selling licensed California Contractor businesses and have developed relationships to assist the buyer and seller with the process and specialized terms and conditions for the purchase agreements.
Many of our construction and contractor business sales are in the form of a stock sale as opposed to the more common asset sale used in other business sales. Stock sales are often necessary with construction and contractors businesses to preserve contracts for work in progress, bid and quoted projects, and to preserve the contractor’s license. In an asset sale, a new entity is formed to buy the business, which results in a new contractor’s license. The new contractor’s license and new corporate EIN make it necessary to assign all of the contracts from your company to the new company, which is a complicated process. In a stock sale, the contractor’s license remains the same, only the RMO changes, and the corporate EIN also remains the same. This allows contracts and work in progress to continue without any changes or hiccups.
Read more about selling construction companies as stock sales to preserve ongoing contracts and licensing.
As a licensed contractor, when you sell your business, the buyer (new owner) will need to have the appropriate Contractor’s License, or someone with the appropriate Contractor’s License will have to act as either the RMO (Responsible Managing Officer) or RME (Responsible Managing Employee).
The buyers of Construction-Contractor businesses rarely have the appropriate license for the company they are buying, which means they will need an RMO or RME in order to complete the purchase of the business. Recent SBA guidance on SBA Loans for licensed contractor businesses now requires one of the buyers to have the appropriate contractor’s license at closing or to have passed the license test by closing. This recent guidance no longer allows the seller to act as the RMO or an RME post-closing. Our buyer screening process takes this requirement into consideration and our Construction Buyer Profile specifically asks for the prospective buyer’s experience and license qualifications.
Obtaining financing for the sale and addressing the Contractor’s License RMO are just two of the key factors in selling a contractor business. It is essential to find well-qualified buyers capable of running the business successfully. Our advertising generates lots of inquiries and while it’s great to get lots of inquiries, many are not qualified or capable to run a contractor business and some are just not a fit. We screen all buyer inquiries and only send our Confidential Information Memorandum for your business to those that are both financially qualified and technically capable of running the business. Of course, the final decision of which buyers you are comfortable with is yours, our job is to present the best prospects to you.
Purchase Agreements and Escrow are different for Contractor businesses because of the licensing, contracts (jobs in work and backlog), and closing process. Through our experience in selling a wide variety of contractors ranging from General Contractors with B licenses, to C licensed plumbing companies, electrical contractors, flooring, painting, and others we have developed knowledge and expertise to successfully sell construction companies.
Business Valuation is also different for Construction-Contractor businesses because of the work in progress, deposits, retention (if any), and inventory in some instances. We use professional business valuation software that uses the same methodologies used by SBA business appraisers. With our experience in valuing and selling construction companies, we know how to properly value work in progress, deposits, and inventory as well as the overall company.
When you are ready to sell your construction-contractor business it is essential to use a Business Broker experienced in these transactions. At Pacific Business Sales the sale of construction-contractor companies is one of our specialties and focus industries.
RMO Requirements
The duties of the RMO and/or RME (Responsible Managing Employee) must meet certain criteria that are codified in California Business and Professional Code §§7068 and 7068.1 of the Code.
- An RMO can be an officer of the entity with no ownership; however, the company may have to post an additional bond for their license. If the RMO has less than twenty percent ownership, that RMO is restricted to being the RMO to the Buyer’s corporation solely.
- If the RMO disassociates from the licensed entity, the licensee or qualifier shall notify the registrar in writing and the licensee shall replace the qualifier within 90 days from the date of disassociation. Code §7068.2 to replace an RMO or RME the licensee shall file an application as prescribed by the registrar, accompanied by the fee, designating an individual to qualify as required by the law. If the licensee fails to replace the qualifier within 90 days of the disassociation, the license shall be automatically suspended, or the classification removed at the end of the 90 days.
- Upon failure of the licensee or the qualifier to notify the registrar of the disassociation within 90 days from the date of disassociation, the license shall be automatically suspended or the classification removed, and the qualifier removed from the license, effective the date the written notification is received at the board.
- We advise sellers to read CSLB §§7068 and 7068.1 to ensure they follow the requirements.
