How to Start a General Contractor Business in California

California doesn’t make this cheap or fast. Between the CSLB licensing process, the $800 annual franchise tax, a mandatory surety bond, and a 2025 workers’ comp rule that eliminated the last remaining workaround for solo operators — you’re looking at $15,000 to $40,000 in startup costs before you buy a single tool. That’s just the cost of being legal.

None of that should stop you. General contracting in California is a real business with real margins. But you need to know exactly what’s required, in what order, and what it costs. This guide covers all of it.

CSLB License Requirements

The Contractors State License Board (CSLB) licenses every contractor in California. There is no separate journeyman license system, no county-level workaround, no grandfather clause. If you’re doing construction work valued at $1,000 or more in combined labor and materials, you need a CSLB license.

That $1,000 threshold is new. Before January 1, 2025, the threshold was $500 — meaning unlicensed work on smaller jobs was technically legal. AB 2622 raised it to $1,000. The change sounds like a loosening, but it mostly just adjusted for decades of inflation. The core requirement hasn’t changed: any significant project requires a license.

Class B — General Building Contractor is what you want. Class B covers projects involving two or more unrelated trades or crafts — framing and drywall, or rough plumbing and finish carpentry together. It’s the most common license for general contractors running job sites and hiring subs. If you specialize in a single trade (electrical, plumbing, HVAC), you’d look at Class C specialty licenses instead. But if you’re running a GC business that coordinates multiple trades, Class B is it.

Basic Eligibility

You must be at least 18 years old and have a valid Social Security number or Individual Taxpayer Identification Number (ITIN). That’s the minimum. Most applicants are well past those hurdles.

The real requirement is experience.

The 4-Year Experience Requirement

You need four years of journey-level experience within the last ten years. CSLB is specific about what counts: time as a journeyman, foreman, supervisor, or contractor in the classification you’re applying for. Apprentice time counts partially. Helper time doesn’t count at all.

Four years. Within the last decade. In the trade.

If you’ve been in the field, you likely have this. If you’re coming from project management or an office role without hands-on field time, you’ll need to document your actual experience carefully — and be honest about it. CSLB verifies. You’ll need to provide references who can confirm your work, and those references may get contacted.

The Two Exams

Every applicant takes two separate exams:

Trade exam (Class B — General Building Contractor)
Law and Business exam

Both require a 72% passing score. The trade exam covers construction methods, materials, building codes, and the technical side of general contracting. The law and business exam covers contractor law, contract requirements, lien law, OSHA, and how to run a licensed contracting business legally.

Neither exam is trivial. Most applicants spend 2-4 weeks studying. Exam prep courses are available from providers like the National Association of State Contractors Licensing Agencies (NASCLA) and various California-specific prep services — expect to pay $300-$800 for a good prep course. You can also self-study with the official CSLB reference materials.

Exams are administered by PSI at testing centers across California. CSLB schedules you after your application is approved.

Application Fees

Application fee: $450
Initial license fee: $200 (paid after you pass the exams)
Fingerprinting/background check: $49-$59 (LiveScan, required for all applicants)
License renewal: $450 every two years

The sequence matters: you pay the $450 application fee to get into the process, take and pass both exams, then pay the $200 initial license fee to actually receive your license. Total CSLB fees: $649-$659 before renewal.

CSLB processing times vary. Expect 3-6 months from application submission to license in hand, depending on exam scheduling and any application issues.

Bond and Insurance Requirements

Getting licensed is one thing. Staying licensed — and actually operating legally — requires three separate financial instruments. Two are mandatory. One is strongly recommended.

The $25,000 Surety Bond

Every CSLB licensee must maintain a contractor’s surety bond of at least $25,000. This isn’t the same as insurance. A surety bond is a three-party agreement: you, the surety company, and anyone who might make a claim against your license. If you fail to complete a job, pay your subs, or otherwise cause financial harm, the bond provides a fund for claims.

You pay a premium to a surety company, not the full $25,000. For contractors with good credit, that premium runs $100-$500 per year. Bad credit means higher premiums — sometimes $1,000+/year. Shop around. Rates vary significantly between surety providers.

The bond must be filed with CSLB directly. Your surety company handles the paperwork. If the bond lapses, your license goes inactive.

Workers’ Comp — The Big 2025 Change

Here’s the one that caught a lot of solo operators off guard.

Effective January 1, 2025, all licensed contractors in California must carry workers’ compensation insurance. No exceptions. No exemptions. This is a direct result of legislative changes to CSLB requirements, and it closes a loophole that sole proprietors with no employees had been using for years.

Previously, a licensed contractor with no employees could file a workers’ comp exemption with CSLB. It was a legitimate option — if you had no employees, the argument went, you had no one to cover. CSLB accepted those exemptions and your license remained in good standing without workers’ comp.

That is no longer true. CSLB no longer accepts the exemption. If you’re a sole proprietor doing every job yourself with no employees, you still need workers’ comp coverage. Period.

This is the single biggest recent change to California contractor licensing. If you’re currently licensed under the old exemption, you needed to obtain coverage by January 1, 2025, or your license became subject to suspension.

For a new applicant, plan workers’ comp into your budget from day one. Costs vary significantly based on your classification code, your payroll (even if it’s just your own), and your claims history. A solo operator with no payroll history might pay $2,000-$5,000/year. A company with employees and $500,000 in payroll could pay $10,000-$30,000+. Get quotes from multiple carriers through a California-licensed insurance broker who works with contractors.

General Liability Insurance

Workers’ comp covers injuries to workers. General liability covers property damage and bodily injury to third parties — your client’s house, a neighbor’s fence, a visitor who trips on your job site.

CSLB doesn’t mandate general liability. But almost every commercial client will require it. Most municipalities require it for permits. And any job site accident without it could wipe out your business.

Carry at least $1 million per occurrence. Most contractors in this range pay $3,000-$15,000/year depending on revenue, project types, and claims history. Higher-risk work (demolition, roofing) costs more.

Commercial Auto Insurance

If you’re driving a work vehicle — which you are — your personal auto policy doesn’t cover it when it’s being used for business. You need commercial auto insurance. Budget $1,500-$5,000/year per vehicle.

Business Formation

Your CSLB license is separate from your business entity. You need both. Most general contractors form an LLC or corporation, then apply for the contractor’s license in the name of that entity (or as a sole proprietor and have the license in their own name). Here’s what the business side costs.

LLC vs. Sole Proprietor

Most new GCs choose either sole proprietorship (just their name, no entity) or an LLC. The LLC provides liability protection — it separates your business debts and legal exposure from your personal assets. Given the job site risks in construction, that separation matters.

LLC costs in California:

Articles of Organization: $70, filed with the Secretary of State at bizfileOnline.sos.ca.gov
Annual franchise tax: $800/year, paid to the Franchise Tax Board regardless of revenue
Statement of Information (Form LLC-12): $20, due within 90 days of formation, then every two years

That’s $870 in the first year before you invoice a single client. The $800 franchise tax doesn’t go away in year two — it’s permanent, due every April 15.

Sole proprietorship: No formation cost, no franchise tax. But no liability protection either. One lawsuit can reach your personal bank account, your house, everything. For a general contractor, that’s a significant exposure.

The LLC math is straightforward: $870/year for real liability separation. Most contractors take it.

EIN and Seller’s Permit

Get an Employer Identification Number (EIN) from the IRS. It’s free at irs.gov/ein and takes about five minutes online. You’ll need it for your business bank account, payroll (if you hire), and tax filings.

If you sell materials separately — billing clients for materials as a distinct line item rather than bundling them into your contract price — you may need a seller’s permit from the California Department of Tax and Fee Administration (CDTFA). Registration is free. Most general contractors don’t sell materials as a retail transaction, but if you do, you need the permit.

City Business License

Every city in California has its own business licensing requirements. Los Angeles has one. San Diego has one. Even smaller cities like Fresno or Stockton require a local business license. Costs range from $50 to $500+ depending on the city and your expected revenue.

Your CSLB contractor’s license does not replace the city business license. You need both. Check with your city’s business licensing office or website — requirements and fees vary too much to generalize.

Startup Costs at a Glance

Let’s put the full picture together. These are real numbers, not best-case scenarios.

Cost Item	Estimated Cost
LLC formation (Articles of Organization)	$70
LLC annual franchise tax	$800/year
Statement of Information	$20
CSLB application fee	$450
CSLB initial license fee	$200
Fingerprinting/background check	$49-$59
Surety bond premium	$100-$500/year
Workers’ comp insurance (mandatory)	$2,000-$10,000+/year
General liability insurance	$3,000-$15,000/year
Exam prep courses (optional)	$300-$800
City business license	varies ($50-$500+)
Tools and equipment	$10,000-$50,000
Work vehicle	$20,000-$50,000

Pre-equipment startup total: roughly $15,000-$40,000.

That range is wide because workers’ comp and general liability vary so much. A solo operator doing smaller residential jobs will sit closer to $15,000. A company staffing up and taking on commercial work hits $40,000 fast. And neither figure includes the truck or the tools.

For context: in some states, general contractors don’t need a state license at all. Oklahoma, for instance, has no statewide GC license requirement. Texas requires registration, not licensing. California is on the expensive end nationally — the $800 franchise tax alone is unusual, and the new mandatory workers’ comp requirement has no parallel in most states.

That’s the price of operating in the largest construction market in the country.

The Application Process, Step by Step

Verify your experience. Four years in the last ten, journey-level. Identify references who can confirm your work history. CSLB will contact them.
Submit your application. Download Form 7-A from cslb.ca.gov or apply online. Pay the $450 application fee. Complete the LiveScan fingerprinting ($49-$59) at an authorized location.
Wait for exam scheduling. CSLB reviews your application and approves you to test. This takes weeks to months — the timeline varies. Once approved, you schedule both exams through PSI.
Pass both exams. 72% on the trade exam. 72% on the law and business exam. If you fail either, you can retake it (additional exam fee applies). Study seriously the first time.
Obtain your bond and workers’ comp. Before your license issues, you need proof of your $25,000 surety bond and workers’ comp insurance. Get quotes before you pass the exams so you’re ready to move fast.
Pay the initial license fee. $200. Your license issues.
Form your LLC. File with the Secretary of State, get your EIN, open a business bank account, get your city business license.
Get general liability and commercial auto insurance. Bundle these if possible — some carriers offer contractor package policies.
Verify everything is active on the CSLB license lookup. Your bond, your workers’ comp, your license status — all visible at cslb.ca.gov/OnlineServices/CheckLicenseII/checklicense.aspx. Clients check this before hiring you.

A Few Things That Catch New Contractors Off Guard

The franchise tax starts immediately. California’s $800/year franchise tax is due by the 15th day of the 4th month after your LLC forms. If you form in January, you owe $800 by April 15. The AB 85 first-year exemption expired December 31, 2023. Budget for it upfront.

Workers’ comp applies even if you’re the only person on the job. This is the 2025 change that still surprises people. Yes, even a solo operator. Yes, even if you never hire anyone. If you’re a licensed contractor in California, you need workers’ comp. Get it before your license issues — CSLB requires proof.

Your license can be in your name or your company’s name, but not both. If you apply as an individual and later form an LLC, you’ll need to reassign or reapply. Think about your entity structure before submitting the application.

Subcontractors you hire must also be licensed. This is critical. If you hire an unlicensed sub, you can face disciplinary action with CSLB, and your client can hold you responsible for that sub’s work. Verify every sub on cslb.ca.gov before they touch the job.

The CSLB license is the gating item. Everything else — the LLC, the insurance, the city license — you can set up in parallel or after. Start the application process first. The 3-6 month timeline means the clock starts the day you submit, and you can’t work legally until it’s done.

Go to cslb.ca.gov and download Form 7-A.