Is Your Construction Company Properly Registered In Idaho?

In 2005, the Idaho Legislature passed the Idaho Contractor Registration Act, which, makes it unlawful to engage in the business of a construction contractor without first registering with the Idaho Contractor’s Board.

Failure to comply with the Contractor Registration Act can result in harsh consequences, including civil penalties and the loss of certain legal remedies, including the right to record a mechanic’s lien and to sue to recover amounts you are owed.

A recent Idaho Supreme Court decision highlights the importance of correct registration. In Stonebrook Construction, LLC v. Chase Home Finances, LLC, two men partnered to construct custom homes in Southeast Idaho. One of the partners also individually registered with the Contractor’s Board. The following year they decided to form an LLC and registered with the Idaho Secretary of State. The newly formed LLC continued the partnership’s business of constructing custom homes. However, the LLC did not obtain a contractor’s license because they erroneously believed that the original license obtained by one of the partners was sufficient.

The LLC continued for nearly two years before its improper registration became an issue. An owner for whom the LLC was constructing a residence failed to pay for work performed at the property. The LLC recorded a mechanic’s lien against the property to securitize the amounts it was owed.

The bank that had financed the construction asserted that the lien was invalid due to the LLC’s improper registration. The Idaho Supreme Court ultimately ruled that the lien was invalid because the LLC, rather than the partner who obtained the original registration, entered into the contract with the property owner for the construction of the home. The practical effect of this decision is that the LLC was left without any means to recover the amounts it was owed to construct the home.

Failure to comply with the Contractor Registration Act can result in harsh consequences, including civil penalties and the loss of certain legal remedies, including the right to record a mechanic’s lien and to sue to recover amounts you are owed.

While this case obviously stands for the proposition that the specific entity that is performing construction work must be registered, it has even farther reaching implications. Corporations and LLCs are distinct legal entities identified by the name under which they filed with the Secretary of State.

Similarly, if any construction contracts your company has entered into do not properly identify your company as the entity registered with the Contractor’s Board, you may be jeopardizing your lien rights and your ability to collect the amounts you are owed pursuant to said contracts.

If you have recently started a new construction company or if you are planning on partnering or entering into a joint venture with another person or company to perform construction work, it is important that you correctly register this entity with the Contractor’s Board.

You should also verify and ensure that all current and future contracts your business executes identify the exact same company name that is on file with the Secretary of State and registered with the Contractor’s Board. Even if you are in the middle of a job, but not registered or properly registered, it is not too late. If you register now, you will at least be entitled to record a lien and sue to recover any amounts you are owed for labor and materials supplied after registration.

It may benefit your business to have your attorney review your business filings, contractor licenses/registrations, and construction contracts to make sure the business name identified on each are consistent.