In this article we will review the requirements you need to obtain a contractor’s license in the state of Missouri.
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What Contractor Licenses Are Issued in Missouri?
Missouri does not license general contractors or specialty contractors at the state level. The only licensing of general and specialty contractors occurs at the local level, though not all counties or municipalities have licensing requirements.
What Are the Steps in the Licensing Process?
Just as licensing requirements vary by locality, so does the licensing process. And there are certain basic prerequisites for operating a contracting business in Missouri that apply regardless of location. Specifically, you’ll need to register your business with the Missouri Secretary of State, obtain state and local tax ID numbers, purchase general liability insurance and, if you have employees, workers’ compensation insurance as well. Some local licensing authorities also require applicants to provide a Missouri contractor license surety bond. For example, Joplin requires a $10,000 contractor license bond, as do St. Louis County and St. Charles County.
Why is a Contractor License Bond Required?
When a local licensing authority requires contractors to furnish a contractor license bond, the purpose is 1) to ensure that the they abide by local building ordinances and codes, and 2) to provide a source of funds for compensating parties financially harmed by a contractor’s unlawful or unethical business actions.
Every contractor license bond is a legally binding contract involving an “obligee” (the local authority requiring the bond), a “principal” (the contractor), and a “surety” (the bond’s guarantor). The bond gives injured parties the right to file a claim for damages and legally obligates the principal to pay claims that the surety determines to be valid.
How Are Contractor License Bond Claims Paid?
The legal obligation to pay valid claims rests entirely with the principal, but the surety has guaranteed that the claim will be paid. Consequently, the surety typically pays a legitimate claim initially and is subsequently repaid by the surety for the resulting debt. If the principal does not repay the debt within a reasonable period of time, the surety can take legal action to recover the funds.
How Much Does a Missouri Contractor License Bond Cost?
Some sureties sell Missouri contractor bonds for a small flat amount, usually $100 for a $10,000 bond. Other surety bond providers sell Missouri contractor license bonds for a small percentage of the required bond amount. That small percentage is the bond’s premium rate, which is set by the surety based on an underwriting assessment of the risk involved in paying claims on behalf of the principal and waiting to be reimbursed.
The primary underwriting factor is the principal’s personal credit score. A high credit score means a low risk that the surety will not be repaid by the principal and qualifies the principal for premium rate that could be as low as one percent. On the other hand, a low credit score indicates greater risk and warrants a higher premium rate.
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