Can I start a construction company without being a licensed general contractor?

Absolutely not. You need a license. In Vallejo Dev. Co. v. Beck Dev. Co., 24 Cal.App.4th 929 (1994), the court reasoned that for purposes of Business & Professions Code §7031, “a ‘contractor’ is one who has a direct contractual relationship with an owner of real property who agrees to provide both labor and materials for the improvement of the owner’s real property.” Vallejo at 940-941. The court in Vallejo noted that the developer “was the only person functioning in that capacity with respect to the installation of infrastructure improvements on the property.” Id. at 941. The court held that it did not matter that the developer did not do any construction work itself. Id. The court wrote: “The California courts have also long held that those who enter into construction contracts must be licensed, even when they themselves do not do the actual work under the contract. Indeed, if this were not the rule, the requirement that general contractors be licensed would be completely superfluous.” Id.

Further, you are at risk if you contrat with a license. That is, under California Business & Professions Code §7031(b): “… a person who utilizes the services of an unlicensed contractor may bring an action in any court of competent jurisdiction in this state to recover all compensation paid to the unlicensed contractor for performance of any act or contract.” 

You have to be licensed. No exceptions.  

This is a partial memo from a while back. I have not re-checked any of the authorities, but am confident it is all good law.

A. Contractor Defined: 

A contractor is defined by Business & Professions Code § 7026 as one who
performs by himself or through others a work of improvement. This includes not only the performing of a
work of improvement but also “directing or supervising the work performed . . .
.” Contractors
Labor Pool, Inc. v. Westway Contractors, Inc., 53 Cal.App.4th 152, 164
(1997). It does not, however, include
signing the contract. As held by the
Supreme Court of California, a contractor does not need to be licensed at the
time he enters the contract so long as he is licensed at all times while
performing work under the contract. MW
Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co., Inc., 36
Cal.4th 412, 419 (2005). 

It has recently been held that so long as a person is not hired to do anything
listed in Section 7026 but instead acts as a “construction manager,” that
person is not a contractor under Section 7026 and does not therefore need to be
licensed. The Fifth Day, LLC v. Bolotin, 172 Cal.App.4^th 939, 948
(2009). In The Fifth Day, the property owner retained a construction
management company "to assist in coordinating the activities of the
various workers to enable them to complete their assigned tasks in an organized
and efficient manner, on time and on budget," and to act as the owner's
agent maintaining records and keeping the owner apprised of the status of the
project. Id. at p. 948. The court found these activities did not fall
within the definition of a ‘contractor’ as defined by Section 7026, reasoning
there was no evidence the company had "responsibility or authority to perform any construction work on the project, or to enter
into any contract or subcontract . . . ." Id. The court emphasized
that the owner did not contract with the management company to perform any of
the activities listed in section 7026's contractor definition and that another
licensed entity had been hired to perform and/or supervise all construction on
the project. Id. 

In short, per the holding in The Fifth Day
the basic elements of a construction manager who falls outside the definition
of a Section 7026 contractor is one who (1) is not contracted to perform any of
the duties in Section 7026, (2) in fact does not perform any of the duties in
Section 7026, and (3) others are responsible for the performance, direction and
supervision of the work of improvement. Id. 

 The Fifth Day did not address nor overrule Contractors
Labor Pool, Inc. v. Westway Contractors, Inc. which held that contractor
activities under Section 7026 include not only the performing of a work of
improvement but also “directing or supervising the work performed . . . .” Contractors
Labor Pool, Inc., 53 Cal.App.4th 152, 164-165. In Contractors
Labor Pool, one company provided labor to a work of improvement while
another company directed and supervised that labor. The court in Contractors Labor Pool held that the company which provided the
labor did not need to have a contractor’s license while the company that
directed and supervised the labor did. Id. at 165. 

The Fifth Day is
similar to Contractors Labor Pool
because in The Fifth Day the owner
had hired a general contractor who was to perform the work and/or the direction
and supervision of work. 172 Cal.App.4^th
948. The construction manager was to
provide only assistance in record keeping and scheduling the activities of
various workers. Id. It follows, that the
construction manager in The Fifth Day
did not provide any direction or supervision as to what and how the workers
were to perform and had not therefore performed any activities under Section
7026. What perhaps made it easier for
the court in The Fifth Day to hold
that the construction manager did not perform duties as a contractor was the
fact that this point was undisputed by the parties. 

B. Contractor
Licensure Rules: 

If a person falls within the definition of ‘contractor’ as discussed above, then
he will be subject to licensing requirements. The consequences of failing to maintain a license can be severe. The general rule under Business &
Professions Code § 7031(a) is that a contractor who was unlicensed at any time while performing work on a
project may not bring an action for compensation for work on the project. To make matters worse, under Business &
Professions Code § 7031(b) a contractor may be sued for disgorgement of all
compensation it received if at any time it
performed work while unlicensed. A
contractor may be disgorged even of compensation paid to the contractor for
work performed while licensed, so
long as at some time during the project it performed work while
unlicensed. Alatriste v. Cesar's Exterior
Designs, Inc., 183 Cal. App.
4th 656, 670 (2010).   

You're welcome