Business Organization and Licensing practice

All 16 free business organization and licensing questions

1. What does the registrar look at to fix the amount of a disciplinary contractor's bond after a license law violation?

   • A A flat sum set by statute No single sum is fixed; the statute gives a $25,000 floor and a ceiling of 10 times the contractor's bond, and the registrar sets the amount between them.
   • B The consumer's loss The consumer's loss does not set the sum; the registrar fixes it by how serious the violation was, between $25,000 and 10 times the contractor's bond.
   • C The licensee's yearly volume Business volume plays no part; the sum turns on how serious the violation was.
   • D How bad the violation was Correct

   The seriousness of the violation sets it: the registrar fixes the sum at no less than $25,000 and no more than 10 times the contractor's bond (Bus. & Prof. Code s. 7071.8(b)). No flat statutory sum applies, and the licensee's volume of work plays no part.

   Bus. & Prof. Code s. 7071.8(b)

2. How many hours a week must a responsible managing employee work to count as actively engaged in the applicant's business?

   • A 20 hours, or 50 percent if less Section 7068(c)(2)(B) sets the figures at 32 hours and 80 percent; 20 hours and 50 percent appear nowhere in the definition.
   • B 32 hours, or 80 percent if less Correct
   • C 32 hours, or 80 percent if more The statute says whichever is less, so reading it as the greater would demand 32 hours from a business open fewer hours.
   • D 40 hours, or 80 percent if less The hours figure in the definition is 32 per week, not 40.

   32 hours a week, or 80 percent of the hours the business operates if that is less (Bus. & Prof. Code s. 7068(c)(2)(B)). The definition says whichever is less, and neither 20 hours nor 40 appears in it.

   Bus. & Prof. Code s. 7068(c)(2)(B)

3. In any one-year period, one qualifying individual may serve as qualifier for at most how many separate firms?

   • A Two Section 7068.1(b) sets the ceiling at three firms, so two understates what the statute allows.
   • B Three Correct
   • C Four Four exceeds the express limit of three firms in any one-year period.
   • D No limit under common ownership The subdivision opens notwithstanding the ownership paragraphs, so meeting the common ownership test does not lift the three-firm ceiling.

   One qualifier may serve at most three firms in any one-year period, even where the firms share ownership (Bus. & Prof. Code s. 7068.1(b)). The ceiling applies notwithstanding the common ownership rules, and four firms is one more than it allows.

   Bus. & Prof. Code s. 7068.1(b)

4. A corporation's responsible managing employee leaves, and the corporation notifies the registrar but names no replacement. What happens to its license?

   • A It stays in good standing The subdivision imposes two duties on the same 90 days, notice and replacement, and failing the second suspends the license however promptly notice was given.
   • B Suspended 90 days after disassociation Correct
   • C Suspended on the disassociation date The suspension bites at the end of the 90 days, so the licensee has that period to name a replacement.
   • D Suspended 30 days after disassociation The period in section 7068.2(a) is 90 days; 30 days is the window in section 7076.2 for a lapsed Secretary of State registration.

   The license is suspended when the 90 days end, because notice alone does not replace the qualifier (Bus. & Prof. Code s. 7068.2(a)). The licensee has the full 90 days to name a replacement, and the suspension does not start on the disassociation date itself.

   Bus. & Prof. Code s. 7068.2(a)

5. In what sum must an applicant or licensee file the contractor's bond the board requires before it issues or renews a license?

   • A $12,500 No figure of this size appears in section 7071.6; the contractor's bond is set at $25,000.
   • B $15,000 $15,000 falls short of the bond the section requires, which section 7071.6(a) fixes at $25,000.
   • C $25,000 Correct
   • D $100,000 $100,000 is the limited liability company employee wage bond under section 7071.6.5, which is in addition to the contractor's bond.

   $25,000, filed before the license issues or renews, because the board requires it as a condition of issuing, renewing and keeping a license (Bus. & Prof. Code s. 7071.6(a)). $100,000 is not its amount.

   Bus. & Prof. Code s. 7071.6(a)

6. For employees damaged by unpaid wages, a limited liability company holding a contractor's license must keep on file a bond of:

   • A $15,000 No bond of this size appears in section 7071.6.5; the employee bond is set at $100,000.
   • B $25,000 $25,000 is the contractor's bond under section 7071.6, which the limited liability company carries as well as the employee bond.
   • C $100,000 Correct
   • D $1,000,000 $1,000,000 is the ceiling on personal liability of listed personnel while a limited liability company license is suspended under section 7076.2(b), not a bond amount.

   $100,000: a limited liability company license requires a surety bond in that sum on file (Bus. & Prof. Code s. 7071.6.5(a)). It is separate from the contractor's bond, and $25,000 is not its amount.

   Bus. & Prof. Code s. 7071.6.5(a)

7. A corporation's responsible managing officer owns 12 percent of its voting stock and certifies that fact on the registrar's form. What applies to the qualifying individual's bond?

   • A Required in every case Section 7071.9(c) is an express exemption for a certifying officer with 10 percent or more of the voting stock, so the bond duty is not absolute.
   • B Excused at 10 percent or more Correct
   • C Combined with the contractor's bond Section 7071.9(a) says the qualifying individual's bond is in addition to, and shall not be combined with, the contractor's bond.
   • D Required below 20 percent of stock The threshold in that subdivision is 10 percent; the 20 percent figure is the common ownership test in section 7068.1.

   Excused: a responsible managing officer who owns 10 percent or more of the voting stock and certifies it on the registrar's form files no qualifying individual's bond (Bus. & Prof. Code s. 7071.9(c)). A 12 percent holding clears that line, and no 20 percent test applies to this bond.

   Bus. & Prof. Code s. 7071.9(c)

8. A handyman agrees to replace deck boards for $850 in total and neither advertises nor hires help. What decides whether the job is exempt from licensing?

   • A Labor under $1,000, no permit The $1,000 line is measured on the aggregate price for labor, materials and all other items, not on labor alone.
   • B Price under $500, no permit The minor work line is $1,000, not $500.
   • C Price under $1,000, with permit Work that needs a building permit is outside the exemption whatever its price.
   • D Price under $1,000, no permit Correct

   The job is exempt only while the whole price stays under $1,000 and no building permit is needed (Bus. & Prof. Code s. 7048(a)). The price counts labor, materials and all other items together, and a job that needs a permit loses the exemption at any price.

   Bus. & Prof. Code s. 7048(a)

9. A licensee's contractor license number must appear in which of the following sets of documents?

   • A Contracts, subcontracts, invoices, advertising Invoices are not on the section's list, and calls for bid are: the number goes in subcontracts and calls for bid alike.
   • B Contracts, subcontracts, calls for bid, advertising Correct
   • C Contracts, subcontracts, calls for bid, pay stubs Pay stubs are not on the section's list, and advertising of every kind is.
   • D Tax returns, subcontracts, calls for bid, advertising Tax returns are not on the section's list, and construction contracts head it.

   Construction contracts, subcontracts and calls for bid, and every form of advertising must carry the license number (Bus. & Prof. Code s. 7030.5). Invoices, pay stubs and tax returns are not on that list.

   Bus. & Prof. Code s. 7030.5

10. How much experience must an applicant for a contractor license show in the class applied for, and over what period?

    • A Two years within the last five Neither the two-year figure nor the five-year window appears in the rule, which sets four years within 10.
    • B Four years within the last four The lookback period in the rule is 10 years, not four, so this collapses the window into the requirement.
    • C Four years within the last 10 Correct
    • D Six years within the last 10 The rule requires not less than four years of experience, so six years overstates the minimum.

    Four years of journey-level experience within the last 10 (16 CCR s. 825(a)). The experience must be as a journeyman, foreman, supervising employee or contractor in the class applied for, and neither two years nor a five-year window appears in the rule.

    16 CCR s. 825(a)

11. What fine and jail term must the court impose on a person convicted a second time of contracting without a license, where the case is not unusual?

    • A Up to $1,000 or 30 days No conviction tier carries a $1,000 cap or a 30-day term; a second conviction starts at $5,000 and 90 days.
    • B Up to $5,000 or six months That is the first-conviction penalty, a ceiling rather than a floor; a second conviction sets floors.
    • C At least $5,000 and 90 days Correct
    • D At least $10,000 and a year No tier sets a $10,000 floor, and a year is the most jail a third conviction can bring, not a second conviction's minimum.

    At least $5,000 and at least 90 days in county jail: the fine is 20 percent of the contract price or of the payments, or $5,000, whichever is greater (Bus. & Prof. Code s. 7028(c)). The court may go lower only in an unusual case, and a ceiling of $5,000 or six months is not what a second conviction carries.

    Bus. & Prof. Code s. 7028(c)

12. What is the main business of a contractor licensed only in plumbing based on?

    • A Specialized building trades or crafts Correct
    • B Two or more unrelated trades Section 7057(a) defines the general building contractor by a structure 'requiring in its construction the use of at least two unrelated building trades or crafts'.
    • C Fixed works needing specialized engineering Section 7056 defines the general engineering contractor by 'fixed works requiring specialized engineering knowledge and skill'.
    • D Three or more unrelated trades At least three unrelated trades is the residential remodeling contractor's test in section 7057.5, not a specialty contractor's.

    Specialized building trades or crafts, because a contractor licensed only in plumbing is a specialty contractor, whose principal business uses them and whose work requires special skill (Bus. & Prof. Code s. 7058(a)). Two unrelated trades is the general building test.

    Bus. & Prof. Code s. 7058(a)

13. When a claim is made against a business run as a sole ownership, the owner faces:

    • A Personal liability for the claim Correct
    • B Liability limited to business assets Nothing in the sole ownership passage shields the owner: the owner is personally liable for any claims against the business, so the claim is not confined to business assets.
    • C Liability capped at the initial investment A cap at the amount invested is the limited partner's position, not the sole owner's; the sole owner has sole responsibility and complete control.
    • D No liability once the business closes The passage attaches personal liability to the owner and says nothing that ends it when the business stops trading.

    The owner is personally liable for any claim against the business, because sole ownership puts nothing between the owner and the business (CSLB Law Book 2026, p. 39). A cap at the amount invested describes a limited partner, not a sole owner.

    CSLB Law Book 2026, p. 39

14. What is the highest priority of the Contractors State License Board in its licensing and disciplinary work?

    • A Protection of the public Correct
    • B Fairness to the licensee Fair process is owed to a licensee, but the statute makes public protection paramount whenever the two pull apart.
    • C Growth of the contracting industry The statute names no industry growth objective, and it subordinates other interests to public protection.
    • D Efficient use of board funds Efficient administration is not the priority the statute states, and it must yield where public protection is at stake.

    Protecting the public comes first in the board's licensing, regulatory and disciplinary work, and it wins whenever another interest conflicts with it (Bus. & Prof. Code s. 7000.6). Fair treatment of licensees matters, but it gives way when the two pull apart.

    Bus. & Prof. Code s. 7000.6

15. If a canvasser signs homeowners to kitchen contracts at their doors for a remodeling contractor, what must the canvasser hold?

    • A A home improvement salesperson registration Correct
    • B His own contractor license The canvasser sells for a licensed contractor rather than contracting himself, and the statute asks a salesperson registration of that role.
    • C Nothing while he works for a licensee The registration applies to salespeople who work on behalf of a licensed contractor, so working for a licensee is no exemption.
    • D A city business license A city business license does not replace the registration with the board that the statute requires of a home improvement salesperson.

    A home improvement salesperson registration. A person who solicits or sells home improvement contracts on behalf of a licensed contractor must register with the board to act as a home improvement salesperson (Bus. & Prof. Code s. 7152(a) and (b)). Working for a licensee does not excuse him, since the registration covers people who sell on a licensee's behalf.

    Bus. & Prof. Code s. 7152(a) and (b)

16. How long do the parties have to return the board's agreement to arbitrate after the registrar mails it?

    • A 10 calendar days Ten calendar days is a third of the time allowed; the agreement is due back within 30 calendar days of mailing.
    • B 15 working days The statute counts calendar days, and it allows 30 of them, not 15 working days.
    • C 30 calendar days Correct
    • D 30 working days The 30 days are calendar days counted from mailing, so counting working days would stretch the deadline.

    30 calendar days: the agreement to arbitrate must be returned to the registrar within 30 calendar days of the date the registrar mails it (Bus. & Prof. Code s. 7085.3). Thirty working days would run past that deadline.

    Bus. & Prof. Code s. 7085.3