C33 Business Organization 2 — Questions and Answers
Question 1: A painting contractor wants to operate under a trade name different from their legal name. What must they do to legally use this fictitious business name in California?
- Register it with the CSLB only and pay the amendment fee
- File a Fictitious Business Name Statement with the county clerk and publish notice in a local newspaper (Correct answer)
- Submit the trade name to the California Secretary of State for approval
- No registration is required for sole proprietors using a DBA
Correct answer: File a Fictitious Business Name Statement with the county clerk and publish notice in a local newspaper
California law requires filing a Fictitious Business Name Statement with the county clerk where the business operates, followed by newspaper publication.
Question 2: Which business structure exposes ALL owners to unlimited personal liability for business debts and obligations?
- Corporation
- Limited Liability Company (LLC)
- Limited Partnership
- General Partnership (Correct answer)
Correct answer: General Partnership
In a general partnership, each partner is personally and jointly liable for all debts and obligations of the partnership.
Question 3: When a painting contractor changes their business structure from a sole proprietorship to a corporation, what must happen regarding the CSLB license?
- The sole proprietor's license automatically transfers to the corporation
- The corporation must apply for its own separate contractor's license (Correct answer)
- The contractor may operate under the old license for up to 90 days
- A new bond is not required if the same qualifying individual is used
Correct answer: The corporation must apply for its own separate contractor's license
A CSLB license is issued to a specific business entity, so a newly formed corporation must obtain its own license; it does not inherit the sole proprietor's license.
Question 4: Under California law, how many members are required to legally form a Limited Liability Company (LLC)?
- At least two members
- At least three members
- One or more members (Correct answer)
- A minimum of five members
Correct answer: One or more members
California allows single-member LLCs, so one or more members are sufficient to form a valid LLC.
Question 5: What is the primary legal advantage of incorporating a painting contracting business compared to operating as a sole proprietorship?
- No workers' compensation insurance is required for corporations
- Personal assets of owners are protected from business liabilities (Correct answer)
- The contractor's bond requirement is waived for corporations
- Corporate tax rates are automatically lower than personal tax rates
Correct answer: Personal assets of owners are protected from business liabilities
Incorporation creates a separate legal entity, shielding the owner's personal assets from business debts and legal judgments.
Question 6: Under CSLB rules, a contractor's license is issued to which of the following?
- The individual qualifying person only, not the business
- The specific business entity that applied for the license (Correct answer)
- The physical business location or address of record
- The surety bond holder listed on the application
Correct answer: The specific business entity that applied for the license
The CSLB issues the license to the business entity—whether sole proprietor, partnership, corporation, or LLC—not solely to the qualifying individual.
Question 7: If one general partner in a painting contracting partnership is found liable for fraud committed in the course of business, which partners may be held personally liable?
- Only the partner who directly committed the fraud
- Only partners designated as managing partners
- All general partners in the partnership (Correct answer)
- Only partners with greater than 50% ownership interest
Correct answer: All general partners in the partnership
Under partnership law, all general partners are jointly and severally liable for wrongful acts committed by any partner acting within the scope of the business.
C33 Business Organization 2
A painting contractor wants to operate under a trade name different from their legal name.
What must they do to legally use this fictitious business name in California?