FREE General Contractor License Business Law and Finance Questions and Answers

Question 1

A general contractor is choosing a business structure.
They want to protect their personal assets from business debts and lawsuits but also want to avoid the double taxation that can occur with a C Corporation.
Which business structure would be most suitable?

Accepted Answer

S Corporation

Answer

Sole Proprietorship

Answer

General Partnership

Answer

C Corporation

Question 2

A subcontractor completes their portion of a residential project but is not paid by the general contractor. To secure their claim for payment against the property itself, what is the most appropriate legal remedy for the subcontractor to pursue?

Accepted Answer

Place a mechanic's lien on the property

Answer

File a lawsuit for breach of contract against the homeowner

Answer

Request a stop payment notice from the homeowner's bank

Answer

Obtain a writ of garnishment against the general contractor

Question 3

A client wants a contractor to build a custom home. The plans are complete, the scope of work is clearly defined, and the client desires cost certainty before the project begins. Which type of construction contract would be most appropriate for this scenario?

Accepted Answer

Lump-Sum (Fixed-Price) Contract

Answer

Cost-Plus Contract

Answer

Time and Materials (T&M) Contract

Answer

Unit Price Contract

Question 4

Which of the following financial statements provides a snapshot of a construction company's assets, liabilities, and equity at a specific point in time?

Accepted Answer

Balance Sheet

Answer

Income Statement

Answer

Cash Flow Statement

Answer

Work-in-Progress (WIP) Report

Question 5

A general contractor hires several subcontractors for a large commercial project. To protect their own business from claims arising out of a subcontractor's negligence, the general contractor should require proof of which type of insurance from the subcontractor?

Accepted Answer

General Liability Insurance

Answer

Builder's Risk Insurance

Answer

Commercial Auto Insurance

Answer

Umbrella Insurance

Question 6

Under a Cost-Plus contract, the contractor is reimbursed for the actual costs of labor and materials, in addition to a fee. Which of the following is the primary risk for the *property owner* in this type of agreement?

Accepted Answer

The final project cost is uncertain and can exceed the budget.

Answer

The contractor may cut corners to increase profit.

Answer

The project scope cannot be changed once work begins.

Answer

The contractor is not incentivized to complete the project quickly.

A general contractor is choosing a business structure.They want to protect their personal assets from business debts and lawsuits but also want to avoid the double taxation that can occur with a C Corporation.Which business structure would be most suitable?

A general contractor is choosing a business structure.
They want to protect their personal assets from business debts and lawsuits but also want to avoid the double taxation that can occur with a C Corporation.
Which business structure would be most suitable?