General Contractor License Business Law and Finance 4

Question 1

A contractor working as a sole proprietor is personally sued for a project dispute. What is their exposure?

Accepted Answer

Unlimited — all personal assets can be at risk

Answer

Sole proprietors have no legal separation between personal and business assets, so all personal property can be reached by business creditors.

Question 2

What is a 'lien waiver' and when is it typically used?

Accepted Answer

A document waiving the right to file a mechanics lien, exchanged upon payment

Answer

A lien waiver is a document where a contractor or supplier relinquishes their right to file a mechanics lien upon receiving payment.

Question 3

Which of the following best describes 'accounts receivable' on a contractor's balance sheet?

Accepted Answer

Money owed to the contractor for completed work not yet paid

Answer

Accounts receivable represents amounts billed to clients for work performed but not yet collected.

Question 4

An owner terminates a contract 'for convenience' without cause. What is the contractor typically entitled to?

Accepted Answer

Payment for work done, costs incurred, and lost profit on unperformed work

Answer

A for-convenience termination clause entitles the contractor to payment for completed work, committed costs, and anticipated profit on the remaining scope.

Question 5

A contractor fails to pay payroll taxes withheld from employees. The IRS can assess the 'Trust Fund Recovery Penalty' against:

Accepted Answer

Responsible individuals personally, even if the business is incorporated

Answer

The Trust Fund Recovery Penalty allows the IRS to hold responsible individuals personally liable for unremitted payroll taxes, piercing corporate protection.

General Contractor License Practice Test

General Contractor License Practice Test

General Contractor License Business Law and Finance 4