Choosing a Business Entity: Liability, Taxes, and What Happens to the License
"Choosing a Business Entity: Liability, Taxes, and What Happens to the License" is lesson 1 of 8 in the Law & Business Learning Hub. It opens with "Why the Legal Form Matters" and works through 5 short steps, then a worked example you can check yourself against.
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Steps in this lesson
Why the Legal Form Matters
Sole Owner and Partnerships
Corporations and LLCs
How the License Attaches to Each Form
What Ends the License When an Owner Dies or Leaves
The worked example in the course applies this lesson to a realistic job in 5 steps, from "Find the shortfall" through "Same departure under a corporation".
What you'll be able to do
Explain the main idea of "Choosing a Business Entity: Liability, Taxes, and What Happens to the License" in plain language you can use on the exam.
Apply this step with confidence: "Corporations and LLCs".
Apply this step with confidence: "How the License Attaches to Each Form".
Apply this step with confidence: "What Ends the License When an Owner Dies or Leaves".
Test yourself on the worked example and the quick-check quiz inside the classroom.
The diagram for this lesson, exactly as it appears in the Learning Hub.
The first steps of this lesson
Step 1: Why the Legal Form Matters
The Contractors License Law & Reference Book (Section III, "Forms of Business") says the legal form of the business decides four things: available sources of financing, the extent of personal liability, the extent of control, and the tax liabilities. It also says the form may change as the business grows and should be reviewed as financing needs change. CSLB licenses five kinds of business entity: sole owner, partnership, corporation, joint venture, and limited liability company (Get Licensed to Build, General Requirements Q2; B&P Code 7065(b)).
Step 2: Sole Owner and Partnerships
A sole owner has complete control but is personally liable for any claim against the business, and reports business income as personal income. A general partnership is not an entity separate from its partners: each partner may be personally liable to the extent of personal assets and may be legally responsible for the negligent acts of the other partners. A limited partner risks only the original investment, but there must be at least one general partner who runs the business and remains fully responsible for its liabilities. Sole owners and partnerships prepay estimated federal and state income taxes quarterly (Reference Book, Section III, Forms of Business and Taxes and Permits).
The remaining 3 steps, the worked example and the quiz are in the course. This is a preview. The full lesson, with the step-by-step explanations, a worked example and a quick-check quiz, is inside the classroom.
Independent exam preparation. Contractors Classroom is not affiliated with the Contractors State License Board, and no course can guarantee a passing result.
