Business & Law
Business Organization & Law
Business structures, licensing, and basic legal responsibilities.
Business Structures
• SOLE PROPRIETORSHIP — one owner; simple, but the owner has UNLIMITED personal liability. • PARTNERSHIP — two+ owners sharing profits/liability. • CORPORATION — a separate legal entity; LIMITED liability for owners; more formality. • LLC — combines liability protection with pass-through taxation.
Liability protection (corporation/LLC) separates personal assets from business debts.
Licensing & Bonds
Most states require contractors to be LICENSED to bid/perform work above a threshold. Requirements often include experience, an exam, a SURETY BOND, and insurance.
A CONTRACTOR'S BOND protects the public/clients (not the contractor) against the contractor's failure to comply. Working without a required license can void contracts and bring penalties.
Insurance
Key coverages: • GENERAL LIABILITY — covers third-party injury/property damage. • WORKERS' COMPENSATION — covers employee injuries (required if you have employees). • Commercial auto, builder's risk, and others as needed.
Properly classifying workers (employee vs. independent contractor) matters for taxes and workers' comp. Misclassification carries penalties.
📖 Key Terms
- Sole proprietorship
- A one-owner business with unlimited personal liability.
- LLC
- A structure combining liability protection with pass-through taxation.
- Surety bond
- Protects the public/clients against a contractor's noncompliance — not the contractor.
- Workers' compensation
- Insurance covering employee work injuries, required with employees.
💡 Exam Tips
- ▸Sole proprietors have unlimited personal liability; corporations/LLCs limit it.
- ▸A contractor's surety bond protects the public, not the contractor.
- ▸Workers' comp is required when you have employees.
- ▸Working without a required license can void contracts and bring penalties.