C33 Business Organization 5 — Questions and Answers
Question 1: Which event would cause a California painting contractor's license to be automatically suspended without a CSLB hearing?
- Hiring more than 10 employees without prior CSLB notification
- Allowing the required contractor's bond to lapse or be cancelled (Correct answer)
- Operating in more than one county without separate county registration
- Missing the annual business license renewal with the city
Correct answer: Allowing the required contractor's bond to lapse or be cancelled
California law automatically suspends a contractor's license the moment the required $25,000 contractor's bond lapses, with no hearing required.
Question 2: When the partners of a painting contracting partnership dissolve the entity, how should outstanding construction contracts be handled?
- All outstanding contracts are automatically voided by operation of law
- Contracts are assigned solely to the partner with the largest ownership share
- All customers must renegotiate contracts from scratch under the new entity
- A licensed successor entity or a licensed partner may complete existing contracts (Correct answer)
Correct answer: A licensed successor entity or a licensed partner may complete existing contracts
Outstanding contracts can be completed by a properly licensed successor entity or by a partner who holds their own valid license, ensuring project continuity.
Question 3: What is the minimum combined labor-and-materials threshold above which performing work without a California contractor's license is illegal?
- $1,000 in combined labor and materials
- $500 in combined labor and materials (Correct answer)
- $2,500 in labor costs alone
- $250 for specialty trade classifications including painting
Correct answer: $500 in combined labor and materials
Under California Business and Professions Code §7048, any project with combined labor and materials exceeding $500 requires a contractor's license.
Question 4: A C33 license holder wants to operate two entirely separate painting companies simultaneously. How may they legally accomplish this?
- Use one license for both companies provided they share the same business address
- Never—a licensee may not hold ownership in two competing businesses
- Qualify both companies using a separate, eligible qualifying individual for each entity (Correct answer)
- Operate both under a single license by filing a DBA for each company name
Correct answer: Qualify both companies using a separate, eligible qualifying individual for each entity
Each business entity must have its own qualifying individual; using different QIs for each company allows the owner to operate both legally.
Question 5: What does 'piercing the corporate veil' mean in the context of a painting contractor corporation?
- A CSLB audit process for verifying corporate licensee financial records
- A court holding corporate owners personally liable because they failed to maintain proper corporate formalities (Correct answer)
- A CSLB process by which a corporate license is transferred to a new shareholder
- The CSLB's authority to access a corporation's internal jobsite records
Correct answer: A court holding corporate owners personally liable because they failed to maintain proper corporate formalities
Courts can pierce the corporate veil and hold owners personally liable when the corporation is used as an alter ego or corporate formalities—like separate finances—are ignored.
Question 6: A painting contractor licensed as a sole proprietor forms a new corporation. Regarding the CSLB license, which statement is correct?
- The corporation may use the sole proprietor's license number for up to 180 days
- The corporation assumes the existing license by filing a sole-ownership-to-corporation amendment
- The corporation must apply for a new license, and the sole proprietor's license becomes inactive (Correct answer)
- The corporation automatically inherits the sole proprietor's bond and workers' compensation policy
Correct answer: The corporation must apply for a new license, and the sole proprietor's license becomes inactive
A corporation is a new legal entity and must apply for its own CSLB license; the sole proprietor's license does not carry over to the new corporation.
Question 7: Which state agency has the legal authority to discipline, suspend, or revoke a California C33 painting contractor's license?
- California Department of Industrial Relations (DIR)
- Local city or county building department
- Contractors State License Board (CSLB) (Correct answer)
- California Department of Consumer Affairs (DCA) acting alone
Correct answer: Contractors State License Board (CSLB)
The CSLB, operating under the Department of Consumer Affairs, is the sole state agency empowered to issue, suspend, revoke, or otherwise discipline contractor licenses.
C33 Business Organization 5
Which event would cause a California painting contractor's license to be automatically suspended without a CSLB hearing?