Business & Law Exam Study Guide (2026)
Everything the Contractor Business & Law Exam tests, topic by topic: what each section covers, the facts that come up most, and how to study it. Pair it with the free 15-question practice test.
The exam at a glance
| Questions | Typically 40 to 80 questions (varies by state) |
|---|---|
| Time | Typically 1.5 to 3 hours |
| Passing score | Usually 70% |
| Format | Usually open book |
| Licensing body | State licensing boards (most use the NASCLA Contractor's Guide to Business, Law and Project Management) |
| Test provider | PSI, Prometric or Pearson VUE (varies by state) |
Mind map: the whole exam on one screen
1. Business Organization and Licensing
This topic covers the legal forms a contracting business can take and how each is taxed and exposed to liability. Expect questions on owner liability, which federal return each entity files, and S corporation limits.
Key facts
- A sole proprietor has unlimited personal liability and reports business income and expenses on Schedule C of Form 1040.
- A partnership files Form 1065, an information return, and gives each partner a Schedule K-1 showing their share of income.
- In a limited partnership, the general partner has unlimited liability. Limited partners risk only their investment if they do not take part in management.
- An S corporation may have no more than 100 shareholders and only one class of stock (IRC §1361(b)(1)).
- An S election is made on Form 2553, generally no later than 2 months and 15 days after the start of the tax year it takes effect (IRC §1362(b)).
- A C corporation files Form 1120 and its profits can be taxed twice: once at the corporate level and again as dividends to shareholders.
- A single-member LLC is treated as a disregarded entity for federal income tax by default, unless it elects to be taxed as a corporation (Treas. Reg. §301.7701-3).
Flashcards
Exam tip: Read entity questions for the word 'limited': limited partners and LLC members are shielded, but general partners and sole proprietors are not.
2. Bidding, Estimating and Markup
This topic tests the math behind a bid: quantity takeoffs, unit costs, overhead recovery and profit. These are calculation questions, so they are some of the most reliable points on the exam if you know the formulas.
Key facts
- Markup is figured on cost: Selling price = Cost x (1 + markup %).
- Margin is figured on selling price: Selling price = Cost / (1 - margin %).
- Convert margin to markup with: Markup = Margin / (1 - Margin). A 20% margin needs a 25% markup.
- Overhead percentage = Annual overhead / Annual direct job costs. $150,000 overhead on $1,500,000 of direct costs is 10%.
- Concrete volume in cubic yards = (Length x Width x Depth in feet) / 27. Convert inches to feet first.
- Labor cost = (Quantity / Daily production rate) x Daily crew cost.
- Direct costs are labor, materials, equipment and subcontracts tied to one job. Overhead is the cost of running the company that is spread over all jobs.
Flashcards
Exam tip: Always check whether the question says markup on cost or margin on selling price, because the wrong one is always a listed answer.
3. Contracts, Change Orders and Liens
This topic covers what makes a contract valid, the main contract types, retainage, and how unpaid parties protect themselves with liens and payment bonds. Lien deadlines are state specific, so also study your state supplement.
Key facts
- A valid contract needs offer, acceptance, consideration, legal capacity and a legal purpose.
- Under the statute of frauds, contracts for an interest in real estate and contracts that cannot be performed within one year must be in writing.
- Under the UCC, a contract for the sale of goods for $500 or more generally must be in writing to be enforced (UCC §2-201).
- Liquidated damages are a fixed amount per day, agreed in the contract, that the contractor owes for late completion.
- In a cost-plus-fee contract, the owner bears most of the cost overrun risk. In a lump-sum contract, the contractor does.
- Retainage is a percentage held back from each progress payment. A $80,000 billing with 10% retainage pays $72,000.
- Miller Act: a second-tier claimant must give written notice to the prime contractor within 90 days after last furnishing, and suit must be filed within 1 year after last furnishing (40 U.S.C. §3133(b)).
Flashcards
Exam tip: On lien and bond questions, find the trigger date first (first furnishing, last furnishing or completion) before you count days.
Test yourself on these topics
Take the free 15-question Business & Law test, then save your results to unlock your Readiness Score and the mistakes bank.
4. Payroll, Tax and Employment Law
This topic covers payroll tax rates, deposit and filing deadlines, worker classification, wage and hour rules, and hiring paperwork. These numbers show up often and are easy points if memorized.
Key facts
- FICA: employer and employee each pay 6.2% Social Security on wages up to $184,500 in 2026, plus 1.45% Medicare on all wages (SSA).
- Additional Medicare Tax of 0.9% is withheld from the employee only on wages over $200,000 in a calendar year. The employer does not match it (IRC §3101(b)(2)).
Flashcards
Exam tip: Payroll questions often mix employer-only, employee-only and shared taxes, so note who pays: FUTA is employer only and Additional Medicare is employee only.
5. Insurance, Bonds and Risk
This topic covers the types of surety bonds, who each bond protects, common construction insurance, and how workers' compensation premiums are figured. Know the three parties to a bond and the experience modification math.
Key facts
- A surety bond has three parties: the principal (contractor), the obligee (usually the owner) and the surety (bonding company).
- A bid bond guarantees the bidder will sign the contract and provide the required bonds if awarded the job.
Flashcards
Exam tip: A bond is not insurance for the contractor: the surety expects to be repaid by the principal, so watch for answer choices that say the bond protects the contractor.
6. Financial Management and Accounting
This topic covers basic accounting methods, financial ratios, revenue recognition on long-term contracts, and break-even math. Most questions give you balance sheet numbers and ask you to compute a ratio.
Key facts
- The accounting equation is Assets = Liabilities + Owner's equity.
- Current ratio = Current assets / Current liabilities. Working capital = Current assets - Current liabilities.
Flashcards
Exam tip: For the quick ratio, drop inventory from current assets; including it gives you the current ratio, which is a common wrong answer.
7. OSHA Recordkeeping
This topic covers which employers keep injury logs, which forms are used, and the deadlines for recording and reporting serious injuries. The rules are in 29 CFR Part 1904.
Key facts
- Report a work-related fatality to OSHA within 8 hours (29 CFR 1904.39).
- Report an inpatient hospitalization, amputation or loss of an eye within 24 hours (29 CFR 1904.39).
Flashcards
Exam tip: Separate reporting (calling OSHA in 8 or 24 hours) from recording (entering on the 300 Log in 7 days); the exam swaps these numbers.
8. Environmental Rules
This topic covers federal environmental rules contractors meet most often: stormwater permits on construction sites and lead-safe work in older housing. States may add their own rules on top.
Key facts
- Construction activity that disturbs 1 acre or more, or less than 1 acre if part of a larger common plan, needs NPDES stormwater permit coverage (40 CFR 122.26(b)(15)).
- Stormwater permits require a Stormwater Pollution Prevention Plan (SWPPP) describing erosion and sediment controls for the site.
Flashcards
Exam tip: Lead questions turn on the year 1978: if the building was built in 1978 or later, the RRP Rule does not apply.
How to pass
- Know your payroll numbers cold: FICA, FUTA, deposit and filing deadlines.
- Practice ratio and markup math until it's automatic; it's the easiest points on the exam.
- Read every lien question for the trigger date: first furnishing, last furnishing or completion.
- Check your state's candidate bulletin for the exact book list and question count.
Frequently asked questions
How long should I study for the Business & Law exam?
Most working candidates need 4 to 8 weeks at 45 to 60 minutes a day. Book your exam once your Readiness Score has stayed at 80 or higher for about a week.
Is the Business & Law exam open book?
Usually open book. Check the current candidate information bulletin from State licensing boards (most use the NASCLA Contractor's Guide to Business, Law and Project Management) for the approved reference list and tabbing rules.
What score do I need to pass the Business & Law exam?
Usually 70%. The exam has typically 40 to 80 questions (varies by state) and a time limit of typically 1.5 to 3 hours.
What are the most tested topics?
The outline covers business organization and licensing, bidding, estimating and markup, contracts, change orders and liens, payroll, tax and employment law, insurance, bonds and risk, financial management and accounting, osha recordkeeping, environmental rules. Use the free practice test to see which ones you need most.
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Summarized from official candidate information and the statutes, codes and regulations cited, checked October 2026. Confirm current requirements with State licensing boards (most use the NASCLA Contractor's Guide to Business, Law and Project Management).