The Licensing section: the rules for holding a license
Business Organization and Licensing is 13% of the Law and Business exam. It is the Contractors State License Law itself: who can qualify a license, what it takes to keep it, and what you may and may not say in an ad.
This is the section where you are tested on the rules of the club you are applying to join. It rewards reading the license law once, carefully: most of it lives in a few dozen sections of the Business and Professions Code, printed in full in CSLB's free Law Book.
What CSLB says it covers
The official study guide lists three topics under Business Organization and Licensing (13%):
- Company organization — sole owner, partnership, corporation, LLC, and who can act as the qualifier.
- Licensing requirements — bonds, renewal, inactive and expired licenses, reporting changes, unlicensed work.
- Advertising and subcontracting — license numbers in ads and on vehicles, hiring subcontractors, home improvement salespersons.
The numbers that get asked
| Rule | Number |
|---|---|
| Minor work exemption from licensing (with conditions) B&P §7048 | under $1,000 |
| RME must be actively engaged B&P §7068 | 32 h/week or 80%, whichever is less |
| Most firms one person may qualify in a year B&P §7068.1 | 3 |
| Common ownership needed to qualify an additional firm B&P §7068.1 | 20% |
| Notify CSLB after a qualifier leaves / time to replace B&P §7068.2 | 90 days / 90 days |
| Contractor's bond B&P §7071.6 | $25,000 |
| Qualifying individual's bond (separate) B&P §7071.9 | $25,000 |
| Extra bond for an LLC (unpaid wages and benefits) B&P §7071.6.5 | $100,000 |
| Report any change to recorded information B&P §7083 | 90 days |
| Active license expires B&P §7140 | every 2 years |
| Inactive license valid for B&P §7076.5 | 4 years |
| Name and license number on commercial vehicles B&P §7029.6 | 72-point or ¾ in |
Business and Professions Code, as printed in the CSLB Contractors License Law & Reference Book, 2026 edition. Checked 28 September 2026.
Where people lose points
- The $1,000 exemption has strings attached. Under $1,000 in total for labor and materials is not enough on its own. The work must be casual, minor or inconsequential, need no building permit, and not be part of a larger job or split into small contracts to dodge the limit. Advertise as a contractor, or have anyone working for you on it, and the exemption is gone. Older CSLB brochures still say $500; the 2026 law says $1,000.
- Who can qualify depends on the business. A sole owner qualifies personally or through an RME. A partnership: a general partner or an RME. A corporation: an RMO (responsible managing officer) or an RME. An LLC: a responsible managing officer, manager or member, or an RME.
- An RME is a real employee. Permanently employed and actively engaged: 32 hours a week or 80% of the hours the business operates, whichever is less. And because the RME is an employee, a license qualified by an RME cannot use the no-employees workers' comp exemption.
- One qualifier, several firms: only with 20% and only three a year. A qualifier can act for an additional firm only with at least 20% common ownership, a subsidiary or joint venture, or mostly the same partners or officers — and never for more than three firms in any one-year period.
- Two separate $25,000 bonds. Every license needs the $25,000 contractor's bond. A qualifier who is not the owner or a general partner needs a separate $25,000 qualifying individual's bond, unless, as an RMO, they own 10% or more of the voting stock (or, in an LLC, at least 10% of the membership interest). An LLC also needs a $100,000 bond for unpaid wages and benefits, plus liability insurance.
- Ninety days is the answer to most “notify CSLB” questions. Changes to recorded information (address, personnel, business name): 90 days. A qualifier leaving: notify within 90 days, and the license has 90 days to replace them or it is suspended.
- Inactive is not expired. An inactive license lasts four years, needs no bond, qualifier or workers' comp while inactive, and can be reactivated without an exam — but you cannot contract while it is inactive. An expired license can be renewed within five years, and you are unlicensed for the gap.
- The license number goes everywhere. On all contracts, subcontracts, calls for bid and all advertising, which CSLB's rules define broadly enough to include lettering on your vehicles. Name and number on commercial vehicles in at least 72-point type or ¾ inch.
How the questions tend to read
A business setup and a change — a partner leaves, a qualifier quits, a handyman takes a bigger job — and what the law requires next. Two examples of our own, written the same way (not actual exam questions):
A handyman without a license agrees to replace a fence for $900, labor and materials included. The city requires a permit for the fence. Is the job exempt from licensing?
No. It is under $1,000, but the exemption only covers work that needs no building permit. The price alone never settles it.
Your corporation's RMO resigns on 1 June. What does the law require?
Written notice to CSLB within 90 days, and a replacement qualifier within 90 days, or the license is suspended. The registrar may allow one 90-day extension for good cause.
How to study it
- Read B&P §§7068 to 7071.9 and 7083 in the Law Book. Qualifiers, bonds and change notices, in one sitting.
- Make a four-column table — sole owner, partnership, corporation, LLC — with who qualifies, which bonds and what insurance each needs.
- Learn “90 days” and its exceptions together so the number becomes a reflex without flattening the details.
- Budget. In our study plan Licensing gets about 2½ hours in two weeks and 3½ in four.
Common questions
Is this the same as the licensing process I went through to apply?
Partly. The application steps are covered in how to get a contractor license. This section tests the rules that apply once you hold one.
Are penalty amounts for unlicensed work tested?
They can be, and several minimum penalties went up on 1 July 2026. If your study material predates that, check the numbers against the 2026 Law Book.
Can an unlicensed person advertise at all?
Only for jobs under $1,000 that qualify for the exemption, and the ad must say they are not licensed.
Last reviewed 28 September 2026 against Business and Professions Code §§7027.2, 7029.6, 7030.5, 7048, 7068, 7068.1, 7068.2, 7071.6, 7071.6.5, 7071.9, 7076.5, 7083, 7140 and 7141 as printed in the CSLB Contractors License Law & Reference Book (2026), CSLB's 2026 new-laws bulletin and Get Licensed to Build. Laws change; confirm at cslb.ca.gov. Study guidance, not legal advice. We are not affiliated with CSLB or PSI.