Alabama Home Builder Business and Law Exam

Key Concepts

Types of Business Legal Structures

Sole Proprietorship - Simplest structure; owner and business are the same legal entity - No formal registration required to operate (though a DBA may be needed) - Owner has unlimited personal liability for all business debts and obligations - All profits taxed as personal income (pass-through taxation)

Partnership (General) - Two or more owners sharing profits, losses, and management - Each partner has unlimited personal liability, including for actions of other partners - Pass-through taxation — profits/losses reported on each partner's personal return - A Limited Partnership (LP) limits liability for passive (limited) partners but not the general partner

Key Concepts

Required Elements of a Binding Contract (all four must be present): - Offer and Acceptance — An offer outlines work and compensation; acceptance is typically done by signing. A counteroffer is NOT acceptance. Offers expire in 30 days (or "reasonable time" if no deadline is stated). - Consideration — Both parties must exchange something of value (usually services for money). - Competent Parties — Parties must be of sound mind and legal age. Minors cannot contract without parental consent. Intoxicated or mentally disabled persons may be ruled incompetent. - Legal Purpose — The contract cannot require illegal activity. A contract to build a non-code-compliant structure is invalid.

Key Concepts

Bid Documents & Package Components A complete bid package includes: plans and specifications, bid form, instructions to bidders, general conditions, and any addenda. Addenda are written modifications issued before bid opening — they are binding and must be acknowledged in the bid submission. Failure to acknowledge an addendum can disqualify a bid.

Ethics in Bidding Three prohibited practices every exam candidate must know: - Bid shopping — a general contractor reveals a sub's bid price to competitors to get a lower price after bids are submitted. Done by the GC. - Bid peddling — a subcontractor voluntarily approaches a GC after bid opening and offers to beat another sub's price. Done by the sub. - Bid rigging…

Key Concepts

Bookkeeping & Accounting Cycle (6 Steps) 1. Classify and record transactions → 2. Post transactions → 3. Prepare trial balance → 4. Prepare adjusted trial balance → 5. Prepare financial statements → 6. Analyze financial statements

Source documents (receipts, invoices, time cards, deposit slips) initiate the cycle. Journals (cash receipts, purchases, cash disbursements, payroll, general) feed into the general ledger via posting.

Financial Statements - Balance Sheet: Assets = Liabilities + Equity. Assets (current + fixed + intangible), Liabilities (current = due within 1 year; long-term = beyond 1 year), Equity = initial investment + retained earnings - Income Statement: Revenue − Expenses = Net Income - Statement of Cash Flows: Operating, investing, and financing activities

Key Concepts

Fair Labor Standards Act (FLSA)

• Federal minimum wage: $7.25/hour (Alabama has no separate state minimum wage law)
• Overtime: 1.5× regular rate for all hours worked over 40 in a single workweek
• Applies to most construction employers

Child Labor Laws

• Work permit required for all minors under 18 in Alabama
• Ages 14–15: Completely prohibited from all construction duties (including demolition and repair); office/sales work allowed only if not at the actual construction site
• Ages 16–17: Prohibited from roofing, excavation, operating power-driven woodworking machines, hoisting machines, circular/band saws, trucks/heavy equipment over 3 tons, hazardous materials (asbestos, radioactive substances)
• When school is in session (14–15): No work before 7 a.m., after…

Key Concepts

Definition of Residential Home Builder

A home builder is any person who: - Constructs a residence or structure for sale, OR - For a fixed price, commission, fee, or wage — constructs, superintends, manages, supervises, assists, or consults on any residence or structure not over three floors with no more than four residential units - License threshold: cost exceeds $10,000 (general work) - Residential roofers: threshold is $2,500 - Advertising or offering to perform this work = deemed engaged in the business

Licensure Thresholds

• General residential construction/remodeling: > $10,000 requires a license
• Roofing specifically: > $2,500 requires a license
• Contracts cannot be split to evade the law — divided contracts under $10,000…

Key Concepts

Governing Law: Alabama Code, Title 35, Chapter 11. Procedures are strict — failure to follow them invalidates the lien.

Who Is Entitled to a Lien: Every contractor, subcontractor, laborer, or material supplier who furnishes labor, services, materials, fixtures, or machinery for the construction or repair of an improvement to real estate has lien rights.

Two Types of Material Supplier Liens: - Lien on unpaid balance — applies when no prior notice is given; limited to the balance the owner owes the prime contractor - Lien for full price — applies when the supplier serves written notice to the owner before the material is used; supplier can claim the full price regardless of what the owner owes the…

Key Concepts

Scheduling Methods (Chapter 9) - Calendar Scheduling: Uses a standard desk calendar; links tasks to specific dates (deliveries, holidays, payment schedules). Best for small, simple projects only. Does NOT show task interdependencies. - Bar Chart Scheduling: Graphical depiction showing activity duration and sequence. Easy to read, works for mid-size projects. Also does NOT show interdependencies between tasks. - Critical Path Method (CPM): Shows interdependent relationships between tasks, simultaneous events, and the critical path. Required for complex projects. Identifies which tasks cannot be delayed without pushing the completion date.

Key Concepts

Risk Assessment

• Probability of loss × severity of consequences determines your approach: low-probability/high-loss risks are handled differently than high-probability/low-loss risks.
• Risk management reduces premiums, reduces lawsuit exposure, and improves odds of prevailing in litigation.

Property Insurance Types

• All-risk builders' risk: Broadest coverage; required by standard AIA and AGC contract documents. Covers fire, theft, vandalism, acts of God. Replacement cost (no depreciation deduction) is the standard required by AIA/AGC forms.
• Named peril builders' risk: Narrower — covers only specifically listed perils (typically fire and lightning). Less expensive but exposes gaps.
• Inland marine: Covers materials and equipment in transit or temporarily stored off-site.
• Equipment floater: Covers movable construction equipment (tools, machinery)…

Key Concepts

OSHA Regulatory Framework - Governing standard for recordkeeping: 29 CFR 1904 (Recording and Reporting Occupational Injuries and Illnesses) - Alabama does not have a state OSHA plan — federal OSHA laws apply directly

The Three OSHA Forms - Form 300 — Log of Work-Related Injuries and Illnesses (running log maintained throughout the year) - Form 300A — Summary of Work-Related Injuries and Illnesses (annual summary; must be posted February 1 – April 30 of the following year) - Form 301 — Injury and Illness Incident Report (individual incident detail; completed for each recordable event)

Key Concepts

Definitions (465-X-1-.01)

Gross Negligence – Reckless disregard for the rights, safety, or welfare of homeowners by a licensee (or authorized agent) that could result in injury, property damage, or financial loss. (§ 34-14A-8)

Incompetence – Failure to perform to the reasonable community standard for residential home building, including proper supervision of subcontractors. (§ 34-14A-8)

Misconduct – Intentional fraud, deceit, or misleading representations to a homeowner; also includes purchasing permits for unlicensed builders or using a license to assist unlicensed builders. (§ 34-14A-8)

Residential Roofing – Installing or repairing external upper covering that seals, waterproofs, or weatherproofs a residence/structure when the cost exceeds $2,500.

Key Concepts

Employer Identification Number (EIN) - EIN is a 9-digit number (format: 00-0000000) issued by the IRS to identify tax accounts. - Required for: all partnerships, corporations, S corporations, and most LLCs. - Exceptions (can use SSN instead): sole proprietors with no employees who file no excise or pension returns; single-member LLCs where the owner files employment tax returns. - Obtain via: online at irs.gov, phone (800-829-4933), fax Form SS-4, or mail Form SS-4.

Federal Income Tax by Entity Type (Key IRS Forms) | Entity | Income Tax Form | Self-Employment | Employment Taxes | |---|---|---|---| | Sole Proprietor | 1040 + Schedule C | Schedule SE | 941, 940 | | Partnership | Form 1065 (info return)…