CLEP Introductory Business Law Exam

The CLEP: Introductory Business Law examination was developed by the College Board as a way for individuals to demonstrate undergraduate-level knowledge and skills in this subject. Almost three thousand American colleges give credit to students who pass a CLEP exam; for this reason, many college-bound students take a CLEP exam in order to skip over introductory courses.

To succeed on the Introductory Business Law exam, students will need to master the following topics and skills: the basic facts and terms of business law; the fundamental concepts and principles of business law; and the applications of business law knowledge to specific case problems. The content of the exam is broken down as follows: the history and sources of American law and constitutional law (5-10%); American legal systems and procedures (5-10% of the exam); contracts (25-35%); the legal environment (25-30%); torts (10-15%); and miscellaneous topics, including sales, agency, partnerships, and corporations (5-10%). The Introductory Business Law exam consists of 100 multiple-choice questions and must be completed within 90 minutes.


After the exam is complete, an unofficial score report will be made available. This score report will include the total score on a scale of 20 to 80; the American Council on Education recommends that students get credit if they score 50 or above. The total score is the raw score (number of correct answers) adjusted according to the difficulty of the exam version. The College Board does not distinguish between unanswered questions and questions answered incorrectly, so test-takers are encouraged to respond to every question. Some of the questions on the exam are pre-test questions, which are used to develop future versions of the exam and do not contribute to the raw score. It is impossible for test-takers to determine which questions are pre-test questions. The CLEP exams are administered in both computer and paper formats at over a thousand locations throughout the world. To register for an exam, visit the College Board website.

CLEP Introductory Business Law Practice Questions

1. Which of the following statements about agency relationships is true?
A: They must be written down to be valid.
B: They cannot be established by the law as having been implied.
C: They cannot be broken.
D: They are often established verbally.
E: They establish a fiduciary duty on the part of the principal.

2. What option does a buyer have if he or she has received nonconforming goods?
A: He or she may recover damages for nonconformity, provided notice is given.
B: He or she may receive a subsidy from the federal government.
C: He or she may receive a subsidy from the state government.
D: He or she may recover damages even without giving notice.
E: He or she has no options.

3. In order for a letter of credit to be valid, which of the following must be true?
A: It must be irrevocable.
B: It must be written and signed.
C: It must indicate that changes require seller consent.
D: It must give consideration.
E: It must indicate that changes require customer consent.

4. Contracts remain enforceable even in situations where the responsible party can prove _____.
A: fraud
B: ignorance
C: extreme hardship
D: bankruptcy
E: innocent misrepresentation

5. Which legal term is used when an individual is illegally coerced into signing a contract?
A: constraint
B: breach
C: violation
D: lien
E: duress

6. What is the name for an agent appointed by another agent?
A: subagent
B: subcontractor
C: double agent
D: minor agent
E: principal agent

7. Which of the following is subject to copyright protection?
A: corporate logo
B: new form of animal life
C: brand slogan
D: dance routine
E: new form of plant life

8. Which of the following is NOT considered real property?
A: personal residence
B: cattle
C: right to use land
D: life estate to a farm
E: easement

9. Which of the following best describes the liability of a limited partner?
A: He or she is liable in proportion to his or her capital contribution.
B: He or she is liable for the entire business.
C: He or she has no liability.
D: He or she must go to court to determine liability.
E: He or she has liability equal to half of his or her capital contribution.

10. When two parties attempt to resolve a dispute with the assistance of an objective third party, it is called ____.
A: negotiation
B: arbitration
C: conciliation
D: cooperation
E: mediation

CLEP Introductory Business Law Answer Key

1. D. Agency relationships are typically implied or established verbally; they need not be written down to be legally valid.
2. A. The Uniform Commercial Code asserts that buyers have this remedy when they receive nonconforming goods.
3. B. The Uniform Commercial Code declares that letters of credit must be written and signed by the issuer.
4. C. The party can potentially get out of a contract if he or she can demonstrate fraud, innocent misrepresentation, or mutual mistake of material fact.
5. E. Duress is defined as any constraint by threat or forcible confinement.
6. A. When a subagent is appointed, the appointing agent becomes a principal.
7. D. Corporate logos and slogans are subject to trademark protection; new forms of life are subject to patent protection.
8. B. Real property (also known as real estate) is basically the right to use land.
9. A. Limited partners do not contribute to management decisions.
10. E. In mediation, the disputing parties do not agree to accept the decision of the third party.