Business Law and Practice
Business Law and Practice is one of the highest-weight topics in FLK1. It covers how businesses are formed, governed, and regulated — from sole traders and partnerships through to private limited companies. Questions typically focus on the Companies Act 2006, directors' statutory duties, shareholder remedies, and corporate insolvency procedures.
Practise Business Law and Practice questions →What FLK1 tests in Business Law and Practice
Company Formation and Separate Legal Personality
How companies are incorporated, the role of the Memorandum and Articles of Association, and the doctrine of separate legal personality established in Salomon v Salomon. The limited circumstances in which courts will "pierce the corporate veil" are also tested.
Directors' Duties
The seven statutory duties under ss.171–177 Companies Act 2006: (1) act within powers; (2) promote the success of the company; (3) exercise independent judgment; (4) exercise reasonable care, skill and diligence; (5) avoid conflicts of interest; (6) not accept benefits from third parties; (7) declare interest in proposed transactions.
Shareholder Rights and Remedies
Majority rule and the proper plaintiff principle (Foss v Harbottle). Statutory exceptions: derivative claims (s.994 CA 2006 unfair prejudice petition), just and equitable winding-up, and minority shareholder protections. Pre-emption rights on new share issues.
Partnerships and LLPs
General partnerships under the Partnership Act 1890: unlimited personal liability, agency between partners, partnership property. Limited Liability Partnerships under the LLP Act 2000: separate legal personality but flexible profit-sharing. Comparison with companies.
Corporate Insolvency
Administration (moratorium, administrator's powers and objectives under the Insolvency Act 1986 Sch.B1), liquidation (compulsory and voluntary), company voluntary arrangements (CVA), and receivership. Director liability: wrongful trading (s.214 IA 1986) and fraudulent trading (s.213 IA 1986).
Business Finance: Shares and Debentures
Classes of share capital (ordinary, preference), rights attached to shares, share buybacks. Loan capital: fixed and floating charges, priority on insolvency, registration requirements at Companies House. The crystallisation of floating charges.
Agency
Actual authority (express and implied) and apparent/ostensible authority. How agents bind principals. Ratification of unauthorised acts. Relevant in the context of company law (agents acting for the company) and commercial transactions.
Key cases
The cases most commonly tested in SQE1 MCQs for Business Law and Practice.
A company has separate legal personality from its members even where one person owns almost all shares.
The company (not individual members) is the proper plaintiff for wrongs done to the company.
The courts will rarely pierce the corporate veil; a subsidiary's separate personality is generally respected.
Directors must exercise discretion in what they consider to be the company's interests, not their own.
Unanimous informal approval by all shareholders can ratify or authorise acts without a formal resolution.
A director who exploits a corporate opportunity in competition with the company breaches the no-conflict duty.
Other FLK1 topics
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