A candidate emailed us last spring with a question that sums up the whole subject. She had scored well on directors' duties, could recite the seven general duties in her sleep, and still walked out of a mock feeling battered. The reason? Half the Business Law and Practice questions were not about duties at all. They asked which resolution was needed, whether a partner had bound the firm, whether a payment made four months before liquidation could be unwound, and who got paid first when the money ran out.
That is the shape of Business Law and Practice in FLK1. It is broad rather than deep, and it rewards candidates who know the mechanics — thresholds, time limits, default rules — far more than those who can write elegant essays. This article walks through the parts that decide marks, from unincorporated partnerships to the closing days of an insolvent company.
Choosing the business medium: what SQE1 actually tests
Questions on business vehicles rarely ask you to compare structures in the abstract. They give you a client with a specific worry — personal liability, tax, secrecy, the cost of formalities — and ask which vehicle fits, or what the consequence is of the vehicle they already have.
A general partnership under the Partnership Act 1890 has no separate legal personality. Section 1(1) defines it as the relation between persons carrying on a business in common with a view of profit. Note what is absent from that definition: any requirement to register, sign anything, or even intend to form a partnership. People become partners by conduct. That single point generates a surprising number of questions.
A limited liability partnership, created under the Limited Liability Partnerships Act 2000, is a body corporate with its own legal personality, but its members are taxed broadly as if they were partners. A private company limited by shares gives limited liability and a well-mapped constitutional framework, at the cost of public filing and a stricter decision-making structure.
Exam habit worth building: whenever a fact pattern says "they agreed to run the business together" but mentions no documents, ask yourself whether the 1890 Act default rules are silently in play. They very often are.
Partnership default rules you must be able to recite
Where there is no partnership agreement, section 24 fills the gaps, and it is unforgiving. Profits and losses are shared equally regardless of unequal capital contributions. No partner is entitled to a salary. No interest is paid on capital. Ordinary matters connected with the partnership business are decided by majority, but a change in the nature of the business requires unanimity, and no new partner may be introduced without the consent of all existing partners.
On liability to outsiders, section 5 governs actual and apparent authority: a partner binds the firm when acting in the usual way of the business, unless the third party knew of the lack of authority or did not know or believe the person to be a partner. For debts and obligations, partners are liable jointly under section 9; for wrongs committed in the ordinary course of the business, liability under sections 10 and 12 is joint and several.
Two traps recur. First, holding out under section 14 — a person who represents themselves, or knowingly allows themselves to be represented, as a partner can be liable to someone who gave credit on the faith of that representation. Second, the retiring partner. Under section 36, a partner who leaves remains exposed to existing customers of the firm until they receive actual notice; for the world at large, notice in the London Gazette suffices. Retirement without notice is not retirement, as far as the creditor is concerned.
Company decision-making: the resolution question in disguise
If you only drill one thing in this subject, drill decision-making. A large share of Business Law and Practice items in FLK1 are, underneath, a question about who decides and by what majority.
Start with the split. Directors manage the company and act by board resolution — under the Model Articles, a simple majority of those voting at a quorate meeting, with the chair holding a casting vote. The default quorum is two. Members act by ordinary resolution (a simple majority) or special resolution (not less than 75%), either at a general meeting or by written resolution under sections 288 to 300 of the Companies Act 2006. Written resolutions are unavailable for removing a director under section 168 or an auditor before the end of their term.
Then learn the pairings that examiners love:
- Amending the articles — special resolution, section 21, filed at Companies House within 15 days.
- Changing the company name by resolution — special resolution, section 77.
- Removing a director — ordinary resolution under section 168, but with special notice of 28 days under section 312, and the director has a right to make representations.
- Director's service contract with a guaranteed term of more than two years — ordinary resolution under section 188, with a memorandum available for inspection.
- Substantial property transactions with a director or connected person — ordinary resolution under section 190; the asset must exceed £5,000 and either exceed £100,000 or exceed 10% of the company's net asset value.
- Loans to directors — ordinary resolution under section 197, subject to the statutory exceptions.
Do not forget the board layer. A director with a personal interest in a proposed transaction must declare it under section 177, and under Model Article 14 an interested director in a private company is generally neither counted in the quorum nor entitled to vote — unless the members disapply that restriction by ordinary resolution. Many questions turn on whether a board meeting was quorate at all once the conflicted director is stripped out.
Finance, shares and charges in FLK1
On the equity side, know the distinction between allotment (creating new shares) and transfer (moving existing ones), and remember that directors of a private company with one class of shares may generally allot without member authority unless the articles restrict it. Pre-emption rights on allotment under section 561 can be disapplied by special resolution. A buyback of shares out of capital by a private company requires a special resolution supported by a directors' statement of solvency and an auditor's report.
On the debt side, the key distinction is fixed versus floating. A fixed charge attaches to identified assets and prevents the company dealing with them without consent. A floating charge hovers over a shifting class of assets — stock, book debts — leaving the company free to trade until crystallisation, typically on default, liquidation, or the appointment of a receiver or administrator. Re Spectrum Plus Ltd is the authority to remember for the proposition that the label the parties use does not decide the character of the charge; control over the proceeds does.
Registration matters. Under section 859A of the Companies Act 2006, a charge must be delivered to Companies House within 21 days beginning with the day after creation. Miss it and the charge is void against a liquidator, administrator and creditor, though the underlying debt becomes immediately payable. That is a clean, examinable rule — learn the consequence, not just the deadline.
Insolvency: claw-back claims and the order of payment
Insolvency questions in SQE1 usually run in two directions. Can a past transaction be unwound? And who is paid first?
Both start with the insolvency tests in section 123 of the Insolvency Act 1986: the cash-flow test (unable to pay debts as they fall due) and the balance-sheet test (liabilities exceed assets).
A transaction at an undervalue under section 238 can be challenged if made within two years of the onset of insolvency, provided the company was insolvent at the time or became so as a result. There is a defence where the company acted in good faith, for the purpose of its business, and with reasonable grounds for believing the transaction would benefit it. A preference under section 239 has a shorter window — six months, extended to two years for a connected person — and requires a positive desire to prefer, which is presumed where the recipient is connected. Section 245 separately invalidates certain floating charges created within 12 months (two years for a connected person) except to the extent of new value provided.
Then the personal claims: wrongful trading under section 214, where a director continued trading after the point at which they knew or ought to have concluded there was no reasonable prospect of avoiding insolvent liquidation and failed to take every step to minimise creditor loss; and fraudulent trading under section 213, which requires actual dishonesty and is correspondingly rare.
For distribution, memorise the ladder in order: fixed charge holders from their asset; expenses of the winding up; preferential creditors (employee claims for wages up to a capped amount and holiday pay, then secondary preferential claims of HMRC for certain taxes collected from third parties); the prescribed part set aside for unsecured creditors out of floating charge realisations; floating charge holders; unsecured creditors; interest; and only then shareholders. Draw that ladder from memory once a week until it becomes automatic.
How to revise Business Law and Practice without drowning
Build one page of thresholds. Percentages, day counts and money figures — 75%, 14 clear days, 28 days' special notice, 21 days for charge registration, 15 days for filing resolutions, six months and two years for claw-back. These are the facts that separate a confident answer from a coin flip.
Practise reading the last line of the question first. Business Law and Practice fact patterns are long and deliberately cluttered; knowing whether you are being asked about validity, liability or procedure lets you skim past the irrelevant detail. And when two options both look legally correct, check which one answers the precise question asked. Examiners frequently offer a true statement that simply is not responsive.
One more habit: after every practice question, write a single sentence explaining why the wrong answers are wrong. It takes thirty seconds and does more for retention than re-reading a chapter.
How CELE SQE can help
CELE SQE has taught candidates through every sitting since 2021, and Business Law and Practice sits within our seven FLK1 subjects across a 13-subject curriculum. If you want structured coverage, the SQE1 Long-term Course is £3,720, the Mid-term Course £2,750 and the Short-term Course £1,750, with single-FLK options at half those prices and £150 off for early bookings or bookings within three months of your exam. If you simply need volume practice on resolutions and insolvency scenarios, the SQE1 Question Bank subscription is £575 per month. Questions are welcome at [email protected] or on WeChat SQE100 — no obligation either way.
