You sit down with a Business Law and Practice question and it reads like a soap opera: three friends start a venture, one wants out, a director quietly signs a contract she had no authority to sign, and somewhere in the background HMRC is waiting. The single best answer hinges on one detail you skimmed three weeks ago. Sound familiar? Of all the FLK1 subjects, Business Law and Practice is the one candidates most often describe as "broad but shallow" — and then it bites them, because the SRA loves to test the boundary between two business structures or the exact moment a duty arises.
Let me walk you through how I'd actually attack this subject for SQE1, with the points that earn marks and the traps that quietly lose them.
Choosing the right business structure: the FLK1 starting point
Nearly every Business Law and Practice scenario opens by setting up a vehicle. You need to recognise the structure on sight, because liability and tax flow directly from it.
A sole trader and the business are legally the same person — unlimited personal liability, taxed through income tax and National Insurance. A general partnership under the Partnership Act 1890 arises automatically when two or more people carry on a business in common with a view to profit (s.1). No paperwork is required, which is exactly why the SRA likes it: a question may describe two people simply working together and ask whether a partnership exists. If the s.1 test is met, it does — even without a written agreement.
Contrast this with a limited liability partnership (LLP) under the Limited Liability Partnerships Act 2000, which is a separate legal person with limited liability, and a private company limited by shares under the Companies Act 2006, which is incorporated on registration and owned by shareholders but run by directors.
Quick discipline: the moment you read the facts, label the structure in the margin. Sole trader, partnership, LLP or company? Half the wrong answers in this topic only become tempting if you've misread the vehicle.
Partnership default rules under the Partnership Act 1890
Where there is no partnership agreement, or the agreement is silent, the default provisions of the Partnership Act 1890 fill the gaps. These are pure marks if you know them, and a common SQE1 trap is offering an answer that looks commercially sensible but contradicts the default position.
A few defaults worth memorising: profits and losses are shared equally regardless of capital contributed (s.24(1)); no partner is entitled to a salary (s.24(6)); and ordinary decisions are taken by majority, but a change in the nature of the business needs unanimity (s.24(8)). Partners are jointly liable for the debts of the firm (s.9), and the firm is bound by a partner's acts carried out in the usual course of business (s.5 — agency and apparent authority).
Watch the questions on a partner leaving. Under s.36, a retiring partner can remain liable for debts to existing creditors unless proper notice is given. The exam loves the partner who walks away assuming they're free of all liability — they rarely are.
Company formation, decision-making and directors' duties
Companies dominate this subject, so give them the most revision time. You should be comfortable with how a company makes decisions: the board acts by board resolution (ordinary majority of directors present at a quorate meeting), while shareholders act by ordinary resolution (over 50%) or special resolution (75% or more) at a general meeting or by written resolution.
Know which decisions need which threshold. Changing the articles requires a special resolution (s.21 Companies Act 2006). Removing a director needs an ordinary resolution but with special notice (s.168). Allotting new shares, disapplying pre-emption rights, reducing capital — these are classic question hooks where the candidate picks the right outcome but the wrong resolution.
Then there are the directors' duties in ss.171–177 Companies Act 2006, which are heavily examined. Commit them to memory:
- s.171 — act within powers
- s.172 — promote the success of the company
- s.173 — exercise independent judgement
- s.174 — exercise reasonable care, skill and diligence
- s.175 — avoid conflicts of interest
- s.176 — not accept benefits from third parties
- s.177 — declare interests in proposed transactions
A scenario will often describe a director taking a corporate opportunity for herself, or signing a contract with a company she also owns. Identify the specific section breached — the SRA wants precision, not a vague "breach of fiduciary duty". And remember the procedure under s.177: declaring an interest before the transaction can make it perfectly lawful, which is why "the director did nothing wrong because she disclosed it to the board" is sometimes the correct answer.
Separate legal personality still matters. Salomon v A Salomon & Co Ltd [1897] is the foundation — the company is distinct from its members, so a director or shareholder generally is not personally liable for the company's debts. Several questions reward you simply for holding that line.
Business tax for SQE1 FLK1: the rules that actually appear
Tax frightens candidates more than it should. For SQE1 you are not preparing returns — you need to recognise which tax applies and the broad mechanism. Match the tax to the structure:
Sole traders and partners pay income tax on trading profits and National Insurance. Companies pay corporation tax on their profits, and shareholders then pay tax on dividends they receive. Selling a business asset at a gain can trigger capital gains tax for individuals or fall within the corporation tax charge for companies. Be alert to reliefs such as Business Asset Disposal Relief, which can reduce the capital gains tax rate on a qualifying disposal.
A reliable way to lose marks is mixing up the layers. A company does not pay income tax on its trading profits; an individual partner does not pay corporation tax. Keep the boundary clean and many tax questions become straightforward elimination exercises. Because rates and thresholds change each fiscal year, learn the structure and direction of the rules rather than chasing exact figures, and rely on the latest SRA specification for current numbers.
Insolvency basics and how to revise the whole subject
Insolvency rounds off the syllabus. Distinguish a company that is unable to pay its debts under s.123 Insolvency Act 1986 from one merely behind on a payment. Know the difference between liquidation (winding up and distributing assets), administration (a rescue process under a moratorium) and a creditors' voluntary arrangement. Personal insolvency — bankruptcy and individual voluntary arrangements — applies to sole traders and individual partners, which loops back to that unlimited liability point from the start.
So how should you actually revise? Build a single-page comparison table across the structures: liability, ownership, management, formation, taxation and how each one ends. Then drill questions relentlessly. This subject rewards pattern recognition, and the only way to build it is to see the same scenarios — the departing partner, the conflicted director, the unauthorised contract — again and again until the right resolution or section number surfaces automatically.
Three things to do this week: memorise ss.171–177; learn the special vs ordinary resolution thresholds; and write out the Partnership Act 1890 defaults from memory until you can do it without notes.
Get those foundations solid and Business Law and Practice stops being the unpredictable one and becomes a quiet source of reliable FLK1 marks — exactly what you want heading into the two 180-question SQE1 papers.
How CELE SQE can help
If you'd like structure behind this, our SQE1 courses run from the Short-term Course at £1,750 up to the Long-term Course at £3,720, with a single-FLK option at half price if you only need FLK1. Our SQE1 Question Bank (£575/month) is built around exactly the kind of company, partnership and tax scenarios described above, so you can practise spotting the right section number under timed conditions. Have a question about which option fits your timetable? Reach us on WeChat SQE100, at [email protected], or at celebar.com — happy to talk it through.