**SQE Business Law Workshop Notes – Ace Your Exam**
Struggling with **Business Law** for the SQE? My detailed workshop notes focus on everything you need to know, including **business structures**, **corporate transactions**, and **insolvency law**.
With clear explanations, practical ex...
Chapter 1 – The Different Types of Business
Incorporated and unincorporated businesses
- Incorporated businesses
o Owners are generally not liable for business debts
o E.g. a limited company
- Unincorporated businesses
o Not a separate legal entity
o Full personal liability for the debts of the business
Sole traders
- Unincorporated
o Personally liable for debts
Business and personal assets are legally treated the same
Unlimited liability
- Self-employed
o Pay income tax as a self-employed person
- AKA sole proprietors
- May have employees
o Sole trader is the one who owns benefits from and bears the loss of the
business
- No dedicated governing legislation for sole traders
Partnerships
- Unincorporated
o Not a separate legal entity
o ‘partnership assets’ may be used, but the partnership doesn’t actually own
any assets
Owned by the partners
o Personally liable for all debts
Personal assets at risk
o Divide the losses and profits between them
o Taxed separately as self-employed individuals (NOT employees)
Income tax on share of profits from partnership
If a partner is a company, then may be liable for corporation tax on
their share of the profits instead
- Two or more people run and own a business together
o May or may not work for the business
Some ‘sleeping partners’
- Formed when def of ‘partnership’ from Partnership Act 1890 is met
o When 2 or more people are carrying on a business in common with a view of
profit
- Aka general partnership
o To distinguish from LPs and LLPs
, - PA 1890 provides default partnership agreement
o Partners may decide to create own agreements, but if not, PA 1890 applies
and provisions will be implied
Limited partnerships
- Not widely recognised
o But are relatively common
- Must be at least one general partner with unlimited liability for partnership debts
- Permitted to have a limited partner whose liability is limited to the amount they
initially invested in the business
o Limited liability is conditional on the limited partner NOT doing the following:
Control or manage the LP
Have the power to take binding decisions on behalf of the LP; or
Remove their contribution to the LP for as long as it is in the business.
o If they breach the above, they will be treated as a general partner with
unlimited liability
- Governed by Limited Partnerships Act 1907
- Originally created to encourage entrepreneurship, now more common for specialist
financial businesses e.g. venture capital funds
- Must be registered with Registrar of Companies before starting trading
Companies
- Private or public, and can be limited by shares or by guarantee
Private companies limited by shares
- Formed through registration with the Registrar of Companies in accordance with the
Companies Act 2006
- Separate legal personality
o Sue company, not individuals
o Shareholders not liable for debts
Limited to amount they paid or agreed to pay for shares
o Allows directors to take more risks
Personal assets are safe from creditors
o Saloman v A Salomon
As long as a company is legally incorporated, it must be treated like
any other independent person with rights and liabilities – using a
company to manage risk and avoid liability for debts is acceptable
o Prest v Petrodel
Corporate veil could only be pierced when a person is under an
existing legal obligation, liability or restriction which he deliberately
evades, or whose enforcement he deliberately frustrates, by
interposing a company under his control
Even then, corporate veil can only be pierced so as to deprive
the company or its controller of the advantage that they
would otherwise have obtained by the company’s separate
legal personality
, o Any decisions that have ignored separate legal personality are rare and
generally considered to be very specific to their facts
- Decision-making
o Directors or shareholders make decisions on the company’s behalf
Even if the same people, should consider the distinct role that they
are fulfilling when making specific decisions
Shareholders only tend to get involved in the more important
decisions
General meetings
CA 2006 uses term ‘member’ rather than ‘shareholder’
Directors make day-to-day decisions at board meetings – less formal
Public companies limited by shares
- AKA a PLC
- For a company to be a public company:
o Constitution must state it is a public company
o Public limited company or PLC must be at the end of the name
o Company’s owners must have invested a specific amount of money for use by
the company
Allotted share capital of the company must be at least the ‘authorised
minimum’
Currently £50,000
Each share must be paid up to at least a quarter of its nominal value +
the whole of any premium on it
- Benefits
o More prestigious
o Can raise money from offering shares to the public
o Can apply to join the UK stock market
Main ones are London Stock Exchange’s Main Market and the
Alternative Investment Market (AIM)
o Can’t start as a publicly traded company, have to be a certain size, reputation
or level of growth
- Drawbacks
o Subject to greater regulation
More CA2006 requirements
Limited liability partnerships (LLPs)
- Formed under LLP Act 2000
o By filing documents with the Registrar of Companies at Companies House and
paying the applicable fee
o Can also pay extra for same-day registration
o Once registered, Registrar issues certificate of incorporation
Legally comes into existence on the date of incorporation of the
certificate
o Act provides default contract for partners who have not agreed all or any of
the terms of their partnership
, - Separate legal personality, but run with informality and flexibility and partners are
taxed as if it was a partnership, rather than a company
o Individual members of LLP must register as self-employed with HMRC
- Formed by 2 or more members carrying out a lawful business with a view of profit
Other forms of business medium
- Companies limited by guarantee
o Orgs not seeking to make a profit
o E.g. a professional society
o Shareholders guarantee the company’s debts up to a specific amount
Usually £1
- Unlimited companies
o Unlimited liability for debts
o Rare
- Community interest companies
o A form of LL company intending to use profits and assets for public good
- Charitable incorporated organisations
o Limited risk of personal liability without the dual regulation of the Registrar
for Companies and the Charity Commission
- Overseas companies
o Operate and want a physical presence here
o Must register within 1 month of opening
o Governed by Overseas Companies Regulations 2009
- Companies established by Act of Parliament or Royal Charters
o Very rare
45 remaining
- Joint ventures
o Commercial enterprise undertaken by at least 2 parties
o Parties retain own identity by pool resources for a specific purpose
o Sometimes governed merely by a contract
o Sometimes governed by structure that parties will jointly control
o Not a separate type of business medium itself, but moreso a joint commercial
enterprise which could take many forms
Factors to consider when setting up a business
- Liability
o How much of a concern is this?
Depends on type of business (e.g. law firms liability is generally
covered by insurance)
- Tax
- Formalities
o Cheaper and quicker to set up sole traders or partnerships
o May have to seek legal or accountancy advice
E.g. drafting and getting advice on a written partnership agreement
for an LLP
o Unincorporated businesses don’t have any formal requirements once
established or legal docs to be prepped
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