SQE1 · FLK1
Business Law and Practice
Business organisations, finance, insolvency, taxation.
Forms of business, corporate governance, partnership, finance, insolvency and taxation rules tested in FLK1.
Business Law and Practice in SQE1 FLK1
Business Law and Practice follows a business through its whole lifecycle — formation, running, financing, and insolvency — plus the tax that attaches at each stage. Questions are heavily procedural: who can do what, with what majority, and after what notice.
What’s tested
- Choosing and forming a business: sole trader, general partnership, LLP and private limited company, and the consequences of each for liability and tax
- Company decision-making under the Companies Act 2006: board vs shareholder powers, ordinary and special resolutions, written resolutions and meeting notice
- Directors' duties (ss.171–177 CA 2006), the directors' general duties to the company, and shareholders' protections including unfair prejudice (s.994)
- Partnership default rules and the authority of partners to bind the firm
- Financing: allotment of shares, debentures, fixed and floating charges and their registration
- Insolvency: tests for insolvency, administration, liquidation and the statutory order of priority of creditors
- Business taxation in outline: corporation tax, income tax, capital gains tax and VAT
Leading cases to know
- Salomon v A Salomon & Co Ltd — separate legal personality of a company
- Foss v Harbottle — the proper claimant in a wrong done to the company
- Royal British Bank v Turquand — the indoor management rule on a company's internal procedures
Key statutes and rules
- Companies Act 2006 — governance, resolutions and directors' duties (ss.171–177)
- Partnership Act 1890 — default partnership rules and partners' authority
- Limited Liability Partnerships Act 2000 — the LLP as a body corporate
- Insolvency Act 1986 — administration, liquidation and creditor priority
Common SBAQ traps
- Confusing the threshold for an ordinary resolution (>50%) with a special resolution (≥75%)
- Forgetting the difference between board (director) decisions and member (shareholder) decisions
- Missing that a floating charge must be registered at Companies House within the statutory window to be effective against a liquidator
How to revise Business Law and Practice for FLK1
Learn the resolution thresholds and notice periods cold — they are pure marks. Then drill scenario MCQs that ask which body must act and by what majority; the SRA loves a fact pattern where a director tries to do something only the shareholders can authorise.
Go deeper
Free revision notes — Business Law and Practice
Business Law and Practice is the most procedurally detailed subject in FLK1. It covers the full lifecycle of a business from formation through financing to dissolution. Expect questions on company mechanics — board meetings, written resolutions, share allotments — as well as tax computations and insolvency priorities.
Business structures
The SRA syllabus distinguishes sole traders (unlimited personal liability, no registration), general partnerships (Partnership Act 1890, joint and several liability), limited liability partnerships (LLP Act 2000, body corporate, members' agreement), and private and public limited companies (Companies Act 2006). Key comparison points: LLPs are not subject to CA 2006 governance rules; PLCs must have a minimum £50,000 allotted share capital (CA 2006 s.763). Directors' duties under CA 2006 ss.171-177 are heavily tested: act within powers (s.171), promote success (s.172), exercise independent judgment (s.173), exercise reasonable care, skill and diligence (s.174), avoid conflicts (s.175), not accept benefits from third parties (s.176), declare interest in proposed transaction (s.177).
Company administration
Board meetings require notice to all directors; decisions are by simple majority unless articles require more. Written resolutions under CA 2006 ss.288-300 can pass any ordinary or special resolution but cannot remove a director (s.168) or auditor. Ordinary resolutions require a simple majority; special resolutions require 75%. Notice for general meetings: 14 clear days for private companies, 21 for public (s.307). Annual confirmation statements replaced annual returns in 2016. Know the Companies House filing deadlines: accounts within 9 months of year-end for private companies, 6 for public.
Taxation
FLK1 tests income tax (basis periods), corporation tax (CT rates, allowable deductions, capital allowances at 18% main pool / 50% first-year allowance for qualifying plant), VAT (standard-rated, zero-rated, exempt supplies; the £90,000 registration threshold from April 2024), capital gains tax (annual exempt amount, entrepreneurs' relief / business asset disposal relief at 10% up to £1m lifetime limit), and inheritance tax in commercial contexts. National Insurance Class 1 (employee and employer) and Class 2/4 (self-employed) appear in personal tax scenarios.
Insolvency
The Insolvency Act 1986 governs. Key routes: administration (moratorium; purpose to rescue the company, achieve a better result for creditors than liquidation, or realise property for secured creditors); company voluntary arrangement (CVA; supervisor, 75% value approval); creditors' voluntary liquidation (members resolve to wind up); compulsory liquidation (court petition, usually on inability to pay debts — the £750 statutory demand threshold). Priority of payments in liquidation: fixed-charge holders, liquidator's costs, preferential creditors (employee arrears up to £800, holiday pay), prescribed part for unsecured creditors (from net property realisation), floating-charge holders, unsecured creditors, shareholders.
Common pitfalls
- Confusing written resolutions (pass by simple majority of eligible members) with the 75% threshold for special resolutions.
- Forgetting that written resolutions cannot remove a director — only an ordinary resolution in general meeting can do that.
- Mixing up the order of priority in liquidation: fixed-charge holders come before preferential creditors, who come before floating-charge holders.
- Applying the wrong CT rate: the main rate changed from 19% to 25% in April 2023 (with the small profits rate at 19% for profits under £50,000).
Exam tip
Draw a quick priority ladder for insolvency and a checklist of directors' duties at the start of any BLP question. The SRA loves testing whether candidates know exactly which duty has been breached and what the consequence is.
Bank size: 116 questions. We grow the bank weekly.
Business Law and Practice — frequently asked questions
What's tested in SQE1 Business Law and Practice?
Business Law and Practice (FLK1) tests the lifecycle of a business: choosing and forming a business (sole trader, partnership, LLP, company), corporate governance and decision-making under the Companies Act 2006, shareholders' and directors' duties, financing through shares and debt, insolvency and the order of priority on winding up, and the taxation of businesses and their owners (corporation tax, income tax, CGT and VAT in outline).
Is partnership law tested in SQE1?
Yes. SQE1 expects you to know the default rules under the Partnership Act 1890, how partners' authority binds the firm, liability between partners and to third parties, and the differences between a general partnership, an LLP under the Limited Liability Partnerships Act 2000, and a company.
Is SQE1 Business Law and Practice multiple choice?
Yes. Like the rest of SQE1, Business Law and Practice is assessed through single-best-answer questions: a client-based scenario followed by five options (A–E) from which you pick the single best answer. There is no negative marking, so it is always worth attempting every question.