Essential Business Law and Practice for SQE1

179 Pages·2023·1.425 MB·English

by  Bill Davies, Rachel Cooper

Essential Business
Law and Practice
for SQE1
Essential Business Law and Practice for SQE1 explains the key principles of business
law and practice as required for the Solicitors Qualifying Examination (SQE) Part 1, in
a clear, easy-to-follow style.
The key principles of law in each topic are introduced together with concise examples
of how each principle can be applied, and the book includes a range of supporting
features:
● Commercial awareness talking points reinforce the book’s strong focus on
commercial awareness throughout.
● Multiple-choice questions: Each section of the book provides multiple-choice
questions following the SQE1 question format (with answers to enable you to
test your knowledge). Further multiple-choice questions and answers are also
provided on the companion website.
● Problem questions: To test understanding and analytical skills applied to
practical scenarios. A companion website also provides suggested answers.
● Revision points: Each chapter concludes with a concise list of key revision points.
Part of Routledge’s Essential Law for SQE1 series, this concise and accessible text
provides a clear understanding of the business law and practice element of SQE1
and enables you to test your assessment skills. Without the assumption of any prior
knowledge of Business Law and Practice, it is suitable for non-law graduates.
Bill Davies is Dean of the Faculty of Law, Crime and Justice at University of
Winchester. He teaches company and commercial law.
Rachel Cooper is Course Leader for undergraduate Accounting and Finance courses
at the University of Worcester. She teaches management accounting and strategy.
Essential Law for SQE1
Essential Law for SQE1
Series editor: Wendy Laws
Essential Law for SQE1 is a series of concise textbooks aligned to the latest SQE1
curriculum. Providing candidates with an accessible summary of the core principles in
each area of law, the style of each book is precise, with bullet-point lists summarizing
key information and revision points concluding each chapter. The books also feature
multiple choice questions with answers, example problem questions and a glossary
of key cases.
For more information about this series, please visit: www .routledge .com/
Essential Tort Law for SQE1
Wendy Laws
Essential Dispute Resolution for SQE1
Ben Waters
Essential Business Law and Practice for SQE1
Bill Davies
Essential Business
Law and Practice
for SQE1
Bill Davies
with contributions from
Rachel Cooper
Designed cover image: amtitus / Getty Images
First published 2023
by Routledge
4 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
and by Routledge
605 Third Avenue, New York, NY 10158
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2023 Bill Davies
The right of Bill Davies to be identified as author of this work has been
asserted in accordance with sections 77 and 78 of the Copyright, Designs and
Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or
utilised in any form or by any electronic, mechanical, or other means, now
known or hereafter invented, including photocopying and recording, or in any
information storage or retrieval system, without permission in writing from
the publishers.
Trademark notice: Product or corporate names may be trademarks or
registered trademarks, and are used only for identification and explanation
without intent to infringe.
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
ISBN: 978-1-032-26754-8 (hbk)
ISBN: 978-1-032-26753-1 (pbk)
ISBN: 978-1-003-28976-0 (ebk)
DOI: 10.4324/9781003289760
Typeset in The Sans
by Deanta Global Publishing Services, Chennai, India
Access the SQE Companion Website here: www. routledge. com/ cw/ sqe
Contents
Introduction xiii
Part 1: Choosing a business form 1
1 Business organisations 3
1.1 Chapter overview 3
1.2 Sole traders 3
1.3 Ordinary partnerships 4
1.4 Limited liability partnerships 4
1.5 Private limited companies 5
1.6 Public limited companies 6
1.7 Commercial awareness talking point 6
Chapter 1 revision points 7
Part 2: Private limited companies 9
2 Formation of the company 11
2.1 Chapter overview 11
2.2 Incorporation 11
2.3 Limited liability and separate legal personality 11
2.4 When separate legal personality does not apply 12
2.5 Unexpected consequences of separate legal personality 13
2.6 Pre-incorporation contracts 13
2.7 Requirements for registration 14
2.8 Initial financing considerations 14
2.9 Commercial awareness talking points 15
Chapter 2 revision points 15
3 The constitution of the company 17
3.1 Chapter overview 17
3.2 The articles of association 17
3.3 Model articles 17
3.4 Model articles with amendments 18
3.5 The articles as a contract 18
3.6 Amending the articles 19
vi Contents
3.7 Shareholders’ agreements 19
3.8 Commercial awareness talking points 19
Chapter 3 revision points 21
4 Roles in the company 23
4.1 Chapter overview 23
4.2 Shareholders/members 23
4.3 Different types of shareholder 23
4.4 Directors 24
4.5 De facto and shadow directors 24
4.6 Company secretaries 25
4.7 Auditors 25
4.8 Other stakeholders in the company 25
4.9 Commercial awareness talking points 25
Chapter 4 revision points 26
5 Financing the company 27
5.1 Chapter overview 27
5.2 Equity and debt finance 27
5.3 The nature of shares 27
5.4 Ordinary shares 27
5.5 Preference shares 28
5.6 Share dividends 28
5.7 Allotting and issuing shares 28
5.8 Allotting shares in private companies with only one class
of share 29
5.9 Allotting shares in private companies with more than one
class of share 29
5.10 Pre-emption rights 29
5.11 Transferring shares 29
5.12 Share buybacks 29
5.13 Types of debt capital 30
5.14 Fixed and floating charges 30
5.15 Personal guarantees 31
5.16 Commercial awareness talking points 31
Chapter 5 revision points 32
6 Shareholders’ decision-making 33
6.1 Chapter overview 33
6.2 Ordinary resolutions 33
6.3 Special resolutions 34
6.4 General meetings 34
6.5 Written resolutions 35
6.6 Minutes 35
6.7 Commercial awareness talking point 35
Chapter 6 revision points 36
Contents vii
7 Directors’ decision-making 37
7.1 Chapter overview 37
7.2 Board resolutions 37
7.3 Board meetings 37
7.4 Commercial awareness talking point 38
Chapter 7 revision points 38
8 Directors’ duties 39
8.1 Chapter overview 39
8.2 To whom are the duties owed? 39
8.3 Duty to act within powers 39
8.4 Duty to promote the success of the company 40
8.5 Duty to exercise independent judgement 41
8.6 Duty to exercise reasonable care, skill, and diligence 41
8.7 Duty to avoid conflicts 42
8.8 Duty not to accept benefits from third parties 42
8.9 Duty to disclose interests in proposed transactions or
arrangements 43
8.10 Duty to disclose interest in existing transaction or
arrangement 43
8.11 Ratification of breach of duty 44
8.12 Court relief for breach of duty 44
8.13 Commercial awareness talking points 44
Chapter 8 revision notes 45
9 Transactions with directors requiring shareholder approval 47
9.1 Chapter overview 47
9.2 Substantial property transactions 47
9.3 Long-term service contracts 48
9.4 Loans to directors 49
9.5 Payments for loss of office 49
9.6 Commercial awareness talking point 50
Chapter 9 revision points 50
10 Minority shareholder protection 51
10.1 Chapter overview 51
10.2 Unfair prejudice 51
10.3 Unfair prejudice and quasi partnerships 52
10.4 Examples of unfair prejudicial behaviour 52
10.5 Effect of a reasonable offer to buy out shareholder 52
10.6 Remedies for unfair prejudice 52
10.7 Derivative action 53
10.8 Permission to continue claim 53
10.9 Mandatory factors 53
10.10 Discretionary factors 53
viii Contents
10.11 Just and equitable winding up 54
10.12 Contractual self-help remedies 54
10.13 Commercial awareness talking point 54
Chapter 10 revision points 54
Part 3: Partnerships 57
11 Ordinary partnerships 59
11.1 Chapter overview 59
11.2 Formation of a partnership 59
11.3 Partnership agreements and common terms 60
11.4 Liability of partners in an ordinary partnership 61
11.5 When does a partner cease to be liable for debts of the
partnership? 62
11.6 Liability through holding out 62
11.7 Liability in tort 62
11.8 Power to bind the firm 62
11.9 Fiduciary duties owed by partners to each other 63
11.10 Duty of care and skill owed by partners to each other 63
11.11 Commercial awareness talking points 63
Chapter 11 revision points 64
12 Limited liability partnerships 65
12.1 Chapter overview 65
12.2 Formation of an LLP 65
12.3 Content of LL IN01 65
12.4 Role of designated members 66
12.5 Comparison with ordinary partnerships 66
12.6 Similar default provisions 66
12.7 Commercial awareness talking point 67
Chapter 12 revision points 67
Part 4: Business accounts and tax 69
13 Calculating business profits (Rachel Cooper) 71
13.1 Chapter overview 71
13.2 Why is calculating profits important? 71
13.3 Types of profit 72
13.4 Income profits 72
13.5 Capital profits 72
13.6 Calculating income profits 72
13.7 Calculating capital profits 73
13.8 Capital allowances 73
13.9 Capital allowances: A worked example 74
Contents ix
13.10 Accounting periods 76
13.11 Relief for tax losses 76
13.12 Accounting information and systems 77
13.13 Commercial awareness talking point 78
Chapter 13 revision points 79
14 Income tax 81
14.1 Chapter overview 81
14.2 What is income tax charged on? 81
14.3 Who pays income tax? 82
14.4 The tax year 82
14.5 Rates of income tax 82
14.6 Calculating income tax 82
14.7 Tax calculation exercise 84
14.8 Collection and payment 85
14.9 Anti-avoidance measures 86
14.10 The GAAR 86
14.11 The Ramsay principle of statutory interpretation 87
14.12 Commercial awareness point 87
Chapter 14 revision points 87
15 Capital gains tax 89
15.1 Chapter overview 89
15.2 Chargeable persons 89
15.3 Chargeable assets 89
15.4 Disposal of assets 90
15.5 Gifts to spouses or civil partners 90
15.6 How to calculate CGT 90
15.7 Calculate gain on disposal 90
15.8 Subtracting allowable expenditure 91
15.9 Indexation 91
15.10 Apply reliefs 91
15.11 Deduct annual exemption 92
15.12 Apply the relevant rate of tax 92
15.13 Business property relief for inheritance tax 93
Chapter 15 revision points 93
16 Corporation tax and value-added tax 95
16.1 Chapter overview 95
16.2 Who pays corporation tax? 95
16.3 How to calculate corporation tax 95
16.4 Corporation tax rates 95
16.5 Value-added tax 95
16.6 Who is liable to pay VAT? 96
16.7 Rates of VAT 96