Business Law and Practice (BSL): essential SQE1 knowledgeBusiness Law and Practice is examined in FLK1 and represents 14–20% of the 180-question paper, approximately 25–36 questions. Ethics and profes…
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Business Law and Practice (BSL): essential SQE1 knowledge
Business Law and Practice is examined in FLK1 and represents 14–20% of the 180-question paper, approximately 25–36 questions. Ethics and professional conduct are assessed throughout. Official SQE1 blueprint
The official syllabus covers:
Business structures
Formation and constitutional documents
Business finance and security
Directors, shareholders and corporate decisions
Partnership management
Financial records and distributions
Corporate and personal insolvency
Business taxation
The Listing Rules, Prospectus Rules, Disclosure Guidance and Transparency Rules, London Stock Exchange rules and similar market codes are excluded.
1. Choosing the business vehicle
Candidates should compare:
Vehicle
Legal personality
Liability
Management
Tax position
Sole trader
No separate personality
Unlimited personal liability
Proprietor
Income Tax and NICs
General partnership
Not generally separate in England and Wales
Partners jointly liable, with relevant statutory consequences
Partners
Partners taxed individually
LLP
Separate legal personality
Members normally have limited liability
Members
Generally tax-transparent
Private company
Separate legal personality
Shareholders normally limited
Directors manage; shareholders retain defined powers
Corporation Tax
Unlisted public company
Separate legal personality
Shareholders normally limited
Directors and shareholders
Corporation Tax
The correct structure depends on:
Liability
Tax
Finance
Control
Administration
Disclosure
Continuity
Exit plans
Number and relationship of owners
2. Sole trader
A sole trader:
Owns business assets personally
Contracts personally
Is personally liable for debts
Retains profits
Pays Income Tax and applicable National Insurance
May employ staff
Has no separation between personal and business legal identity
Advantages include simplicity and control. The main disadvantage is unlimited liability.
Business debts may expose personal assets to enforcement and bankruptcy.
3. General partnership
Under the Partnership Act 1890, partnership is broadly the relationship between persons carrying on a business in common with a view to profit.
The court considers substance rather than labels.
Relevant indicators include:
Shared profits
Joint management
Contribution of capital
Joint ownership
Mutual agency
Intention
Conduct toward third parties
Sharing gross returns or jointly owning property does not alone establish partnership.
4. Separate personality of partnerships
An English general partnership does not ordinarily have legal personality separate from its partners in the same manner as a company or LLP.
Nevertheless, procedural and commercial rules often permit:
Partnership name
Partnership property
Firm bank accounts
Proceedings in the firm name
Partners remain exposed to personal liability.
5. Partnership liability
Every partner is an agent of:
The firm
Other partners
for the purpose of the partnership business.
The firm may be bound where a partner acts:
In the usual course of business
With actual authority
With apparent authority
Internal restrictions do not protect the firm against a third party who lacks knowledge of the restriction.
6. Partners’ personal liability
Partners are generally jointly liable for contractual debts incurred while they are partners.
For certain wrongful acts and misapplications, liability may be joint and several.
Candidates should consider:
Whether the person was a partner when liability arose
Nature of claim
Holding out
Retirement notice
New partner’s position
Indemnity between partners
A new partner is not automatically liable for obligations incurred before joining.
7. Holding out
A person may incur liability as a partner by holding out, or knowingly allowing themselves to be represented, as a partner where:
Representation is made
Third party knows of it
Third party gives credit relying on it
Mere reputation without a representation attributable to the person may be insufficient.
8. Default partnership rules
Unless partners agree otherwise:
Partners share capital and profits equally
Partners contribute equally to losses
Every partner may participate in management
No partner is entitled to remuneration merely for acting in the business
New partner requires unanimous consent
Ordinary matters may be decided by majority
Change in nature of business requires unanimity
Partners must provide full information and accounts
Partners owe duties of good faith
These default rules often make a written partnership agreement essential.
9. Partnership agreement
Common provisions include:
Capital contributions
Profit and loss shares
Drawings
Management powers
Voting
Authority limits
Holidays and absence
Decision deadlock
Admission and retirement
Expulsion
Death or incapacity
Restrictive covenants
Goodwill
Valuation
Dispute resolution
Dissolution
A partner cannot ordinarily be expelled unless an express power exists and is exercised in good faith.
10. Partnership fiduciary duties
Partners must:
Act in good faith
Account for secret profits
Disclose relevant information
Avoid unauthorised competing business
Account for benefits derived from partnership property or connections
Use partnership assets properly
The partnership agreement may regulate some duties, but cannot safely be treated as permitting dishonesty.
11. Dissolution of partnership
A partnership may dissolve through:
Expiry of fixed term
Completion of venture
Notice in a partnership at will
Agreement
Death or bankruptcy, subject to agreement
Illegality
Court order
Other contractual event
The court may order dissolution for matters such as:
Incapacity
Prejudicial conduct
Persistent breach
Business operating at a loss
Just and equitable grounds
12. Limited liability partnership
An LLP:
Has separate legal personality
Owns its own assets
Contracts in its own name
Has perpetual succession
Provides members with limited liability
Is registered at Companies House
Is generally taxed as a partnership
Members act as agents of the LLP, not automatically of one another.
13. LLP agreement
An LLP agreement commonly covers:
Capital
Profit shares
Management
Voting
Authority
Admission
Retirement
Expulsion
Decision-making
Indemnities
Restrictive covenants
Deadlock
Dissolution
Without an agreement, statutory default rules apply and may produce unintended equal rights.
14. Company legal personality
A registered company is separate from:
Shareholders
Directors
Employees
Parent company
Consequences include:
Company owns its property
Company enters contracts
Company sues and is sued
Company debts are not ordinarily shareholder debts
Company continues despite changes in membership
Key authority:
Salomon v A Salomon & Co Ltd
15. Limited liability
In a company limited by shares, a shareholder’s liability is generally limited to any unpaid amount on their shares.
Limited liability does not protect:
Company itself
Director who gives a personal guarantee
Director personally liable in tort
Person involved in fraud
Director liable under insolvency legislation
Shareholder liable under an independent obligation
Limited liability and separate personality are distinct concepts.
16. Incorporating a company
Formation requires delivery of prescribed information to Companies House, commonly including:
Proposed name
Registered office
Registered email address
Company type
Memorandum of association
Articles of association
Statement of capital and initial shareholdings
First directors
Persons with significant control
Lawful-purpose confirmation
Required registration fee
The company exists from the date in the certificate of incorporation.
17. Company name
Restrictions apply to names that:
Are the same as an existing registered name
Are too similar in relevant circumstances
Suggest government or public connection without approval
Contain sensitive words
Are offensive
Mislead about status
Separate legal issues may arise under:
Passing off
Trade marks
Business names legislation
Companies House registration does not guarantee freedom from intellectual-property claims.
18. Registered office and records
The company must maintain an appropriate registered office in the relevant UK jurisdiction.
It must keep required records, including:
Register of members
Directors’ details
PSC information
Resolutions and minutes
Accounting records
Charges
Statutory filings
Failure to maintain or file records may create:
Criminal liability
Civil consequences
Regulatory penalties
Difficulty completing transactions
19. Memorandum and articles
Memorandum
Records the subscribers’ agreement to form the company and become members.
Articles
Constitute the company’s internal rulebook.
The articles regulate:
Directors’ powers
Board decisions
Shareholder decisions
Shares
Dividends
Meetings
Voting
Notices
Administrative matters
The articles operate as a statutory contract between the company and members in their capacity as members.
20. Model articles and amendment
A company may:
Adopt model articles
Modify them
Use bespoke articles
Articles are generally amended by special resolution.
An amendment must:
Be made bona fide for the benefit of the company as a whole
Comply with statute
Not improperly expropriate rights
Be filed at Companies House
An alteration cannot automatically release the company from an existing external contract.
21. Objects and capacity
Companies generally have unrestricted objects unless articles restrict them.
An act beyond an internal objects restriction may still bind the company in favour of a third party, while directors may breach duties internally.
Charitable and specially constituted companies may have more important objects restrictions.
22. Pre-incorporation contracts
A person purporting to contract for a company before it exists is generally personally liable unless the agreement provides otherwise.
The company cannot simply ratify a pre-incorporation contract because it did not exist when the contract was made.
After incorporation, the company may:
Enter a new contract or novation
Adopt a commercially equivalent arrangement
A promoter should address personal liability expressly.
23. Promoters
A promoter may owe fiduciary duties to the company concerning:
Secret profits
Conflicts
Disclosure
Sale of promoter-owned property
Formation arrangements
A promoter should provide full disclosure to:
Independent board, or
Existing and intended shareholders where appropriate
24. Share capital
Candidates should understand:
Authorised and issued share capital
Allotted shares
Paid and unpaid shares
Nominal value
Premium
Different share classes
Ordinary and preference shares
Voting and dividend rights
Capital rights on winding up
Nominal value is not the same as market value.
A share cannot ordinarily be allotted at a discount to nominal value.
25. Share classes
Articles and terms of issue determine class rights.
Possible rights include:
Voting
Dividends
Return of capital
Redemption
Conversion
Priority
Preference shares may carry preferential dividends or capital but do not necessarily guarantee payment.
26. Directors’ authority to allot shares
Before allotment, determine:
Do directors have statutory or article-based authority?
Does a private company with one class benefit from the relevant statutory authority?
Is shareholder authorisation required?
Do statutory pre-emption rights apply?
Must pre-emption rights be disapplied?
What resolutions and filings are needed?
Improper allotment may expose directors to breach-of-duty claims even if the allotment remains legally effective.
27. Statutory pre-emption rights
Where ordinary shares are allotted for cash, they must generally first be offered to existing ordinary shareholders in proportion to existing holdings.
Pre-emption rights may be:
Disapplied through the statutory procedure
Modified where legally permitted
Inapplicable to some non-cash allotments or excluded securities
The purpose is to protect shareholders from dilution.
28. Transfer of shares
Share transfer commonly requires:
Valid transfer instrument
Compliance with articles
Any required board approval
Registration in register of members
Share certificate
Stamp-duty consideration where applicable
Legal title generally passes on registration of the transferee as member.
Articles may permit directors to refuse registration subject to proper exercise of power.
29. Redemption of shares
Redeemable shares allow capital to be returned according to their terms.
Candidates should understand:
Company must have non-redeemable shares in issue
Terms of redemption
Funding from distributable profits or proceeds of fresh issue
Capital redemption reserve where required
Payment and cancellation
Board and filing requirements
Effect on share capital
From 1 September 2026, redemption is expressly identified within examinable equity finance.
30. Company purchase of own shares
A private company may buy back its own shares subject to statutory safeguards.
Candidates should recognise:
Off-market purchase contract
Shareholder approval
Seller’s voting restrictions
Available funding
Payment on purchase
Cancellation
Capital and reserve consequences
Companies House filings
Tax consequences for shareholder
A purchase out of capital requires additional solvency, publicity and procedural safeguards.
Other reductions of share capital and financial assistance are excluded from the post-September 2026 BSL specification.
31. Debt finance
Common forms include:
Bank loan
Overdraft
Director or shareholder loan
Debenture
Loan note
Trade credit
Asset finance
Candidates should compare:
Interest
Repayment
Security
Covenants
Priority
Control
Insolvency consequences
Tax treatment
Debt does not dilute ownership but may increase insolvency risk.
32. Equity finance
Equity finance may involve:
Ordinary shares
Preference shares
New share issue
Founder investment
External investment
Rights issue in an unlisted context
Advantages include:
No mandatory repayment
Improved balance sheet
Risk shared with investors
Disadvantages include:
Dilution
Voting influence
Dividend expectations
Governance rights
Exit pressure
33. Fixed and floating charges
Fixed charge
Attaches to identified assets and substantially restricts the company’s freedom to dispose of them.
Examples may include:
Land
Machinery
Certain receivables where genuine control exists
Floating charge
Hovers over a changing class of assets and permits ordinary dealing until crystallisation.
Examples may include:
Stock
Circulating assets
Some book debts
The label used is not conclusive. The degree of control is important.
34. Registration of company charges
A qualifying charge should generally be registered at Companies House within 21 days beginning with the day after creation.
Failure may make the security void against:
Liquidator
Administrator
Creditors
The underlying debt remains due but becomes unsecured.
Separate Land Registry registration may also be required for land.
35. Priority of security
Priority depends on:
Type of security
Date of creation
Registration
Notice
Contractual subordination
Negative pledge clauses
Statutory preferential claims
Insolvency rules
Broadly:
Fixed security normally ranks ahead of floating security over the same asset
Earlier security generally has priority, subject to applicable rules
Preferential claims and prescribed-part rules affect floating-charge recoveries
36. Guarantees and indemnities
Guarantee
Secondary obligation dependent on the principal debtor’s liability.
Indemnity
Primary obligation to compensate for specified loss.
Candidates should consider:
Writing requirements for guarantees
Consideration
Variation of underlying obligation
Discharge
Corporate authority
Undue influence
Independent advice
Insolvency consequences
37. Directors’ powers
The board ordinarily manages the company’s business, subject to:
Companies Act 2006
Articles
Shareholder reserved powers
Existing contracts
Directors’ duties
Shareholders cannot ordinarily usurp board powers merely because they disagree with a commercial decision.
They may instead:
Amend articles
Remove directors
Refuse required approvals
Use statutory remedies
38. Appointment of directors
Appointment depends on:
Articles
Shareholder resolution
Board power in applicable circumstances
Consent to act
Statutory eligibility
Companies House filing
A private company must generally have at least one natural-person director.
Candidates should distinguish:
Appointment
Employment
Service contract
Office as director
Shareholding
Removing a director does not automatically terminate every employment right.
39. Board meetings
Candidates should understand:
Calling the meeting
Reasonable notice
Quorum
Voting
Chair’s role
Declaration of interests
Written board decisions where articles permit
Minutes
Filing and implementation
Under model articles:
Directors generally decide collectively
Majority decision ordinarily applies
Quorum commonly requires two
Interested directors may be restricted from quorum or voting, subject to the articles and exceptions
Always check the company’s actual articles.
40. Shareholder resolutions
Ordinary resolution
Passed by a simple majority.
Special resolution
Requires at least 75%.
Resolutions may be passed:
At a general meeting
By written resolution for private companies, subject to statutory exceptions
Public companies cannot generally use the statutory written-resolution procedure.
41. Written resolutions
A private company may circulate a written resolution to eligible members.
Important rules include:
Required majority calculated by voting rights
Circulation requirements
Lapse period
Member statements in applicable cases
Record keeping
Filing of special resolutions
Written resolutions cannot be used for:
Removal of director under section 168
Removal of auditor under the relevant statutory procedure
These require a meeting because the affected officeholder has procedural rights.
42. General meetings
Candidates should understand:
Authority to call meeting
Notice period
Contents of notice
Quorum
Proxies
Voting
Polls
Written records
Short notice
Special notice
Filing
A private company general meeting generally requires at least 14 clear days’ notice, subject to valid short-notice consent.
43. Shareholder power to require a meeting
Members meeting the statutory threshold may require directors to call a general meeting.
If directors fail to comply, members may in prescribed circumstances call the meeting themselves and recover reasonable expenses from the company, with consequences for defaulting directors.
This is important in disputes over director removal.
44. Directors’ general duties
Directors owe duties to the company under sections 171–177 Companies Act 2006:
Section 171: act within powers
Section 172: promote success of company
Section 173: exercise independent judgment
Section 174: exercise reasonable care, skill and diligence
Section 175: avoid conflicts of interest
Section 176: not accept benefits from third parties
Section 177: declare interest in proposed transaction or arrangement
These duties should be memorised.
45. Duty to act within powers
A director must:
Act in accordance with constitution
Exercise powers only for proper purposes
A decision may breach section 171 even if the director honestly believes it benefits the company, where the power was used for an improper purpose.
A classic example is issuing shares primarily to manipulate voting control.
46. Duty to promote success
A director must act in the way they consider, in good faith, would most likely promote the company’s success for members as a whole.
Relevant factors include:
Long-term consequences
Employees
Business relationships
Community and environment
Reputation
Fairness between members
For insolvent or financially distressed companies, creditor interests become increasingly important.
47. Independent judgment
A director must exercise their own judgment.
This does not prevent:
Proper delegation
Reliance on professional advice
Compliance with a lawful agreement restricting future discretion in permitted circumstances
It does prevent a director from merely following instructions from:
Majority shareholder
Appointing investor
Parent company
Other director
Family member
A nominee director owes duties to the company, not merely the nominator.
48. Care, skill and diligence
Section 174 applies a combined test:
Objective: standard reasonably expected of a person carrying out that director’s functions
Subjective: higher knowledge, skill and experience actually possessed
An inexperienced director cannot rely on their inexperience to reduce the minimum standard.
Directors must:
Understand the company’s affairs
Monitor finances
Attend appropriately
Question information
Supervise delegated functions
49. Conflicts of interest
Section 175 covers situations where a director has, or may have, an interest conflicting with the company’s interests.
Examples include:
Corporate opportunity
Competing business
Personal use of company information
Property opportunity
Other directorship
In a private company, disinterested directors may sometimes authorise a conflict if the constitution permits and statutory requirements are met.
The duty can continue after the director leaves office regarding opportunities learned of while in office.
50. Benefits from third parties
A director must not accept a benefit conferred because:
They are a director, or
They do or omit something as a director
unless acceptance cannot reasonably be regarded as likely to create a conflict.
Bribes and secret commissions are particularly serious.
51. Declaration of interests
A director must declare the nature and extent of an interest in a proposed transaction before the company enters it.
For an existing transaction, a separate statutory disclosure obligation may apply.
No declaration may be needed where:
Director is unaware and could not reasonably be expected to know
Other directors already know
Interest cannot reasonably be regarded as likely to create a conflict
Other statutory exception applies
Disclosure does not automatically authorise every transaction or cure all conflicts.
52. Remedies for breach of directors’ duties
Possible consequences include:
Damages or equitable compensation
Account of profits
Restoration of company property
Rescission
Injunction
Constructive trust
Transaction challenge
Removal
Disqualification
Ratification in qualifying cases
The duties are owed principally to the company, so the company ordinarily owns the claim.
53. Ratification
A company may ratify certain director conduct by shareholder resolution.
The votes of:
Director concerned
Connected members in relevant circumstances
may be disregarded.
Ratification cannot necessarily validate:
Illegal acts
Fraud on minority
Conduct incapable of ratification
Prejudice to creditors in insolvency
Certain statutory breaches
54. Directors’ service contracts
Candidates should understand:
Board and shareholder approval
Written memorandum
Availability for inspection
Employment rights
Termination
Payments for loss of office
A guaranteed term exceeding two years generally requires shareholder approval.
Failure may make the relevant provision void to the statutory extent.
55. Substantial property transactions
Shareholder approval may be required where:
Company acquires a substantial non-cash asset from a director or connected person, or
Director or connected person acquires such an asset from the company
Candidates should identify:
Non-cash asset
Director or connected person
Statutory value thresholds
Approval requirements
Remedies for non-compliance
Transactions in the ordinary course may still require analysis.
56. Loans to directors
Loans, quasi-loans, credit transactions and guarantees involving directors may require shareholder approval, subject to:
Company type
Nature of transaction
Statutory exceptions
Value
Connected persons
Exceptions may include certain:
Minor transactions
Business expenditure
Company business
Home loans
Defence expenditure
The exact statutory conditions matter.
57. Removal of directors
A company may generally remove a director by ordinary resolution under section 168, notwithstanding contrary contractual provisions.
Requirements include:
Special notice
General meeting
Director’s right to make written representations
Director’s right to be heard
Correct notice and voting procedure
A written resolution cannot be used.
Removal may still cause:
Employment claim
Contractual damages
Share-transfer consequences
Unfair-prejudice dispute
58. Dividends
A company may distribute only from profits available for distribution.
The board commonly:
Recommends final dividend
Declares interim dividend under its authority
Shareholders may declare a final dividend but ordinarily cannot exceed the board’s recommendation.
An unlawful distribution may be recoverable from:
Shareholder with relevant knowledge
Directors who authorised it
Others under applicable principles
Cash in the bank does not necessarily mean distributable profits exist.
59. Financial records and accounts
Companies must maintain adequate accounting records showing:
Transactions
Assets and liabilities
Financial position
Relevant stock information
Information needed for statutory accounts
Directors are responsible for ensuring compliance.
Candidates should understand:
Annual accounts
Directors’ reports
Audit requirements and exemptions
Filing deadlines
Confirmation statements
Record retention
Consequences of late filing
60. Persons with significant control
A company must identify and report individuals or registrable legal entities satisfying relevant control conditions, such as:
More than 25% of shares
More than 25% of voting rights
Right to appoint or remove a majority of directors
Significant influence or control
Control over a trust or firm meeting these conditions
The company must take reasonable steps to investigate and keep information current.
61. Minority-shareholder protection
Principal remedies include:
Unfair-prejudice petition
Derivative claim
Personal action
Just-and-equitable winding up
Enforcement of articles
Contractual rights under shareholders’ agreement
The correct remedy depends on:
Who suffered the wrong
Company or shareholder
Nature of conduct
Desired remedy
Availability of internal approval
62. Unfair prejudice
Under section 994 Companies Act 2006, a member may petition where company affairs are conducted in a manner:
Unfairly prejudicial
To members generally or some part of members
Including the petitioner
Common examples include:
Exclusion from management in a quasi-partnership
Excessive remuneration
Diversion of business
Improper share issue
Breach of articles or understandings
Failure to pay dividends combined with extraction by majority
The common remedy is an order requiring purchase of the petitioner’s shares at a fair value.
63. Derivative claims
A derivative claim is brought by a member on behalf of the company concerning:
Negligence
Default
Breach of duty
Breach of trust by a director
Court permission is required.
The court considers matters including:
Good faith
Importance a director promoting success would attach
Authorisation or ratification
Whether company should pursue the claim
Availability of personal remedies
Views of independent members
Any recovery belongs to the company.
64. Personal shareholder claims
A shareholder may sue personally where their own right is infringed, such as:
Denial of voting rights
Failure to pay declared dividend
Breach of class rights
Breach of shareholders’ agreement
Failure to follow articles in a membership capacity
The rule in Foss v Harbottle generally prevents a shareholder recovering personally for loss merely reflective of loss suffered by the company.
65. Shareholders’ agreements
Common provisions include:
Board composition
Reserved matters
Funding
Dividend policy
Share transfers
Pre-emption
Drag-along and tag-along
Deadlock
Restrictive covenants
Confidentiality
Exit
Valuation
A shareholders’ agreement binds its parties contractually but does not automatically bind future shareholders or alter the company’s constitution.
66. Corporate insolvency tests
A company may be unable to pay its debts under:
Cash-flow test
Balance-sheet test
Unsatisfied statutory demand or judgment
Other statutory evidence
Cash-flow insolvency
Company cannot pay debts as they fall due.
Balance-sheet insolvency
Value of assets is less than liabilities, including prospective and contingent liabilities.
67. Administration
Administration principally aims to:
Rescue the company as a going concern, or
Achieve a better result for creditors than liquidation, or
Realise property for secured or preferential creditors
Effects commonly include:
Moratorium
Administrator control
Directors’ powers restricted
Protection from individual enforcement
Business sale or restructuring
Appointment may be made through court or qualifying out-of-court routes.
68. Company voluntary arrangement
A CVA is an arrangement between company and creditors supervised by an insolvency practitioner.
Key points include:
Proposal
Nominee’s involvement
Creditor approval
Member decision
Binding effect on qualifying creditors
Treatment of secured and preferential creditors
Challenge for unfair prejudice or material irregularity
A CVA does not necessarily impose the same automatic moratorium as administration.
69. Receivership
A fixed-charge receiver may be appointed over a secured asset under contractual or statutory powers.
Administrative receivership is now restricted principally to specified older or exceptional security arrangements.
A receiver’s principal focus is usually realising secured assets rather than rescuing the company for all creditors.
70. Liquidation
Liquidation may be:
Members’ voluntary liquidation
Creditors’ voluntary liquidation
Compulsory liquidation
Members’ voluntary liquidation
Requires a valid declaration of solvency.
Creditors’ voluntary liquidation
Used where the company is insolvent and shareholders resolve to wind up.
Compulsory liquidation
Ordered by the court on statutory grounds, commonly inability to pay debts.
Liquidation’s purpose is collection, realisation and distribution of assets followed by dissolution.
71. Bankruptcy and IVA
For individuals:
Bankruptcy
May involve:
Bankruptcy order
Trustee in bankruptcy
Vesting of assets
Creditor claims
Restrictions
Discharge
Individual voluntary arrangement
A statutory compromise supervised by an insolvency practitioner.
An IVA may:
Avoid bankruptcy
Bind qualifying creditors following approval
Permit structured repayment
Fail if terms are breached
These rules are relevant to sole traders and partners.
72. Transactions at an undervalue
A transaction at an undervalue may include:
Gift
Transaction for no consideration
Transaction for significantly less than value
In corporate insolvency, relevant issues include:
Statutory look-back period
Insolvency condition
Connected persons
Good-faith business-purpose defence
Court’s restorative powers
Equivalent principles apply in personal bankruptcy with different statutory details.
73. Preferences
A preference occurs where a company or individual does something that places a creditor, surety or guarantor in a better position on insolvency than otherwise.
For a company, candidates should consider:
Desire to prefer
Relevant time
Connection
Insolvency
Available court orders
Desire may be presumed for connected persons, subject to the statutory scheme.
Commercial pressure to pay does not always establish a desire to prefer.
74. Wrongful trading
A director may be liable where, before insolvent liquidation or administration, they knew or ought to have concluded that there was no reasonable prospect of avoiding the relevant insolvency outcome and failed to take every step to minimise creditor loss.
Candidates should consider:
Objective and subjective knowledge
Financial information
Timing
Steps taken
Professional advice
Continuing losses
Creditor interests
Continuing to trade during difficulty is not automatically wrongful if a reasonable rescue prospect remains and proper protective steps are taken.
75. Fraudulent trading
Fraudulent trading requires business to be carried on:
With intent to defraud creditors, or
For a fraudulent purpose
It may result in:
Civil contribution order
Criminal liability
Disqualification
Personal liability
Dishonesty distinguishes it from wrongful trading.
76. Invalid floating charges
A floating charge created during the relevant pre-insolvency period may be invalid except to the extent of:
New money
New goods or services
Interest as statutorily permitted
Candidates should consider:
Date of creation
Connected-person status
Insolvency
New value
Registration
The purpose is to prevent existing unsecured debt obtaining late security at creditors’ expense.
77. Distribution priority
A simplified corporate insolvency order is:
Assets subject to valid fixed charges
Expenses of insolvency
Preferential creditors
Prescribed part for unsecured creditors where applicable
Floating-charge holders
Unsecured creditors
Statutory interest
Shareholders according to rights
Candidates must distinguish assets subject to fixed security from the general asset pool.
78. Income Tax
Candidates should understand taxation of:
Employees
Sole traders
Partners
Shareholders
Lenders
Debenture holders
Core issues include:
Trading income
Employment income
Savings income
Dividend income
Allowable deductions
Reliefs
Personal allowance
Tax bands
Collection through PAYE or self-assessment
Anti-avoidance principles
A partnership generally calculates business profit, but partners are taxed on their shares.
79. Employment and self-employment
Tax treatment depends on the true relationship rather than its label.
Relevant factors include:
Control
Personal service
Mutuality of obligation
Financial risk
Equipment
Integration
Substitution
Business on own account
Misclassification may produce:
PAYE liabilities
National Insurance liabilities
Interest and penalties
Employment-law consequences
80. Capital Gains Tax
Candidates should be able to identify:
Disposal
Consideration
Acquisition cost
Incidental costs
Enhancement expenditure
Chargeable gain
Allowable loss
Annual exempt amount
Applicable relief
Rate and collection
Business-related reliefs may include:
Business Asset Disposal Relief
Rollover relief
Gift relief
Incorporation relief
Share-for-share treatment
The availability of each depends on statutory conditions.
81. Business Asset Disposal Relief
BADR may apply to qualifying disposals such as:
Whole or part of sole-trader business
Partnership interest
Assets associated with withdrawal from business
Shares in qualifying personal company
Candidates should identify:
Qualifying business
Ownership period
Officer or employee requirement for company shares
Trading-company status
Personal-company conditions
Lifetime limit
82. Rollover relief
Rollover relief may defer gain where qualifying business assets are disposed of and proceeds are reinvested in qualifying replacement assets within the statutory period.
The gain is generally deducted from the replacement asset’s base cost.
If not all proceeds are reinvested, part of the gain may remain immediately chargeable.
83. Gift relief
Hold-over relief may defer gain on qualifying gifts, including:
Certain business assets
Some transfers chargeable to IHT
The gain is deducted from the recipient’s acquisition cost.
It defers rather than permanently eliminates the gain.
84. Corporation Tax
A company may pay Corporation Tax on:
Trading profits
Property-business profits
Non-trading income
Chargeable gains
Other taxable income
Candidates should understand:
Accounting period
Tax-adjusted profit
Disallowable expenditure
Capital allowances
Loss relief
Chargeable gains
Payment
Return filing
Anti-avoidance principles
From 1 September 2026, calculation of income profits and chargeable gains, allowable deductions, principal reliefs and exemptions is expressly clarified as examinable.
85. Trading deductions
An expense is generally deductible where incurred:
Wholly and exclusively
For purposes of trade
On revenue rather than capital account
Subject to statutory restrictions
Common disallowable items include:
Capital expenditure
Client entertaining
Fines and penalties
Private expenditure
Corporation Tax itself
Certain excessive or prohibited payments
Depreciation is generally added back, with capital allowances considered separately.
86. Company losses
Candidates should understand the broad availability of:
Current-period relief
Carry-back
Carry-forward
Group relief in applicable circumstances
Restrictions and ordering
The treatment depends on:
Type of loss
Relevant accounting periods
Continuing trade
Ownership changes
Available profits
87. Company distributions
Dividends:
Are paid from distributable profits
Are not generally deductible in computing company taxable profits
Are taxed as dividend income in the shareholder’s hands
Require proper corporate authority
Differ from salary and interest
Salary may be deductible for the company if incurred wholly and exclusively and taxed as employment income.
Interest may be deductible subject to applicable rules and taxed as savings or business income for the recipient.
88. VAT
Candidates should understand:
Taxable supply
Business activity
Consideration
Output tax
Input tax
Standard, reduced and zero rates
Exempt supplies
Registration
Tax invoices
Returns
Payment
Record keeping
A zero-rated supply is taxable at 0%, potentially permitting input-tax recovery. An exempt supply normally restricts input-tax recovery.
89. VAT registration
A business must generally register where taxable turnover exceeds the statutory threshold, subject to:
Historical turnover test
Future turnover test
Temporary-exceedance exception
Voluntary registration
Deregistration
Special rules for overseas businesses
Taxable turnover includes zero-rated supplies but generally excludes exempt supplies.
90. Input and output VAT
Output tax
VAT charged on taxable supplies made by the business.
Input tax
VAT incurred on supplies to the business.
The amount paid to HMRC is broadly:
Output tax minus recoverable input tax
Recovery requires:
Business purpose
Proper evidence
Taxable activity
No statutory block or restriction
91. Business Property Relief
BPR may reduce IHT on qualifying business property, including potentially:
Business or interest in business
Unquoted company shares
Controlling holdings in quoted companies
Certain assets used by qualifying businesses
Candidates should consider:
Qualifying ownership period
Nature of business
Investment-business exclusion
Excepted assets
Replacement property
Rate of relief
A business consisting wholly or mainly of dealing in investments, land or securities may fail the trading requirement.
92. Anti-avoidance and ethical considerations
Candidates should distinguish:
Lawful tax planning
Tax avoidance
Tax evasion
Sham transactions
Failure to disclose
Dishonest documentation
A solicitor must not:
Facilitate tax evasion
Draft false documents
Conceal beneficial ownership
Mislead HMRC
Ignore money-laundering risks
Promote arrangements without competence
Allow client account to be misused
Business questions may combine taxation with EPC or AML.
Highest-priority BSL topics
Prioritise:
Business-vehicle comparison
Partnership authority and default rules
LLP characteristics
Separate personality and limited liability
Company formation and constitution
Board versus shareholder powers
Ordinary and special resolutions
Directors’ duties under sections 171–177
Director appointment and removal
Share allotment and pre-emption
Share redemption and buybacks
Dividends and distributable profits
Debt, equity, fixed and floating security
Charge registration
Minority-shareholder remedies
Administration, CVA and liquidation
Transactions at undervalue and preferences
Wrongful and fraudulent trading
Distribution priority
Income Tax, CGT, Corporation Tax and VAT
Business Property Relief
Ethics, conflicts and AML
Best BSL question method
For every scenario, ask:
Which business vehicle is involved?
Who owns the assets and bears liability?
Who has authority to make the decision?
Is a board or shareholder resolution required?
What majority, notice and filing are required?
Is a director interested or conflicted?
Does the company have sufficient distributable profits or authority?
Is financing debt or equity, and what security exists?
Is the company solvent?
Can a transaction be challenged in insolvency?
What tax applies to the entity and stakeholder?
Are there ethical, AML or disclosure concerns?
The controlling source is the official SRA FLK1 specification. The attached sample paper is FLK2, so it demonstrates SQE question style but does not directly define or sample BSL content.