CILEX Professional Qualification (CPQ) Foundation Stage: Business Law and Practice Syllabus

Foundation Stage: Business Law and Practice syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Foundation Stage: Business Law and Practice in CILEX Professional Qualification (CPQ), not a summary of it.

1. 1

   Business Structures

   3 topics

   • Sole traders and partnerships
     • The Partnership Act 1890
     • Limited liability partnerships
   • Companies and corporate personality
     • Salomon v Salomon and the corporate veil
     • Private and public companies
   • Choosing an appropriate business medium
2. 2

   Company Formation and Constitution

   3 topics

   • Incorporation under the Companies Act 2006
     • Memorandum, articles and registration
   • The company's constitution and shareholder agreements
   • Share capital and financing the company
     • Equity and debt finance
     • Fixed and floating charges
3. 3

   Company Management and Governance

   3 topics

   • Directors' duties under the Companies Act 2006
     • Duty to promote the success of the company (s.172)
     • Conflicts of interest and care, skill and diligence
   • Shareholders' meetings, resolutions and rights
   • Minority shareholder protection and unfair prejudice
4. 4

   Insolvency and Taxation Overview

   3 topics

   • Corporate insolvency
     • Liquidation, administration and receivership
   • Personal insolvency and bankruptcy
   • Business taxation fundamentals
     • Corporation tax, income tax and VAT in outline

Foundation Stage: Business Law and Practice flashcards for CILEX Professional Qualification (CPQ)

19 of 52 cards from the Foundation Stage: Business Law and Practice deck — real questions with worked answers.

1. What is a sole trader, and what is the key consequence of its lack of separate legal personality?

   A sole trader is an individual carrying on business on their own account with no separate legal entity. Consequently, the owner and the business are legally the same, so the trader has unlimited personal liability for all business debts.

2. Define a partnership under section 1 of the Partnership Act 1890.

   A partnership is 'the relation which subsists between persons carrying on a business in common with a view of profit'. No formality is required; it can arise from conduct.

3. In an ordinary partnership, what is the nature and extent of partners' liability for partnership debts?

   Partners have unlimited personal liability. Liability is joint for debts/contracts and joint and several for wrongs (torts), meaning each partner can be pursued for the whole amount.

4. Under the Partnership Act 1890, how are profits, losses and management rights shared absent contrary agreement?

   Profits and losses are shared equally regardless of capital contributed, every partner may take part in management, and no partner is entitled to a salary.

5. How does a Limited Liability Partnership (LLP) differ fundamentally from an ordinary partnership?

   An LLP (Limited Liability Partnerships Act 2000) is a separate legal person with limited liability for its members. It must be incorporated by registration at Companies House, unlike an ordinary partnership.

6. What case established the principle of separate corporate personality, and what did it decide?

   Salomon v A Salomon & Co Ltd [1897] established that a properly incorporated company is a separate legal person distinct from its shareholders, so the company's debts are its own, not the members'.

7. List the main consequences that flow from a company's separate legal personality.

   The company can own property, sue and be sued in its own name, contract in its own name, has perpetual succession, and its members enjoy limited liability for the company's debts.

8. In what limited circumstances may a court 'pierce the corporate veil'?

   Only exceptionally, where the company is used as a sham or facade to evade an existing legal obligation (the 'evasion principle' in Prest v Petrodel Resources Ltd [2013]). Mere use of the corporate form is not enough.

9. Distinguish a private limited company from a public limited company on share-offer and minimum capital.

   A private company (Ltd) cannot offer shares to the public and has no minimum share capital. A public company (plc) may offer shares to the public and must have allotted share capital of at least £50,000 (with at least 25% paid up).

10. Compare unlimited personal liability versus limited liability as a factor in choosing a business medium.

    Sole traders and ordinary partners face unlimited personal liability; company shareholders and LLP members enjoy limited liability (capped at unpaid amount on shares / agreed contribution). Limited liability protects personal assets but brings disclosure and compliance burdens.

11. What are the main advantages of trading as a company rather than as a sole trader or partnership?

    Limited liability, separate legal personality, perpetual succession, easier transfer of ownership via shares, greater access to capital, and potential tax efficiency. Drawbacks include disclosure, formality and administrative cost.

12. Which documents must be delivered to Companies House to incorporate a company under the Companies Act 2006?

    Form IN01 (application for registration), a memorandum of association, the articles of association (unless model articles are adopted), and the registration fee.

13. What is the legal effect of the certificate of incorporation issued by the Registrar?

    It is conclusive evidence that the company is duly registered and validly incorporated under the Companies Act 2006, and from that date the company exists as a separate legal person.

14. Under the Companies Act 2006, what is the role and content of the memorandum of association?

    It is a historical formality stating that the subscribers wish to form a company and agree to become members (and, if it has share capital, to take at least one share each). It no longer contains the objects or constitution.

15. What are the 'model articles' under the Companies Act 2006?

    Default constitutional rules prescribed by regulations that automatically apply to a company on incorporation unless it registers bespoke articles or amends/excludes them.

16. What is a pre-incorporation contract and who is personally liable on it under section 51 CA 2006?

    A contract purportedly made on behalf of a company before it exists. Under s.51 CA 2006 the person who purported to act for the company is personally liable on it, subject to any agreement to the contrary, because the company cannot ratify it.

17. What documents form a company's constitution under section 17 of the Companies Act 2006?

    The articles of association together with any resolutions and agreements affecting the constitution (e.g. special resolutions amending the articles).

18. What contractual effect do the articles have under section 33 of the Companies Act 2006?

    The articles bind the company and its members as if there were a contract under seal between them, but only in respect of membership rights ('qua member'). They do not confer rights on members in any other capacity (e.g. as a director).

19. How are the articles of association altered, and what restriction protects existing rights?

    By special resolution (75% majority) under s.21 CA 2006. The alteration must be made bona fide in the interests of the company as a whole, and entrenched provisions may require more onerous procedures.

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