Law Society of Scotland Professional Education and Training (PEAT) PEAT 1: Business, Commercial and Financial Practice Syllabus

PEAT 1: Business, Commercial and Financial Practice syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for PEAT 1: Business, Commercial and Financial Practice in Law Society of Scotland Professional Education and Training (PEAT), not a summary of it.

1. 1

   Business Vehicles and Formation

   4 topics

   • Choice of business medium
     • Sole trader and partnership
     • Limited companies and LLPs
   • Company incorporation
     • Memorandum and articles of association
     • Companies House registration
   • Partnership and the Partnership Act 1890
   • Shareholders' agreements
2. 2

   Corporate Governance and Administration

   4 topics

   • Directors' duties
     • Statutory duties under Companies Act 2006
     • Conflicts and disclosure
   • Decision-making and resolutions
   • Share capital and shareholder rights
   • Statutory registers and filing obligations
3. 3

   Commercial Transactions

   4 topics

   • Drafting commercial contracts
     • Terms, conditions and warranties
     • Limitation and exclusion clauses
   • Sale and supply of goods and services
   • Acquisitions and disposals
     • Asset versus share purchase
     • Due diligence and warranties
   • Commercial security and guarantees
4. 4

   Insolvency and Corporate Recovery

   3 topics

   • Corporate insolvency procedures
     • Administration and liquidation
     • Receivership and CVAs
   • Personal insolvency
     • Sequestration
     • Protected trust deeds and DAS
   • Directors' liabilities and disqualification
5. 5

   Employment and Regulatory Context

   4 topics

   • The contract of employment
   • Termination and unfair dismissal
   • Discrimination and the Equality Act 2010
   • Employment Tribunal procedure

PEAT 1: Business, Commercial and Financial Practice flashcards for Law Society of Scotland Professional Education and Training (PEAT)

23 of 55 cards from the PEAT 1: Business, Commercial and Financial Practice deck — real questions with worked answers.

1. What are the four main business mediums a Scottish solicitor must advise clients to choose between?

   Sole trader, traditional partnership (governed by the Partnership Act 1890), limited liability partnership (LLP), and limited company (usually a private company limited by shares).

2. When choosing a business medium, what is the key trade-off between a sole trader/partnership and a limited company?

   Sole traders and partners have unlimited personal liability but simpler set-up, privacy and pass-through taxation; a limited company gives limited liability and separate legal personality but requires public filings, formal administration and is subject to corporation tax.

3. What is the principle established in Salomon v A Salomon & Co Ltd [1897]?

   A properly incorporated company is a separate legal person distinct from its shareholders and directors, so the company's debts are its own and members enjoy limited liability even where one person owns and controls the company.

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

   Form IN01 (application for registration) with the proposed name, registered office, statement of capital and initial shareholdings, statement of proposed officers and persons of significant control, plus a memorandum of association and (optionally) bespoke articles; the registrar then issues a certificate of incorporation.

5. What is the legal effect of the certificate of incorporation?

   It is conclusive evidence that the company is duly registered and exists as a body corporate from the date stated; the company acquires separate legal personality and limited liability from that moment.

6. What is the role of a company's articles of association?

   The articles are the company's constitution governing its internal management (directors' powers, meetings, decision-making, share transfers, dividends); they form a statutory contract between the company and its members under s33 Companies Act 2006. If no bespoke articles are filed, the Model Articles apply by default.

7. Under the Partnership Act 1890, how is 'partnership' defined?

   Section 1: the relation which subsists between persons carrying on a business in common with a view of profit. No formal agreement is required and a partnership can arise simply from conduct.

8. What does s24 of the Partnership Act 1890 provide where there is no partnership agreement?

   Default rules: partners share profits and losses equally, no partner is entitled to a salary, no interest on capital, every partner may take part in management, and no new partner may be introduced without unanimous consent.

9. What is the nature of partners' liability for partnership debts under the Partnership Act 1890?

   Under Scots law each partner is jointly and severally liable for the debts and obligations of the firm incurred while a partner; in Scotland the firm itself has separate legal personality (distinct from England) but the partners remain liable in a guarantee-type capacity.

10. How may a partnership be dissolved under the Partnership Act 1890?

    By expiry of a fixed term, completion of a venture, notice by any partner in a partnership at will (s26/s32), death or bankruptcy of a partner (s33), illegality (s34), or by court order on grounds such as incapacity, prejudicial conduct or business carried on at a loss (s35).

11. Why do parties enter a shareholders' agreement when the articles already exist?

    It is a private contract (not filed at Companies House) giving confidentiality and personal contractual rights between shareholders, can require unanimity for reserved matters, protect minority interests, and cannot be altered by a simple majority the way articles can.

12. Name three matters commonly dealt with in a shareholders' agreement.

    Reserved/veto matters requiring shareholder consent, share transfer controls (pre-emption, drag-along and tag-along rights), dividend and funding policy, board composition/appointment rights, and dispute resolution or deadlock mechanisms.

13. What is the difference between a 'drag-along' and a 'tag-along' right?

    A drag-along right lets majority sellers force minority shareholders to sell their shares to a buyer on the same terms; a tag-along right lets minority shareholders require the buyer to also purchase their shares on the same terms, protecting the minority.

14. What are the seven general duties of directors codified in the Companies Act 2006?

    s171 act within powers; s172 promote the success of the company; s173 exercise independent judgment; s174 exercise reasonable care, skill and diligence; s175 avoid conflicts of interest; s176 not accept benefits from third parties; s177 declare interest in a proposed transaction.

15. What does s172 of the Companies Act 2006 require directors to do?

    Act in the way the director considers, in good faith, would be most likely to promote the success of the company for the benefit of members as a whole, having regard to factors such as long-term consequences, employees, suppliers/customers, the community and environment, reputation and fairness between members.

16. What is the standard of care under s174 Companies Act 2006?

    A dual objective/subjective test: the care, skill and diligence of a reasonably diligent person with (a) the general knowledge, skill and experience reasonably expected of someone in that role (objective minimum), and (b) the actual knowledge, skill and experience the director has (raising the bar if higher).

17. What must a director do under s177 if interested in a proposed transaction with the company?

    Declare the nature and extent of the interest to the other directors before the company enters the transaction; for an existing transaction the declaration is made under s182. Failure can render the transaction voidable and breach the duty.

18. What is the difference between an ordinary resolution and a special resolution?

    An ordinary resolution needs a simple majority (more than 50%) of votes cast; a special resolution needs at least 75% of votes cast and is required for fundamental matters such as changing the articles, changing the company name, or reducing share capital.

19. How can a private company pass resolutions without holding a meeting?

    By the written resolution procedure under Chapter 2, Part 13 Companies Act 2006: a written ordinary resolution needs a simple majority and a written special resolution needs 75% of the total voting rights of eligible members; written resolutions cannot be used to remove a director or auditor.

20. What notice and majority are required to remove a director under s168 Companies Act 2006?

    An ordinary resolution at a general meeting (simple majority), but special notice of 28 days must be given to the company, and the director is entitled to make written representations and be heard at the meeting.

21. What is the difference between authorised, issued and paid-up share capital?

    Issued (allotted) capital is the nominal value of shares actually issued; paid-up capital is the amount members have actually paid on those shares. The Companies Act 2006 abolished the concept of authorised share capital for new companies, replacing it with a statement of capital.

22. What rights typically attach to an ordinary share versus a preference share?

    Ordinary shares usually carry voting rights, variable dividends and rights to surplus on a winding up. Preference shares carry a fixed priority dividend and priority return of capital on winding up but usually limited or no voting rights and no share in surplus.

23. What are statutory pre-emption rights on the allotment of shares?

    Under s561 Companies Act 2006, existing shareholders must first be offered new equity shares pro rata to their holdings before they are offered to outsiders, protecting against dilution; these rights can be disapplied by special resolution or in the articles.

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