LW: Corporate and Business Law

• Topic 01

  Essential Elements of the Legal System

  268 questions
• Topic 02

  The Law of Obligations

  255 questions
• Topic 03

  Employment Law

  253 questions
• Topic 04

  The Formation and Constitution of Business Organisations

  223 questions
• Topic 05

  Capital and the Financing of Companies

  229 questions
• Topic 06

  Management, Administration and the Regulation of Companies

  274 questions
• Topic 07

  Insolvency Law

  241 questions
• Topic 08

  Corporate Fraudulent and Criminal Behaviour

  293 questions

A few questions from this unit, with the answer and a full explanation. The complete bank is available when you start practising.

1. What is the order of priority for the distribution of assets in a liquidation?

   • A
     Floating charge holders, fixed charge holders, unsecured creditors, shareholders
   • B
     All creditors share equally regardless of their security status
   • C
     Fixed charge holders, liquidation expenses, preferential creditors, prescribed part for unsecured creditors, floating charge holders, unsecured creditors, deferred debts, shareholders
     Correct answer
   • D
     Shareholders, directors, unsecured creditors, secured creditors
   Explanation

   The order of priority on liquidation is: (1) fixed charge holders; (2) liquidation expenses; (3) preferential creditors (employees' wages, HMRC secondary preferential debts); (4) prescribed part for unsecured creditors (from floating charge realisations, under s.176A); (5) floating charge holders; (6) unsecured creditors (pari passu); (7) deferred debts; (8) shareholders (preference before ordinary). A common error is placing floating charge holders above preferential creditors — in fact, preferential creditors rank ahead of floating charge holders.

2. What are the employer's common law implied duties in a contract of employment?

   • A
     Only to pay wages — all other duties are statutory rather than implied by common law
   • B
     To provide training, pay bonuses, and ensure career progression
   • C
     To pay agreed wages, to provide a reasonably safe working environment, to maintain mutual trust and confidence, and (in some cases) to provide work
     Correct answer
   • D
     To provide a written contract, pay wages, and guarantee promotion opportunities
   Explanation

   The employer's common law implied duties include: (1) the duty to pay agreed wages; (2) the duty to provide a reasonably safe working environment (including safe systems of work, competent fellow workers, and safe equipment); (3) the duty of mutual trust and confidence — not to act in a manner calculated or likely to destroy the relationship of trust (Malik v BCCI); and (4) in certain cases, the duty to provide work (particularly where the employee's skills may deteriorate without practice, or where earnings depend on work done). These duties are implied by common law, not statute.

3. What are the key characteristics of a sole trader as a form of business organisation?

   • A
     A sole trader has separate legal personality, limited liability, and must register at Companies House
   • B
     A sole trader has no separate legal personality, faces unlimited personal liability for business debts, and requires no formal registration or formation process
     Correct answer
   • C
     A sole trader must have a written business plan approved by the government before commencing trade
   • D
     A sole trader shares liability with other owners and must form a partnership agreement
   Explanation

   A sole trader is the simplest form of business structure. Key characteristics include: no separate legal personality (the business and the owner are one and the same in law), unlimited personal liability (the owner is personally liable for all debts of the business), no formal registration requirements (though the person must register with HMRC for tax), and profits are taxed as personal income. The sole trader structure involves minimal regulation but maximum personal risk.