SQE1 Business Law and Practice.

Emma operates a catering business as a sole trader under the name "Emma's Delicious Catering". She has been running the business for five years and has built up a good reputation. Recently, a large corporate client cancelled a major event at short notice, causing Emma significant financial difficulties. Emma's business now owes £35,000 to food suppliers, £8,000 in unpaid rent for her commercial kitchen premises, and £12,000 to an equipment leasing company. Emma has business assets worth £20,000 (catering equipment and a van) and personal assets including her house worth £250,000 (with a mortgage of £150,000) and savings of £15,000. Emma is considering her options.

Which of the following best describes Emma's liability for the business debts?

1. Emma's liability is limited to her business assets of £20,000, because the business operates under a separate trading name.
2. Emma's liability is limited to £50,000, because this is the statutory maximum for sole trader debts.
3. Emma's liability is limited to her business assets plus her savings, but her house is protected as her primary residence.
4. Emma has no personal liability because she has been trading for more than three years, which provides automatic limited liability protection.
5. Emma is personally liable for the full £55,000 and creditors can pursue her personal assets including her house and savings. Correct

Helena is a freelance graphic designer who wants to incorporate a private limited company for her business. She will be the only shareholder and wants to minimise costs and administrative complexity. She has read conflicting information online about the minimum requirements for a private limited company and has asked her solicitor to clarify what is actually required. Helena is particularly confused about whether she needs to appoint multiple directors or a company secretary.

Which of the following correctly describes the minimum requirements for Helena to incorporate a private limited company?

1. A minimum of one director (who must be a natural person), one shareholder, and a company secretary, with no minimum share capital.
2. A minimum of two directors, one shareholder, no company secretary required, with minimum share capital of £1.
3. A minimum of one director, two shareholders, a company secretary, with minimum share capital of £100.
4. A minimum of two directors, two shareholders, no company secretary required, with minimum share capital of £1,000.
5. A minimum of one director (who must be a natural person), one shareholder, no company secretary required, with no minimum share capital. Correct

Two friends, Alice and Ben, have been sharing a flat for three years. They split all household expenses equally, including rent, utilities, and groceries. They also bought a car together to share commuting costs, taking turns driving each week. Recently, a neighbour asked if Alice and Ben were "business partners" because they seemed to share everything. Ben is now worried that their arrangements might accidentally have created a legal partnership with associated liabilities.

Based on the statutory definition of partnership, which of the following best describes Alice and Ben's legal position?

1. Alice and Ben are partners, because they are carrying on activities in common and sharing expenses.
2. Alice and Ben are partners, because they have been sharing expenses for more than two years.
3. Alice and Ben are not partners, because they have not registered their partnership with HMRC.
4. Alice and Ben are partners, because they co-own an asset (the car) and share its use.
5. Alice and Ben are not partners, because they are not carrying on a business with a view of profit. Correct

Nadia is a freelance translator who works from home translating documents from French to English. She has been employed by a translation agency for five years but now wants to work independently. Her clients are mainly small businesses who need occasional document translation. Her typical fees are £200-500 per project, and she expects to earn approximately £40,000 in her first year. She has no employees and minimal overheads. She has asked her accountant to advise on the most appropriate business structure.

Which of the following would be the most appropriate business structure for Nadia, given her circumstances?

1. A public limited company, because this will give her business maximum credibility with clients.
2. A limited liability partnership, because this is the standard structure for professional service providers.
3. A private limited company, because all businesses should incorporate to obtain limited liability protection.
4. A general partnership, because this provides the flexibility needed for a translation business.
5. A sole trader, because this is the simplest structure with minimal formalities, appropriate for a low-risk single-person service business. Correct