Business structures & starting up
The first decision for any business is its legal structure — sole trader, partnership, LLP or company — because that choice fixes liability, tax treatment, formality and the ability to raise finance. SQE1 tests whether you can advise which vehicle suits a client's circumstances.
What "Business structures & starting up" covers
- Unincorporated vehicles (sole trader, general partnership) have no separate legal personality; the individuals are the business and bear unlimited personal liability for its debts.
- Incorporated vehicles (private/public companies, LLPs) have separate legal personality: they own assets, contract and sue in their own name, and the members' liability is limited.
- A company limited by shares limits a member's liability to any amount unpaid on their shares (s.3 CA 2006); a sole trader or general partner has no such shield.
- Private company (Ltd) cannot offer shares to the public; a public company (Plc) can, needs a s.761 trading certificate and £50,000 minimum allotted capital, one quarter paid up.
- Key selection factors: exposure to liability, tax efficiency, set-up and ongoing cost, privacy of accounts, ease of raising capital, and administrative burden.
- Formation formality rises with protection: a sole trader simply starts trading, whereas a company must register at Companies House and file annual accounts and a confirmation statement.
- The corporate veil is respected save in narrow circumstances (evasion of an existing obligation); mere use of a company to limit liability is legitimate.
Key cases & statutes
The authorities and provisions most likely to matter for this subtopic:
How it's tested in SQE1
SQE1 uses single best answer questions: a short factual scenario, one precise question, and five options of which only one is the best answer on the law applied to the facts. For business structures & starting up, expect to be asked what the correct legal position is, what a party may or must do, or which outcome follows — with more than one option looking arguable. Reading the facts carefully and eliminating the near-misses is the skill that earns the mark.
Where candidates lose marks
- Confusing separate legal personality (the entity is a distinct person) with limited liability (the cap on members' contribution) — they are related but distinct concepts.
- Assuming a sole trader or general partnership is a separate entity — it is not, so the individual's personal assets are exposed.
- Thinking the veil can be pierced simply because a company is small or one-person; Salomon and Prest keep piercing exceptional.
Learn this subtopic in the course
A video lesson, notes and exam-style practice on business structures & starting up.
FAQ
Is business structures & starting up tested on SQE1?
Yes — business structures & starting up is part of the SQE1 Business Law and Practice syllabus (FLK1) and can appear in single best answer questions.
How is business structures & starting up examined in SQE1?
SQE1 tests it by application: you're given a realistic scenario and choose the single best answer from five options. The focus is on using the law correctly, not reciting it — knowing the leading authorities (Salomon v Salomon & Co Ltd [1897] AC 22, s.3 CA 2006) helps.