Specific Legal Areas Relating to Business
What this area tests
This domain applies legal rules to business relationships. You must know the law of agency (creation by express/implied agreement, ratification, estoppel and necessity; the agent's authority actual and apparent; duties of agent and principal; termination), the law of partnerships and companies (separate legal personality, limited liability, formation, directors' duties, minority protection), employment law (contract of service vs contract for services, wrongful and unfair dismissal, redundancy, discrimination), and the tort of negligence as it affects business (duty, breach, causation, remoteness, and the professional's standard of care).
Traps that appear in questions
- Apparent authority binds the principal even where the agent exceeds actual authority, provided the third party relied on a representation by the principal.
- Separate legal personality means shareholders are not liable for company debts beyond unpaid capital - do not confuse this with lifting the corporate veil.
- Unfair vs wrongful dismissal. Wrongful dismissal is breach of contract (notice/pay); unfair dismissal requires qualifying service and a fair reason plus fair procedure.
- Negligence remoteness. The defendant is liable only for damage of a kind reasonably foreseeable, not for the extent.
Worked example / rule of thumb
Rule of thumb: ask who is the principal, what authority existed, and who relied on what. Example: a company's sales manager, whose actual authority is capped at £10,000, orders £25,000 of stock from a supplier who has routinely dealt with him at that level. The company is likely bound because the manager had apparent authority: the company's conduct represented he could contract at that level and the supplier relied on it. The company's remedy is against the manager for breach of his duties, not against the innocent supplier.