Business Law and Corporate Governance: Entities, Duties, and Compliance
Core concepts
This domain covers the legal framework of business organisations and the governance structures that oversee them. Candidates must understand the types of business entity (sole trader, partnership, limited company), the doctrine of separate legal personality and limited liability, the formation and constitution of companies, share capital, directors' duties, and the roles of the board, audit committee, and external auditor. Corporate governance codes emphasise transparency, accountability, board independence, and the separation of the roles of chair and chief executive.
Traps
Questions often test the consequences of piercing the corporate veil, or the difference between a director's fiduciary duty of loyalty and the duty of care and skill. Watch for confusion between ordinary and special resolutions (special usually requires a 75% majority). Agency questions test apparent versus actual authority. Governance questions may ask who appoints the external auditor (usually the shareholders in general meeting, not the board) and who chairs the audit committee (an independent non-executive director).
Worked example
A company has 1,000,000 ordinary shares. A special resolution requires at least 75% of votes cast, so at least 750,000 votes in favour if all shares vote. An ordinary resolution requires a simple majority. If a director secretly buys company property, that is a breach of the duty to avoid conflicts of interest, and the transaction may be voidable at the company's option.
Rule of thumb
Separate legal personality means the company, not its owners, bears liability; exceptions are rare and statutory.