Business Law and Ethics: Formation, Governance and Conduct
What the exam tests
Business Law and Ethics tests contract formation, company law, agency, insolvency and competition basics, together with professional ethics and corporate governance. Application to a fact pattern is the norm.
Core rules
- A valid contract needs offer, acceptance, consideration, intention to create legal relations, capacity, free consent and lawful object.
- An invitation to treat is not an offer: displays of goods, advertisements and most tenders invite offers. A counter-offer destroys the original offer.
- Company law requires directors to disclose interest in transactions, and an interested director generally cannot count for quorum or vote on that item. Related party transactions need proper approval.
- Directors owe fiduciary duties: act in good faith, avoid conflicts, exercise due care and not misuse position or information.
- Ethics principles: integrity, objectivity, professional competence and due care, confidentiality and professional behaviour. Confidentiality yields to legal or regulatory disclosure requirements.
Worked example
A director's private firm bids to supply the company. The director must disclose the interest at a board meeting, abstain from voting, and not be counted in the quorum for that item. The transaction may also need audit committee or shareholder approval. Legality alone is insufficient: the ethical test is whether the director placed personal interest before duty and whether the process was transparent. The correct answer states both the legal approval route and the governance rationale.
Traps
- Treating an advertisement as an offer.
- Assuming a counter-offer leaves the original offer alive.
- Ignoring disclosure and quorum rules for interested directors.
- Treating a code of ethics as optional guidance.
- Disclosing confidential client information without a permitted exception.