Business Law and Corporate Governance
Business Law and Corporate Governance
This domain tests commercial-law fundamentals and governance duties of boards, audit committees and auditors. It emphasises contract formation, agency, directors’ duties, independence and related-party controls.
Core rules
- A valid contract requires offer, acceptance, capacity, lawful object and, where applicable, consideration or cause; certainty of terms matters.
- Agency binds the principal where the agent acts within actual or apparent authority; third-party good faith affects the outcome.
- Directors owe loyalty and care, must act in the company’s best interests and must avoid undisclosed conflicts.
- The audit committee should be independent of management, oversee financial reporting, internal control and external audit, and meet the auditor without management present.
- Related-party transactions require disclosure, arm’s-length terms and approval by disinterested persons.
Worked example
A listed company’s audit committee is chaired by the board chairman, who is also a former finance director. Analysis: the arrangement breaches governance expectations because the audit committee should be independent of management and the board chair should not chair it. The former finance director’s prior role creates a familiarity and self-review risk over financial reporting. The company should restructure the committee, appoint independent members and disclose the change; the auditor considers the matter in governance communications.
Traps that cost marks
- Treating board approval as sufficient for a conflicted related-party transaction.
- Confusing an agent’s actual authority with apparent authority.
- Assuming the audit committee manages the company rather than oversees it.
- Applying listed-company governance rules to every small WLL.