Newsletter 70

Monday 13 January 2025

Your weekly SQE Prep Quiz has arrived

Dear Subscriber,

I hope you had a great start to the new year! Please see below for the question, the answer to the previous question and associated resources. This is the web version of this newsletter.

Weekly SQE1 FLK1 livestreams! Get your SQE questions answered live! Click here and tap the notification button in anticipation of our second session on 15 January.

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Question: Sophie and Daniel are childhood friends who want to start a business selling handmade sustainable clothing. Sophie has significant capital to invest, while Daniel has experience in fashion design and marketing. They are debating whether to form a partnership, a private limited company (Ltd), or a sole proprietorship. They are concerned about potential liability for business debts, taxation, and how much control they each will have over decision-making. Sophie wants to limit her financial exposure, while Daniel wants flexibility in running the business and avoiding excessive administrative burdens.

Which of the following business structures is most suitable for Sophie and Daniel’s needs, and why?

  1. A partnership, as it offers flexibility in decision-making and profit-sharing, but both Sophie and Daniel would be personally liable for business debts.
  2. A private limited company, as it limits Sophie and Daniel’s personal liability, provides flexibility for investment, and allows clear division of control.
  3. A sole proprietorship, as it is easy to set up and gives Daniel full control over the business, but Sophie can act as an informal investor.
  4. A partnership, as it allows Sophie to invest as a silent partner without any personal liability for business debts.
  5. A private limited company, as it avoids any taxation on the company’s profits, allowing Sophie and Daniel to keep all earnings personally.

Resource: Learn more about forms of business organisation by watching this video.

Free Study Planner: You can download our SQE1 Study Planner for the July 2025 exam by clicking here.

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Answer and feedback to last week’s question: GreenScape Ltd., a landscaping company, enters into a contract with Bloom Ltd., a garden center, to deliver plants and gardening materials for a large project. Disputes arise when GreenScape Ltd. fails to deliver the agreed materials on time, and Bloom Ltd. refuses to pay the full amount under the contract. Both companies wish to avoid the costs and delays of going to court but cannot reach a resolution through direct negotiations. They are considering alternative dispute resolution (ADR) methods to settle the dispute. Which ADR method is most appropriate for GreenScape Ltd. and Bloom Ltd. if they want a binding decision but still wish to avoid the formalities of court proceedings?

  1. Mediation; the parties appoint a neutral third party to facilitate a negotiated agreement.
  2. Arbitration; the parties agree to submit their dispute to a neutral arbitrator.
  3. Conciliation; a conciliator suggests potential solutions to the dispute.
  4. Negotiation; the parties attempt to resolve the dispute directly without involving any third party.
  5. Expert determination; an independent expert resolves the dispute.

Correct Answer: 2. Arbitration; the parties agree to submit their dispute to a neutral arbitrator. Feedback: Arbitration is an appropriate ADR method for parties seeking a binding resolution without the formalities and costs of court proceedings. In arbitration, the parties agree to appoint an independent arbitrator to hear the dispute and make a final decision, which is legally binding and enforceable under the Arbitration Act 1996 in the UK. Arbitration provides a structured process while offering greater flexibility than litigation, making it suitable for commercial disputes like the one between GreenScape Ltd. and Bloom Ltd.

Option 1 (Mediation) is incorrect because mediation focuses on facilitating negotiations between the parties, but the mediator does not issue a binding decision. Option 3 (Conciliation) is incorrect because, like mediation, conciliation results in a binding outcome only if both parties agree to the conciliator’s proposed solution, making it less formal than arbitration. Option 4 (Negotiation) is incorrect because it involves only the disputing parties and results in a non-binding resolution, which may not suit parties who want a binding outcome. Option 5 (Expert determination) is incorrect because while it can be used to resolve technical disputes, the decision is only binding if the parties have agreed in advance to be bound by it, making it less formal than arbitration. Thus, the most suitable ADR method for GreenScape Ltd. and Bloom Ltd. is arbitration, as it ensures a binding and enforceable decision while avoiding the complexities and delays of court litigation.

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You will hear from me again soon.

All the best

Dr Ioannis Glinavos

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