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Types of Business Organisations in SQE1

Part of our SQE1 Business Law and Practice guide → View the full SQE1 Business Law and Practice guide

17 Apr 2026

Learn how English law distinguishes between sole traders, partnerships, LLPs and companies, and why the incorporated/unincorporated distinction matters for SQE1.

Types of Business Organisations in SQE1

Business Law and Practice > Types of Business Organisations

Most SQE1 candidates can name the business structures—but when a scenario asks which one a client should use, they confuse liability rules, mix up tax treatment, and lose easy marks. If you cannot instantly distinguish incorporated from unincorporated and explain the consequences of each, this topic will cost you. This guide breaks down the four main structures—sole traders, general partnerships, LLPs, and companies—so you can identify the right answer under exam pressure.

What is a Business Organisation in SQE1?

A business organisation is the legal structure through which a person or group operates a business. The choice of structure determines:

  • Liability - whether the owner(s) have personal exposure for debts
  • Legal personality - whether the business is separate from its owners
  • Regulatory burden - filing requirements and ongoing compliance
  • Tax treatment - how business profits are taxed

SQE1 tests your ability to identify appropriate structures and recognise the consequences of each choice.

Key Principles for SQE1

  • Unincorporated structures: Sole traders and general partnerships lack separate legal personality. The owner(s) are personally liable for all business debts (unlimited liability). They do not register at Companies House. Income is taxed as personal income, not corporation tax.

  • Incorporated structures: LLPs and companies are bodies corporate with separate legal personality. Owners have limited liability (losses limited to their investment). They must register and file accounts at Companies House. Different tax treatment applies.

  • Sole trader: The simplest structure. One individual operates the business in their own name. Personal unlimited liability for all debts. Registration with HMRC for tax purposes only (no Companies House registration). Lowest compliance burden but maximum personal risk.

  • General partnership (Partnership Act 1890): Two or more persons carrying on a business in common with a view of profit. No separate legal personality. Partners are jointly and severally liable for partnership debts (each partner can be pursued for the full debt). Governed by contract (partnership agreement) and the PA 1890. Minimal statutory filing.

  • Limited Liability Partnership (LLP Act 2000): A body corporate with separate legal personality. Members have limited liability to the extent of their capital contribution. Must register at Companies House. LLPs are a hybrid of partnership and company characteristics, combining the flexibility of partnerships with the liability protection of incorporated bodies.

  • Private limited company (s.4 CA 2006): A company incorporated at Companies House. Separate legal personality. Shareholders have limited liability. Share capital structure (shares not offered to public). Directors manage the company. Must file accounts and annual returns. Standard business vehicle for medium to large trading.

  • Public limited company (s.4 CA 2006): A company incorporated at Companies House with "plc" suffix. Separate legal personality. Shareholders have limited liability. Can offer shares to the general public (and typically are listed on stock exchange). Minimum issued share capital of £50,000 (at least 25% paid up). More onerous governance and disclosure requirements.

  • Separate legal personality: This is one of the highest-yield principles in SQE1 Business Law. Established in Salomon v A Salomon & Co Ltd [1897], An incorporated body (company or LLP) is a distinct legal entity, separate from its owners. The company can own property, enter contracts, and be sued in its own name. This separation shields owners' personal assets from business liabilities and is foundational to company formation and constitutional law. The choice of structure also carries significant tax consequences that SQE1 frequently tests alongside liability.

Exam tip

When a question says a business owner has "limited liability," check whether they have given a personal guarantee. Limited liability protects against business debts generally, but a personal guarantee creates a separate obligation that bypasses the corporate shield entirely.

Quick Comparison

| Feature | Sole Trader | General Partnership | LLP | Private Company | Public Company | |---------|-------------|-------------------|-----|-----------------|-----------------| | Legal Personality | No | No | Yes | Yes | Yes | | Liability | Unlimited | Joint and several | Limited | Limited | Limited | | Minimum Members | 1 | 2+ | 2+ | 1+ | 1+ | | Registration | HMRC only | None | Companies House | Companies House | Companies House | | Accounts Filing | No (unless turnover test) | No | Yes (Companies House) | Yes (Companies House) | Yes (Companies House) | | Min Share Capital | N/A | N/A | N/A | No minimum | £50,000 (25% paid) | | Shares to Public | N/A | N/A | N/A | No | Yes |

How This Appears in SQE1 Questions

For example, a question might describe three entrepreneurs setting up a business and state they are unable to agree on whether to operate as a partnership or form a company. You'd need to identify the liability consequences of each choice and which structure best suits their risk profile.

SQE1 scenarios typically ask:

  • "Which structure is most appropriate for X situation?" (e.g., small startup vs large trading operation)
  • "What are the liability consequences of this business structure?"
  • "Is the business incorporated or unincorporated?"
  • "What registration requirements apply?"

A common trap: conflating limited liability with no liability. Limited liability means losses are capped at investment; it does NOT mean the business has no obligations or that owners face zero exposure (e.g., personal guarantees or director liabilities still apply).

This distinction is tested repeatedly in SQE1—get it wrong and the entire answer collapses.

Another trap: assuming a partnership has separate legal personality (it does not, unless it's an LLP).

Common Mistakes Students Make

  • Confusing limited liability with no liability. Limited liability shields personal assets from business debts only. It does not eliminate liability entirely.
  • Assuming partnerships have separate legal personality. General partnerships do not. Only LLPs and companies have separate legal personality.
  • Forgetting the £50,000 minimum share capital for plcs. This is a specific requirement for public limited companies and relates directly to share capital rules tested throughout SQE1.
  • Overlooking joint and several liability in partnerships. Each partner can be held liable for 100% of partnership debts.
  • Misunderstanding unincorporated structures. Sole traders and general partnerships must rely on personal credit and cannot shield assets.

Quick Summary

  • Incorporated structures (companies, LLPs) have separate legal personality; unincorporated (sole traders, partnerships) do not
  • Salomon principle: incorporation shields personal assets from business liabilities
  • Limited liability limits losses to investment amount, not zero liability
  • General partnerships: joint and several liability (each partner liable for 100% of debts)
  • Plcs require £50,000 minimum issued share capital (at least 25% paid); private companies have no minimum
  • Business structure choice determines liability exposure, tax treatment, regulatory burden, and capital access

Want to test this now? Try a few SQE1-style questions below before moving on.

Test Yourself

Test yourself

Quick check questions based on this article.

Question 1

Scenario

Four individuals form a limited liability partnership to provide management consultancy services. The LLP is registered at Companies House. The members' agreement provides that profits are to be shared equally among the four members. One of the members, Ms Whitfield, has been negotiating a consultancy contract with a potential client on behalf of the LLP. During negotiations, Ms Whitfield discovers that the client also needs accounting services, which the LLP does not provide. Without informing the other members, Ms Whitfield enters into a separate contract with the client to provide accounting services through a sole trader business she operates alongside her role in the LLP. Ms Whitfield earns a fee of £20,000 from the accounting services contract. The other members discover the arrangement and argue that Ms Whitfield should account for the £20,000 to the LLP. The members' agreement is silent on the issue of competing business activities and outside interests. Ms Whitfield argues that accounting services are outside the LLP's scope of business and therefore the fee is hers to keep. The LLP's filing obligations at Companies House are up to date. The client confirms that they engaged Ms Whitfield personally for the accounting services and were aware she was acting outside the LLP.

Is Ms Whitfield required to account for the £20,000 fee to the LLP?

Question 2

Scenario

A solicitor is advising an LLP on the retirement of one of its members, Dr Singh. The members' agreement provides that a retiring member is entitled to a payment equal to the value of their capital account plus their share of goodwill, as determined by the LLP's accountant. The LLP's accountant has valued Dr Singh's entitlement at £320,000. Dr Singh disputes the valuation and believes her entitlement is at least £500,000. Dr Singh has asked the solicitor to represent her personally in the dispute with the LLP over the valuation. The solicitor has been acting for the LLP for five years and has access to confidential financial information about the LLP and all its members. Dr Singh was introduced to the solicitor by the LLP's managing member. The LLP provides physiotherapy services from three locations. Dr Singh has told the solicitor that she chose the solicitor specifically because of the solicitor's knowledge of the LLP's financial affairs, which she believes would be advantageous in negotiating a higher payment.

What should the solicitor do in response to Dr Singh's request?

Question 3

Scenario

A woman operates a sole trader recruitment agency. She has been engaged by a company to find a suitable candidate for a senior management position. The agreed fee is 15% of the successful candidate's first-year salary. The woman identifies a candidate and facilitates an introduction. The company hires the candidate at a salary of £80,000. The company refuses to pay the woman's fee of £12,000, arguing that the candidate approached the company directly after the introduction and that the woman's services were not the effective cause of the hire. The woman's standard terms of business were included in an email to the company at the start of the engagement. The company did not expressly agree to those terms but proceeded with the engagement. The woman is considering bringing a claim for her fee. She has recently taken advice from a solicitor who is also a personal friend.

Which of the following is the most relevant issue the woman's solicitor should advise on first regarding the claim for the fee?

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