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SQE1 Question Bank · January 2027
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FLK1 · Business Law and Practice · Foundational
Adaeze Kaur and Elena Williams have been running an interior design business together for three years. They share the profits equally, make decisions jointly, and contribute their own savings to fund the business. They never signed any written agreement, never registered anything at Companies House, and never filed any document with any registrar. A supplier, Chidi Mwangi, is owed money for furniture delivered to the business and wants to understand the legal nature of the arrangement between Adaeze and Elena before pursuing payment.
- A.They operate a private limited company, because they have been trading for more than one year.
- B.They operate a limited liability partnership, because two people running a business together form an LLP by default.
- C.They operate a general partnership, which arose automatically from carrying on a business in common with a view of profit.
- D.They operate no recognised business form, because no written agreement was ever signed between them.
- E.They operate a partnership, but only because they each contributed capital to the business.
Open the worked solution
Correct answer: C
A general partnership comes into existence automatically whenever two or more people carry on a business in common with a view of profit. No written agreement, registration, or filing is required. Adaeze and Elena share profits, make joint decisions, and run the design business together for gain, which satisfies the definition. The arrangement is therefore a general partnership by operation of law, and each partner can be personally liable for the firm's debts, including the sum owed to Chidi.
Why the other options fail
- A.A private limited company is created only by completing the formal incorporation process and registration. Length of trading is irrelevant; simply trading for over a year does not turn an unregistered venture into a company.
- B.An LLP does not arise by default. It is a corporate body that comes into existence only when the correct incorporation documents are delivered to and registered by the registrar. As nothing was ever filed, no LLP exists here.
- D.This wrongly assumes a written agreement is essential. A general partnership can arise purely from conduct, so the absence of any signed document does not mean there is no recognised business form.
- E.This reaches the right form but for the wrong reason. A partnership is defined by carrying on a business in common with a view of profit, not by whether the parties contributed capital. Capital contribution is not the legal trigger.
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