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ACCA LW: Corporate and Business Law Practice Questions
45 original practice questions for ACCA Corporate and Business Law (LW), written for this site with full explanations. They are original questions in the style of the syllabus - not taken from any official exam. Use them to test coverage, then confirm details against ACCA's official materials.
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Which statement best describes the primary purpose of civil law?
Correct answer: B. Civil law governs relations between private parties and aims to compensate the injured party, most often through damages. Punishment on behalf of the state is the purpose of criminal law, imprisonment is a criminal sanction rather than a civil remedy, and civil law covers disputes between any persons, not only government departments. -
In civil proceedings, the claimant must generally prove the case:
Correct answer: D. The civil standard is the balance of probabilities, meaning the claim is more likely true than not. Beyond reasonable doubt is the higher criminal standard, absolute certainty is not required in any court, and most civil cases are decided by a judge without a jury, so unanimous jury satisfaction is not the test. -
Under the doctrine of judicial precedent, the element of a judgment that binds later courts is:
Correct answer: A. Only the ratio decidendi, the legal principle necessary for the decision on the facts, is binding on later courts in the hierarchy. Obiter dicta and dissenting judgments are at most persuasive, and the headnote is merely a reporter's summary with no legal force. -
Which of the following best describes delegated legislation?
Correct answer: C. Delegated legislation is made by a person or body other than the legislature, acting under authority granted in a parent or enabling statute; it saves parliamentary time and uses technical expertise, and it can be challenged as ultra vires if it exceeds those powers. Primary legislation is the full parliamentary route, judge-made law is case law rather than delegated legislation, and treaties do not automatically become domestic law. -
A court applying the purposive approach to statutory interpretation will primarily:
Correct answer: B. The purposive approach asks what the legislation was intended to achieve and reads the words in that light. Insisting on the literal dictionary meaning regardless of absurdity describes the literal approach, courts cannot refuse to decide a case pending clarification, and there is no general rule that ambiguity is resolved in favour of one class of party in all legislation. -
The doctrine of binding precedent (stare decisis) generally means that:
Correct answer: A. Stare decisis requires courts to follow the ratio of decisions made by courts above them in the hierarchy when the material facts are similar. The obligation runs downwards, not upwards, some courts can depart from their own previous decisions or distinguish cases on the facts, and precedent applies in both civil and criminal law. -
Goods displayed on a supermarket shelf with a price label are generally regarded in contract law as:
Correct answer: D. A shelf display is an invitation to treat: the customer offers to buy at the till and the retailer may accept or refuse. It is not an offer, so the shop is not contractually bound by a pricing label, nothing is accepted merely by picking goods up, and no contract exists before offer and acceptance are complete. -
The rule that consideration must be sufficient but need not be adequate means that consideration must:
Correct answer: C. The law requires consideration to be real and of some recognisable value, but it does not police the fairness of the bargain, so a nominal price can support a binding contract. Equivalence to market value is therefore not required, consideration can be goods, services or a promise rather than money, and no court approval of fairness is needed. -
Anna voluntarily repairs her neighbour's fence. Afterwards, the grateful neighbour promises to pay her. The promise is generally unenforceable because:
Correct answer: B. Consideration must be given in return for the promise; an act already completed before the promise is past consideration and cannot support it, subject to narrow exceptions such as acts done at the promisor's prior request with payment expected. Capacity is not in issue on these facts, services like repairs are perfectly capable of being consideration when bargained for, and writing is not generally required for a simple contract. -
Ben offers to sell equipment to Clara at a stated price. Clara replies that she will pay a lower amount, which Ben rejects. Clara then says she accepts the original price. The position is that:
Correct answer: C. A counter-offer terminates the original offer, so it is no longer open for acceptance; Clara's later message therefore operates as a fresh offer that Ben is free to accept or decline. No contract arose on the original terms or at the lower price because no offer was accepted while still open, and there is no operative mistake on these facts. -
Where the post is a contemplated method of acceptance, the general rule is that a posted acceptance takes effect:
Correct answer: A. Under the postal rule, acceptance is complete on posting where post is a reasonable and contemplated means and the rule has not been excluded by the offer. Actual reading or arrival is not required, which is precisely what distinguishes acceptance from revocation of an offer, which is effective only when communicated; postal acceptance is certainly not invalid. -
In social and domestic agreements, the courts generally presume that:
Correct answer: B. Family and social arrangements are presumed not to be intended as binding contracts, but evidence such as separated spouses dealing at arm's length can rebut this. The opposite presumption applies to commercial agreements, intention is an essential element of a contract rather than irrelevant, and the mere involvement of money does not by itself create legal intent. -
A contractual term is classified as a condition rather than a warranty. The practical significance is that breach of a condition:
Correct answer: D. A condition is a term going to the root of the contract, so its breach lets the innocent party terminate and sue for damages, or affirm and claim damages. Damages-only is the remedy for breach of a warranty, the innocent party plainly has remedies rather than none, and breach has no effect on transfer of ownership. -
Where a term cannot be classified in advance as a condition or a warranty, the courts decide the innocent party's remedy for its breach primarily by asking:
Correct answer: C. Such innominate or intermediate terms are judged by the gravity of the breach: termination is available only where the innocent party loses substantially the whole benefit of the contract, otherwise damages alone. The form of the term, the identity of the drafter and the presence of signatures affect neither the classification nor the remedy. -
For an exclusion clause displayed on a notice to form part of a contract, the party relying on it must generally show that:
Correct answer: D. An unsigned clause is incorporated only by reasonably sufficient notice given before or at the time of contracting, and the more unusual or onerous the clause, the more prominent the notice must be. An obscure notice fails that test, notice given after formation, such as inside a hotel room, comes too late, and the test is objective notice rather than the other party's private agreement. -
Which of the following is an essential element of an actionable misrepresentation?
Correct answer: A. A misrepresentation is an untrue statement of existing fact (or law) made before the contract that induces the other party to contract, with remedies including rescission and, depending on the maker's state of mind, damages. Pure opinion from a party with no special expertise is generally not actionable, an honest statement of future intention is not a statement of fact, and silence is normally no misrepresentation outside special situations such as half-truths or contracts of utmost good faith. -
Damages for breach of contract are recoverable only for losses that:
Correct answer: B. The remoteness rule limits recovery to losses flowing naturally from the breach in the ordinary course, plus unusual losses that both parties could reasonably have contemplated at formation because special circumstances were known. Freak, uncontemplated losses are too remote even if factually caused, a valid liquidated damages clause fixes rather than floors recovery, and contract damages compensate the claimant rather than punish the defendant. -
A contract is discharged by frustration when:
Correct answer: C. Frustration automatically discharges a contract where a supervening event outside the parties' control destroys the basis of the bargain, for example destruction of the subject matter or supervening illegality. Increased cost or hardship alone is not frustration, self-induced impossibility is a breach rather than frustration, and ending the contract by mutual consent is discharge by agreement. -
In deciding whether someone is an employee or an independent contractor, the courts today primarily apply:
Correct answer: D. Modern courts weigh all the circumstances: control over how work is done, integration into the organisation, mutuality of obligation, the duty of personal service and factors such as who bears financial risk and provides equipment. The parties' own label is relevant but never conclusive, and neither the place of work nor the mere fact of payment can settle status on its own. -
Which of the following is a key consequence of being classified as an employee rather than an independent contractor?
Correct answer: B. Employee status is the gateway to statutory protections including unfair dismissal, redundancy payments and minimum notice, and it also makes the employer vicariously liable for the employee's acts in the course of employment and responsible for deducting tax at source. Employees gain rights rather than lose them, they do not thereby become liable for the employer's debts, and the employer's responsibility for their acts increases rather than disappears. -
Wrongful dismissal is best described as:
Correct answer: A. Wrongful dismissal is a contractual claim: the employer ended the contract in breach of its terms, most commonly by giving no or inadequate notice, and the remedy is damages. The employee's subjective sense of unfairness is not the test, statutory unfair dismissal is a separate regime judging the reason and procedure, genuine redundancy is a distinct concept, and no criminal liability is involved. -
Constructive dismissal occurs when:
Correct answer: C. Constructive dismissal treats a resignation as a dismissal because the employer committed a fundamental breach, such as unilaterally cutting pay or destroying trust and confidence, and the employee resigned in response without delay. Dismissal with proper notice is an actual dismissal, voluntary retirement is no dismissal at all, and a mere failure to promote will not normally amount to a repudiatory breach. -
Summary dismissal without notice is generally justified only where:
Correct answer: A. Gross misconduct is a repudiatory breach by the employee that entitles the employer to end the contract immediately without notice. Trivial lapses like one instance of lateness do not reach that threshold, cost-driven headcount reduction is redundancy and requires notice and fair procedure, and dismissal for union membership is treated as automatically unfair rather than justified. -
A dismissal is by reason of redundancy where:
Correct answer: B. Redundancy is about the disappearance or reduction of the job itself: business closure, workplace closure, or a diminished need for work of the particular kind. Hiring a direct replacement for the same role shows the job still exists and so is not redundancy, while refusing instructions and misconduct are conduct-related reasons for dismissal, not redundancy. -
Apparent (ostensible) authority of an agent arises where:
Correct answer: D. Apparent authority rests on a representation by the principal, through words, conduct or permitting the agent to occupy a position, on which the third party reasonably relies. The agent's own belief or self-declaration cannot create it, and a private restriction unknown to the third party does not destroy the appearance of authority; it may actually be the situation in which apparent authority still binds the principal. -
A principal may ratify a contract made by an agent who lacked authority only if, among other requirements:
Correct answer: C. Ratification is possible only where the agent professed to act for a named or identifiable principal that was in existence and had capacity at the time, and the principal then adopts the whole contract within a reasonable time, taking effect retrospectively. An undisclosed principal cannot ratify because the third party never knew a principal was involved, the third party's consent is not required, and cherry-picking parts of the contract is not permitted. -
An agent who, without disclosure, receives a personal commission from a third party while acting for a principal:
Correct answer: A. An agent is a fiduciary and must not profit secretly from the position; the principal can recover the secret profit, rescind the contract concerned and terminate the agency, and disclosure with consent is the only safe route. Custom cannot excuse secrecy, liability does not depend on proof of loss because the duty is strict, and while bribery can attract criminal liability, it is not automatic in every case of undisclosed commission. -
A general partnership is best defined as:
Correct answer: B. The classic definition requires persons carrying on a business together with the intention of making a profit, and no registration or formality is needed to create a general partnership. A company is a separate registered legal form, merely sharing expenses lacks both a common business and the profit motive, and a charity run by trustees is not a profit-seeking partnership. -
A contract made by one partner in the ordinary course of the firm's business:
Correct answer: C. Every partner has implied authority to bind the firm in transactions of the kind the firm usually carries on, so the firm and co-partners are bound to the outside world. The exception is where the partner had no authority and the third party knew this or did not know or believe they were dealing with a partner; unanimous signature is not required and no court confirmation is involved. -
A partner who retires from a general partnership:
Correct answer: D. Retirement does not erase liability for obligations incurred during membership; release requires the creditors' agreement, typically by novation. To escape liability for debts arising after departure, the retiring partner must notify existing customers directly and advertise the change publicly, otherwise they may still be treated as a partner by holding out. Automatic release and automatic conversion to limited partner do not occur, and indefinite liability for all future debts is precisely what proper notice prevents. -
The principle of separate legal personality means that a registered company:
Correct answer: A. On incorporation the company becomes a person in law separate from its shareholders and directors, owning its assets, bearing its debts and litigating in its own name, with the veil of incorporation lifted only exceptionally, for example where the company is a sham to evade existing obligations. It is not merged with any shareholder however dominant, it can certainly be sued, and perpetual succession means membership changes and deaths leave the company's existence untouched. -
A promoter signs a contract on behalf of a company that has not yet been incorporated. The general legal position is that:
Correct answer: D. A company cannot be party to, or ratify, a contract made before it existed, so the person who purported to act for it is personally liable, subject to any agreement to the contrary. Incorporation does not adopt the contract automatically, ratification is impossible because there was no principal in existence at the time, and the contract is not void, it simply takes effect against the promoter until replaced by a fresh contract with the company. -
The general duties of company directors are owed primarily to:
Correct answer: B. Directors owe their duties, including loyalty, care and the avoidance of conflicts, to the company, and it is the company that enforces them, sometimes through a derivative claim brought by members on its behalf. Individual shareholders are not normally owed these duties directly, and neither auditors nor the workforce are the persons to whom the general duties run, although directors must have regard to employee interests when promoting the company's success. -
A shadow director is best described as:
Correct answer: C. Shadow directorship catches those who exert real, habitual influence over board decisions from behind the scenes, and many statutory duties and liabilities extend to them; advisers acting purely in a professional capacity are excluded. A non-executive is a formally appointed director, an alternate acts openly in place of a named director, and a company secretary performing ordinary functions is not thereby directing the board. -
The key difference between an ordinary resolution and a special resolution of shareholders is that:
Correct answer: A. The distinction lies in the required majority: more than half of the votes cast for an ordinary resolution, and at least three-quarters for a special resolution, which is reserved for major decisions such as changing the articles. Both types are shareholder resolutions rather than board decisions, unanimity is not required, and the difference is about the voting threshold rather than merely notice periods. -
Shareholders who wish to remove a director from office before the end of the director's term may generally do so by:
Correct answer: B. Company law gives members a statutory power to remove a director by ordinary resolution notwithstanding anything in the articles or any service contract, subject to a special notice procedure and the director's right to make representations; compensation for breach of a service contract may still be payable. The board has no general statutory power to expel a director unless the articles so provide, the auditor has no role in removal, and unanimity is not required. -
Compared with ordinary shares, preference shares typically:
Correct answer: C. Preference shares normally receive a fixed dividend before anything is paid to ordinary shareholders and rank ahead of them for repayment of capital in a winding up, in exchange for limited or no voting rights, with the preferential dividend usually presumed cumulative. They carry fewer votes rather than more, they rank ahead rather than behind for dividends, and they remain equity held by members, not secured debt. -
A company may lawfully pay a dividend only:
Correct answer: A. The capital maintenance doctrine protects creditors by confining distributions to accumulated realised profits net of accumulated realised losses. Paying dividends from share issue proceeds or borrowings would return or erode capital rather than distribute profit, and directors' discretion operates only within the profits test, with directors risking personal liability for unlawful distributions. -
Which statement correctly contrasts a debenture holder with a shareholder?
Correct answer: D. A debenture evidences a loan: the holder is a creditor whose interest is a debt payable regardless of profitability and deductible as an expense, while dividends are discretionary and lawful only out of distributable profits. Debenture holders are not members and do not vote as such, interest is not confined to profits, and in a winding up creditors, including debenture holders, are paid before shareholders, not after. -
A floating charge differs from a fixed charge in that a floating charge:
Correct answer: B. A floating charge sits over a changing pool such as inventory or receivables and the company trades those assets freely until crystallisation, for example on default or the start of winding up, when the charge fixes on the assets then in the pool. Immediate attachment to a specific asset describes a fixed charge, a fixed charge generally has priority over a floating charge on the same property, and companies are precisely the borrowers that can grant floating charges, which should be registered to preserve validity against a liquidator. -
The key requirement distinguishing a members' voluntary liquidation from a creditors' voluntary liquidation is that a members' voluntary liquidation:
Correct answer: A. A members' voluntary liquidation is a solvent winding up resting on the directors' statutory declaration of solvency; without it the process proceeds as a creditors' voluntary liquidation in which creditors have the decisive influence, including over the liquidator. Neither voluntary route is started by court order, that is compulsory liquidation, insolvency is the hallmark of the creditors' version rather than the members' version, and every liquidation requires a liquidator to realise assets and distribute the proceeds. -
The most common ground on which a creditor petitions the court for the compulsory liquidation of a company is that:
Correct answer: C. Inability to pay debts, demonstrated for example by an unsatisfied formal demand or an unexecuted judgment, is the standard ground for a creditor's winding-up petition. A name change is an administrative matter, a fall in share value harms investors but gives creditors no ground, and a director's resignation says nothing about the company's ability to meet its liabilities. -
The primary purpose of placing a company into administration, rather than immediate liquidation, is to:
Correct answer: D. Administration hands control to an insolvency practitioner whose first objective is rescuing the company as a going concern, failing which achieving a better outcome for creditors than liquidation would, and a statutory moratorium freezes individual enforcement to give breathing space. It is not a punitive process, shareholders come last rather than first, and the moratorium is the opposite of a free-for-all by individual creditors. -
Which of the following best states the broad order of distribution in a liquidation?
Correct answer: A. Fixed charge holders are paid out of their charged assets, then come the costs of the liquidation, preferential creditors such as certain employee claims, holders of floating charges, the general body of unsecured creditors ranking equally among themselves, and any surplus goes to members. Owners stand last precisely because creditors' claims come first, equal sharing ignores security and statutory priority, and unsecured creditors rank behind secured lenders rather than ahead of them. -
Wrongful trading differs from fraudulent trading in that wrongful trading:
Correct answer: D. Wrongful trading is a civil provision aimed at directors, including shadow directors, who failed to take every step to minimise creditor losses once insolvent liquidation became the reasonable conclusion; the court can order them to contribute to the company's assets. Intent to defraud and potential criminal liability are the hallmarks of fraudulent trading, not wrongful trading, and merely holding shares in a failing company exposes a shareholder to neither claim.
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