FRE1 · Industry, Regulation and Key Parties
LO3 is the law that sits under every mortgage and protection case: who can be sued, who can sign, who owns the house, who inherits it and what happens when a borrower cannot pay. The questions are mostly short scenarios with one decisive fact: a joint tenant dies with a will, a witness signs an hour late, a donor loses capacity, a debtor owes £38,000. Learn the statute behind each rule and the numbers that examiners swap: the £322,000 statutory legacy, the £5,000 bankruptcy petition level, the Debt Relief Order limits, one year to discharge, six months for an Inheritance Act claim and two years for a deed of variation.
13 min read7 sections
Checked against: Walbrook (formerly LIBF) FSRE specification v7 (July 2026), FRE1 LO3 (AC3.1-3.2); Administration of Estates Act 1925 s46 and the Fixed Net Sum Order 2023 (SI 2023/758); Wills Act 1837 ss9, 15, 18, 18A; Law of Property Act 1925 ss1, 34-36; Mental Capacity Act 2005; gov.uk power of attorney and Debt Relief Order pages; Insolvency Act 1986 ss267, 279, 283A, 335A; Trustee Act 2000; Inheritance Tax Act 1984 s142; checked 11 Oct 2026. Independent prep, not endorsed by Walbrook (formerly LIBF).
Ask first whether the business is a separate legal person. If it is, it owns its assets and owes its own debts. If it is not, the people behind it are liable personally.
| Entity | Separate legal person? | Liability of owners | Source |
|---|---|---|---|
| Sole trader | No; the trading name is just the person | Unlimited; personal assets at risk | Common law |
| Ordinary (general) partnership | No | Unlimited; each partner is the firm's agent, so a lease one partner signs binds all | Partnership Act 1890 ss5, 9 |
| Limited partnership | No | At least one general partner unlimited; limited partners capped at their capital if they do not manage | Limited Partnerships Act 1907 ss4, 6 |
| Limited liability partnership | Yes, a body corporate | Generally limited; at least two designated members | LLP Act 2000 s1 |
| Private limited company | Yes, from incorporation by the Registrar at Companies House |
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| Limited to any amount unpaid on shares |
| Companies Act 2006 ss9-16 |
| Unincorporated association (for example a club) | No | Property held by trustees for members; no statutory limited liability | Common law |
Being the only shareholder and director does not make Hassan liable for his company's £40,000 debt. Only a personal guarantee or a rare exception such as fraud would. That is why lenders to small companies ask directors for personal guarantees. Registering with HMRC or the FCA never creates a company; only the Registrar of Companies does.
Trap: making the sole director personally liable, or giving ordinary partners liability capped at their capital.
Takeaway: Company and LLP: separate person, limited liability. Sole trader and general partner: personally liable without limit.
A simple contract needs offer, acceptance, consideration, intention to create legal relations and capacity. Most contracts need no writing. Land contracts do: writing with all agreed terms, signed by both parties (Law of Property (Miscellaneous Provisions) Act 1989 s2). That is why a phone deal with a £1,000 holding deposit binds nobody, and why buyers in England and Wales are free until exchange.
Agency: an agent binds the principal within actual authority and also within apparent authority, the authority a third party reasonably believes the agent has (Freeman & Lockyer v Buckhurst Park Properties [1964]). A branch manager who breaks an internal £500,000 cap still binds the lender to a customer who knew nothing of it. The lender's remedy is against the manager. Agents owe fiduciary duties: good faith, no conflicts, no secret profit, and generally no delegation. A broker advising a customer normally acts as the customer's agent, even though the lender pays a procuration fee. Agency ends by agreement, revocation, completion or operation of law, including the principal's death, incapacity or bankruptcy.
Trap: thinking an internal limit protects the principal against an outsider, or that a paid deposit makes an oral land deal binding.
Takeaway: Land contracts need signed writing. Misrepresentation makes a contract voidable. Apparent authority binds the principal; secret profits breach fiduciary duty.
