01 and 02. intro to blp, partnerships Flashcards
what is the aim of the ECCTB?
aimed at preventing abuse of UK corporate structures and addressing economic crime
what is the impact of the ECCTB on set up and ongoing costs for businesses?
- It will introduce identity verification requirements for new and existing registered company directors, people with significant control and those delivering documents to the Registrar of Companies (Registrar) such as company secretaries and authorised corporate service providers such as accountants and legal advisers.
- It proposes to give the Registrar wider powers to allow it to become a more active gatekeeper over company creation and a custodian of more reliable data. This includes powers to verify and decline information submitted or already on the register.
- It will also improve financial information in respect of accounts and reports on the register, so it is more reliable and accurate enabling better business decisions to be made.
- It will give greater protection to some personal information provided to Companies House to limit fraud.
- There will be amendments to the current provisions on company names, the registered office and members to improve transparency and a requirement to maintain a registered email address.
- It will tighten the provisions surrounding limited partnerships.
at what stage in the legislative process is the ECCTB?
- still passing through
- timeline has not yet been set out for it to receive Royal Assent or for the provisions to be implemented
what is limited liability?
shareholders of limited companies or members of LLPs are only liable to contribute the amount unpaid of their share capital or capital contribution
on losses or insolvency
if a business loses money or becomes insolvent, what happens to:
- sole traders
- partners
- shareholders of limited companies
- members of LLPs
- sole traders: personal assets at risk
- partners: personal assets at risk
- shareholders of limited companies: only liable to contribute the amount unpaid, if any, on their share capital (limited liability)
- members of LLPs: only liable to contribute the amount unpaid, if any, on their capital contribution (limited liability)
how do lenders try to circumvent limited liability?
by seeking personal guarantees from shareholders/directors or a company or members of an LLP
what is the difference between joint and joint and several liability?
Joint: Performance by one discharges another
Joint and several: Each party is independently liable for the full extent of the losses
why do lenders prefer to lend to companies and LLPs (rather than a sole trader or partnership)?
a company (and to a lesser extent an LLP) is subject to a higher degree of regulation and disclosure, and therefore the lender may feel comfortable that it has full information against which to measure the risk it is undertaking in lending
what is a partnership?
automatically formed where
- two or more people
- carry on a business in common
- with a view to profit
default provisions of PA 1890
- Section 24(1) Profits and losses: Partners are entitled to share equally in the profits of the business, and must share equally in the losses of the business, even where the parties have contributed to the capital unequally. There should therefore be an express provision in the agreement setting out a profit sharing ratio, otherwise both profits and losses are shared equally.
- Section 24(6) Remuneration: Partners are not entitled to a salary.
- Section 24(8) Decision Making: Decisions arising during the ordinary course of the business are decided by a majority except for any change to the nature of the partnership business which requires unanimity.
- Section 25 Expulsion: A partner cannot be expelled by majority vote unless all of the partners have previously expressly agreed that a majority of the partners can do this.
how is a partnership dissolved?
retirement of a partner
how can the partners’ mutual rights and obligations can be varied under PA 1890?
at any time by their unanimous consent
when can a partnership start trading?
straight away
how do partners pay tax?
each partner is liable to pay their own share of
- income
- CGT
do you need a partnership agreement for a partnership?
no. in this situation the default PA 1890 provisions will apply
what liability do partners have?
unlimited liability
in contract: joint
in tort: joint and several
does a partnership have separate legal personality?
no
what are the 2 different types of partners of limited partnerships?
- limited partners
- general partners
what liability do limited partners (sleeping partners) have?
limited liability
they are not involved in management
what liability do general partners have?
unlimited liability (like a traditional partnership)
are the managers of the business
which act governs limited partnerships?
Limited Partnership Act 1907
what are the registration requirements for limited partnerships?
must be registered at CH
but no requirement to file accounts
for what are limited partnerships commonly used?
as investment vehicles
what is a private fund limited partnership?
- 6 April 2017 a new sub-category of limited partnerships was created
- now commonly used for investment vehicles
- will be subject to greater scrutiny as a result of the ECCTB provisions which are aimed at tackling the misuse of limited partnerships through strengthening transparency and disclosure requirements and enabling them to be deregistered
default provisions of Regulations 7 and 8 of the Limited Liability Partnerships Regulations 2001 for LLPs?
- Members share equally in capital and profits.
- An LLP must indemnify its members for payments made and personal liabilities incurred by them in the ordinary and proper conduct of the business of the LLP.
- Every member may take part in management but no member is entitled to remuneration for managing the LLP.
- No person can become a member or assign their membership without the consent of all existing members.
- Ordinary decision making may be by the majority of the members. Any proposed change to the nature of the business requires unanimity.
- There is no implied power of expulsion of a member by the majority unless the members have expressly provided for such a power in a members’ agreement.
what costs are involved in setting up an LLP?
- registration fees
- legal fees
what liability do members of an LLP have?
limited liability meaning their liability is limited to the amount they have agreed to pay under the terms of their partnership agreement
how are LLPs treated for tax purposes?
each partner is liable for their share of income tax and CGT
what is the structure of an LLP?
separate legal personality, meaning an LLP can enter into contracts in its own name
flexible structure which can be varied by a formal written members’ agreement
what formalities are involved in an LLP?
must be registered at CH
what level of privacy do LLPs get?
must file annual accounts and other info
what financial arrangements can LLPs benefit from?
- LLPs can borrow in their own name
- floating charges can be created, which is favoured by lenders
what is the most popular business model in England and Wales?
companies
which act governs E&W companies?
Companies Act 2006 (replacing CA 1985)
what were some of the changes made to CA 1985 by CA 2006?
- Removing the requirement for private companies to hold Annual General Meetings
- Codification of directors’ duties so that directors of small private companies can more easily understand their obligations
- Allowing private companies to pass shareholder resolutions in writing, dispensing with the requirement for meetings of shareholders (known as General Meetings)
on what date did companies stop being governed by CA 1985 principles?
1 October 2009
what were the 2 constitutional docs required by CA 1985?
- memorandum
- Articles of Association
what are the constitutional docs required under CA 2006?
the *Articles only**
why is a memorandum still relevant for CA 2006 companies?
it is required to register a company at Companies House
what is the purpose of a memorandum for CA 2006 companies?
it simply amounts to a declaration on the
part of the company’s subscribers (the first members of the company) that they:
- wish to form a company; and
- agree to become members of that company
what are the 2 ways a company can be formed?
- incorporate from scratch
- purchase and convert a shelf company
what is a shareholder / member of a company?
- Owners of the company
- Invest money in return for shares and possibility of dividends
- Not involved in day-to-day management but usually have voting rights and control key decisions
what is a ‘subscriber’?
the first shareholders in a company who invest in the company when it is initially incorporated
what is a director of a company?
- Officers/managers of the company
- Involved in day-to-day running of the company
- Collectively known as the Board
- In small private companies, directors are often also shareholders
what is a PSC of a company?
persons of significant control:
- shareholders with over 25% of shares or voting rights;
- Has the power to appoint or remove a majority of its board of directors; or
- Otherwise exercises ‘significant influence or control’ over the company
who might be the other stakeholders in a company?
anyone interested in the company, such as employees, creditors, etc
what do shareholders get in return for investing money (share capital) in the company?
an ownership stake
how can a shareholder evidence their ownership stake?
a share certificate
do lenders need to pay income tax?
yes, must pay income tax on the interest received
do debenture holders (eg govt bondholders) need to pay income tax?
yes, must pay income tax on the interest received
which business model is most internationally recognised / for trading purposes?
limited companies
when is a private company limited by guarantee appropriate?
for a non-profit-making entity
if a client holds shares in a private limited company which is going to be wound up, what will their liability be?
their liability will be limited to the amount unpaid on their shares
ie they would only be required to contribute if there was a amount unpaid
how can you convert a company into a public company (CHECK THIS)
by re-registering
which of the three structures provides separation of ownership and control?
- partnership
- limited company
- LLP
limited company
what makes an LLP a hybrid between a company and a partnership?
LLPs are treated like a company for liability and company law purposes
and treated like a partnership for tax purposes
some default provisions of PA 1890
✔️equal share of income profits regardless of capital input
✔️retirement of a partner will dissolve the partnership
✔️all partners can take part in management
✔️a rogue partner may not be expelled by majority vote
although partners will have equal shares of income profits regardless of capital input, what is the most probable case with regard to capital proportions?
capital will probably be shared in proportion to their contributions
if a partner wants to make a personal transaction with partnership money (unrelated to the business), can the firm be liable?
partners are agents of the business and may bind the partnership as individuals.
the firm will be liable if actual or apparent authority is given by the partner
how is actual authority given?
how is apparent authority given?
the third party does not have to show that they actually knew they were a partner, only that they:
- believed them to be a partner; or
- there was no reason to suspect they were not a partner
how can a former partner (who has left the partnership) avoid liability for existing debts?
- deed of release
- novation
how can a former partner (who has left the partnership) avoid liability for future debts?
by giving constructive notice
what is The most common type of share?
ordinary share
what does an ordinary share usually confer?
- voting rights at shareholder meetings
- receive a share of the profits
- receive surplus assets of a company on winding-up (if any)
what is a nominal or par value?
the minimum subscription price for that share, representing a unit of ownership rather than the actual value of the share
A share may not be allotted/issued by a company at ______ to its nominal value?
at a discount
what are some common nominal values?
1p, 5p, £1
what is a share premium?
A share may be allotted/issued for more than its nominal value, and the excess over nominal value is known as the ‘premium’
nominal value + excess = share premium
market value vs nominal value
market value is the amount at which a share may be traded, and will often be much higher than the nominal value
what is the ‘issued share capital’?
total nominal + total premium of all shares in issue at any time
what is the ‘paid-up share capital’ and why is it important?
It is not always necessary for shareholders to pay the full amount due on their shares
immediately. The amount paid is known as the ‘paid-up share capital’.
The amount outstanding can be demanded by the company at any time. Once demanded, the payment has been ‘called’.
A company’s issued share capital is made up of what?
- Shares purchased by the first members of the company, known as the ‘subscriber shares’;
and - Further shares issued after the company has been incorporated, to new or existing
shareholders. New shares can be issued at any time provided that the correct procedures
are followed.
when are Shares are said to be allotted?
when a person acquires the unconditional right to be included in the company’s register of members in respect of those shares.
when are shares actually issued (when do shares actually form part of a company’s issued share capital)?
once the shareholder has actually been registered as such in the company’s register of members, and their title has
become complete.
what is a preference share?
entitle the holder to a preferential right eg:
- first claim to a dividend
- the return of capital on a winding up
etc
what are the obligations on companies wrt PSCs?
- Every company must maintain a register of its PSCs
- register must be filed at Companies House
- along with a company’s confirmation
statement (an annual statement confirming the company’s constitution and details) - this register must be open to public inspection
what is the intended purpose of the PSC register?
- to increase transparency so as to help combat tax evasion, money laundering and terrorist financing
- to see who has influence over the company.
which fundamental decisions cannot be taken by directors, only shareholders?
- changing the Articles;
how many directors must a private company have?
at least one, one of which must be natural person
how many directors must a public company have?
at least two, one of which must be natural person
what is the minimum age of a director?
16 yo
The Government has enacted legislation providing that all corporate directors will:
be prohibited subject to certain exceptions so that, as a general rule, all directors will have to be individuals. However, the implementation date to incorporate these restrictions into CA 2006 has not yet been confirmed although it may coincide with the implementation of the ECCTB.
what is a private company limited by shares?
- the most common type of company
- at least one share is issued in the company
- no minimum share capital requirements
- can be formed by one person
- shares are generally prohibited from being offered to the public
what is a private company limited by guarantee?
- the members of a company limited by
guarantee will guarantee that if the company is ever in financial difficulties and is wound
up, they will each contribute a certain amount (commonly £1) to the funds to be distributed
to creditors - often for non-profit-making entities
what is an private unlimited company?
- rare
- members have unlimited liability
what is a public company / plc?
- only public companies can offer their shares to the public, eg through public listing on a
recognised stock exchange such as the London Stock Exchange (although not all public companies are listed) - this permits trading to take place in its shares and to have access to a wider pool of investors.
- Public companies are also subject to more onerous regulatory and disclosure requirements.
how is a sole trader taxed?
as an individual via income tax and CGT
how are partnerships taxed?
each partner is liable to pay tax on their share of profits (income tax) and chargeable gains (CGT)
how are LLPs taxed?
each partner is liable to pay tax on their share of profits (income tax) and chargeable gains (CGT)
how are companies taxed?
Companies pay corporation tax on their taxable total profits (TTP)
TTP = income profits + capital gains
who is actually liable to pay corporation tax?
the company
what is the issue of double taxation of profits?
- A company will pay corporation tax on its profits.
- It may then pay dividends to a shareholder.
- The individual in receipt of these will then be taxed to income tax.
private, public and listed companies
what is a listed company?
- a subset of public company
- listed on the Official List
- traded on the Main Market of the London Stock Exchange
what must a company before it applies to have its shares listed on a stock exchange?
a company must be a public company
route to listing
private companies are generally prohibited from ______________ to the public?
offering shares or debt securities (eg bonds) to the public
what must a private company name end with?
Limited or Ltd
what must a public company name end with?
Public Limited Company or plc
what is the min no. of shareholders for a private company?
1
what is the min no. of shareholders for a public company?
1
what is the min no. of directors of a private company?
1
what is the min no. of directors of a public company?
2
does a private company require a company secretary?
no
does a public company require a company secretary?
yes
does a private company require an AGM?
no, but can do so if it wishes
does a public company require an AGM?
yes
what is the minimum share capital to be issued for a private company?
- must have at least 1 share
- could be incorporated with 1 share of 1p
what is the minimum share capital to be issued for a public company?
- minimum £50,000 (or prescribed euro amount)
what certificates does a private company require before commencement of trading?
- Certificate of Incorporation
- Can commence business as soon as it is incorporated
what certificates does a public company require before commencement of trading?
- Certificate of Incorporation
- Cannot commence business until a trading certificate is issued by Registrar showing
that the company’s allotted share capital is not less than the minimum unless re-registering a
private company as a Plc
does CA 2006 allow a private company to offer shares to the public?
no, it is prohibited
does CA 2006 allow a public company to offer shares to the public?
yes, it is permitted under CA 2006
is a private company allowed to use written resolutions?
yes
is a public company allowed to use written resolutions?
not permitted
principal differences between a private and public company: summary
when can / cannot written resolutions be used?
all shareholder resolutions can be passed as a written resolution except:
- removal of director
- removal or auditor
