1. Business Mediums Flashcards
What are the factors to consider when identifying the best type of business?
- Liability - consider nature of business; if unlikely to face many uninsured risks then partnership can be ok
- Tax - consider financial circumstances of business and owner; partnerships don’t pay corporation tax (partners pay income tax and NI instead); limited companies pay corporation tax on profits
- Formalities - more time consuming to set up an LLP or company and more costly to run
- Publicity of information - lack of requirement for publicity for sole traders / partnerships
- Costs - charge to form a company or LLP, and legal advice often required
- Status - many businesses or individuals prefer to trade with a company than partnership / sole trader, as reassured by amount of information which is publicly available
- Finance - companies and LLPs can offer floating charge over business assets, which partnerships or sole traders cannot offer
In a partnership, who is liable and how much for?
The partners are joint and severally liable
Is there any restriction on how large a partnership can be?
No - e.g. Slaughter and May is a partnership / unincorporated business entity
What must be filed with the Registrar of Companies to incorporate an LLP?
Form LL IN01 and the applicable fee
Does an LLP have a separate legal personality?
Yes
In an LLP, who is liable and how much for?
Liability is limited to amount agreed - members may be liable to contribute
What does it mean if a private company is “limited by shares”?
The shareholders’ liability is limited to the amount they paid or agreed to pay for their shares
In a private limited company, who is liable and how much for?
Shareholders are liable limited to amount unpaid on shares
In a public limited company, who is liable and how much for?
Shareholders are liable limited to amount unpaid on shares
How many partners are required for a partnership?
At least 2
How many designated members are required for an LLP?
At least 2
How many shareholders are required for a private limited company?
At least 1
How many shareholders are required for a public limited company?
At least 1
How many directors are required for a private limited company?
At least 1
(secretary is optional)
How many directors are required for a public limited company?
At least 2 and a qualified secretary
Who owns the property and assets in a partnership?
The partners (not the partnership)
Who owns the property and assets in an LLP?
The LLP (due to separate legal personality)
Who owns the property and assets in a private limited company?
The company (due to separate legal personality)
Who owns the property and assets in a public limited company?
The company (due to separate legal personality)
What type of businesses do not need to publish accounts?
Unincorporated businesses
What are the accounts requirements for sole traders?
No accounting requirements
What are the accounts requirements for general partnerships?
Accounts are produced but not audited or published
What are the accounts requirements for LLPs?
Accounts are audited and published (although might be abbreviated accounts / exempt from audit)
What are the accounts requirements for private limited companies?
Accounts are audited and published
What are the accounts requirements for public limited companies?
Accounts are audited and published
What is the key principle from the case Salomon v A Salomon?
That a company has a separate legal personality
What is the key principle from the case Adams v Cape?
If it is not possible to claim damages from a company (i.e. in the event of insolvency), then cannot go to parent company in order to claim damages (unless guarantee was provided)
What is the key principle from the case Prest v Petrodel?
The court may only “pierce the corporate veil” when there has been a scam or fraud - equity is not a consideration in this
What is the minimum amount which owners must invest for use by a company in order to register it as a public limited company?
£50,000
What does “nominal value” (or “par value”) mean in relation to shares?
The value they have been allotted, which does not change even if the market value of the shares has changed
What Companies House form must be completed for registration as a private or public company?
IN01
What must accompany the IN01 form for registration?
Memorandum of association
Articles of association (if not using Model Articles)
Applicable fee
What additional information is required in setting up a limited company?
The identity, date of birth and address of the proposed company’s first shareholders, directors and any company secretary, the address of the registered office, the name of the company and how many shares the first shareholders will have
DO NOT need to include information about articles IF incorporating MAs
DO NOT need to include trading name as this is a business decision
How can application for registration as a company be completed?
Online, via post, or via specific software
What documents form the company’s constitution?
S 17 CA 2006 - company’s articles, memorandum of association and the resolutions and agreements specified in section 29, key ones being shareholder special resolutions and agreements and court orders and legislation which affect the company’s constitution
In the registration of a company, what are the first shareholders commonly known as?
Initial subscribers
What is the memorandum of association?
A legal statement signed by all the initial shareholders or guarantors agreeing to form the company
What is included in a Memorandum of Association?
Statement that the partners wish to form the company and have agreed to subscribe for the Shares
Where would information regarding the notice period for board meetings, minimum number of directors required and further general director powers be contained?
Articles of association
In the event of conflict between a company’s articles of association and the Companies Act, which prevails?
Companies Act
What are shelf companies?
Companies already set up to allow for clients to quickly have companies
Directors and initial subscribers will be employees of the law firm
How can a company seal be used to execute a document?
Can execute a document on behalf of the company as long as the document is also
signed by at least one authorised person in the presence of a witness who attests the
signature
What form must a company file when changing their name? What else needs to be filed with it?
Form NM01
Copy of the special resolution
Applicable fee
What is an accounting reference date?
Date up to which a company must prepare its annual accounts - will be the last day of the month in which the company was incorporated
How can a company change their accounting reference date?
Pass a board resolution to either extend or shorten the account reference date
Complete form AA01 and file at Companies House
