1. Business Mediums Flashcards
1
Q
What is an incorporated business?
A
A separate legal entity from owners and managers.
2
Q
What is an unincorporated business?
A
Run by individuals and not a separate legal entity.
3
Q
What is the most common form of an incorporated business?
A
A limited company.
4
Q
What is the most common form of an unincorporated business?
A
A sole trader.
5
Q
What are the characteristics of a sole trader?
A
One person running an unincorporated business, personal and unlimited liability, can have employees.
6
Q
What is a sole practitioner?
A
A professional who operates as a sole trader.
7
Q
How do sole traders pay income tax?
A
As a self-employed person.
8
Q
What is the liability of a sole trader for business debts?
A
Personal and unlimited liability.
9
Q
What happens to a sole trader’s business when they retire or die?
A
The business ceases, individual assets and the business itself can be sold.
10
Q
What are the characteristics of a partnership?
A
Two or more people running and owning a business together, unincorporated, can be in any trade or profession.
11
Q
What is the default partnership agreement provided by?
A
The Partnership Act 1890.
12
Q
Is a partnership a separate legal entity?
A
No, the partnership itself does not own any assets.
13
Q
Who owns the partnership assets?
A
The partners.
14
Q
What is the liability of partners in a partnership?
A
Personal and unlimited liability.
15
Q
What is the default provision if partners do not disapply certain provisions?
A
The provisions of the Partnership Act 1890 apply and are implied.
16
Q
What is personal liability in a business partnership?
A
Personal assets are at risk if debts cannot be paid.
17
Q
How do partners divide profits and losses?
A
Equally between them.
18
Q
How are partners taxed if they are individuals?
A
Separately as self-employed individuals.
19
Q
How are partners taxed if one partner is a corporation?
A
The corporation may be liable to corporation tax on their share of the profits.
20
Q
Are partners considered employees?
A
No, but they may work for the business.
21
Q
What is the role of a sleeping partner?
A
They are not as involved daily, only in making fundamental decisions.
22
Q
What are the characteristics of a limited partnership?
A
At least one general partner with unlimited liability and a limited partner with liability limited to their initial investment.
23
Q
What is the requirement for limited partnerships before they can start trading?
A
They must be registered with the Registrar of Companies.
24
Q
What are the conditions for limited liability in a limited partnership?
A
The limited partner must not control or manage the LP, have the power to make binding decisions, or remove their contribution to the LP.
25
What happens if a limited partner breaches the conditions for limited liability?
They will lose the protection of limited liability and be treated as a general partner with unlimited liability.
26
What are the types of companies?
Private or public, and can be limited by shares or by guarantee.
27
What is the requirement for private companies limited by shares before they can start trading?
They must be formed by registering with the Registrar of Companies.
28
What is the concept of separate legal personality in a company?
The people who own and run the company are separate from the company itself and are not liable for its debts.
29
Do individuals have limited liability in a company?
Yes.
30
What is the concept of treating a company as an independent person?
Legally incorporated companies have rights and liabilities.
31
When can the corporate veil be pierced?
When a person deliberately evades legal obligations or restrictions.
32
Who makes decisions in a company?
Directors or shareholders, or someone delegated by the directors.
33
What do shareholders provide to the company?
Money in return for shares.
34
What decisions are shareholders involved in?
Fundamental decisions affecting the company.
35
What introduces formality in decision-making in companies?
The division of responsibility between directors and shareholders.
36
What is a public limited company (plc)?
A company limited by shares that complies with CA 2006 requirements.
37
What are the requirements for a company to be a public company?
The constitution must state it is a public company and the name must include 'public limited company' or 'plc'.
38
What is the authorized minimum for share capital in a company?
£50,000
39
What is the requirement for each allotted share in a company?
To be paid up to at least a quarter of its nominal value, plus any premium on it
40
Why operate as a plc?
More prestigious, can raise money by offering shares to the public, can join the stock market
41
What is the difference between plc's and private companies in terms of regulation?
Plc's are more regulated as they offer shares to the public, publicly traded companies are even more regulated
42
Can unlisted public companies offer shares to the public?
Yes, but it is harder for them to find buyers as their shares are not listed
43
How can a private company become a plc?
By re-registering and operating as a plc
44
What are the characteristics of an LLP?
Separate legal personality, limited liability for owners, informal and flexible management, partners taxed as in partnership
45
How many members are required to form an LLP?
Two or more members
46
What is the requirement for forming an LLP?
Filing a series of documents with the Registrar of Companies and paying the applicable fee
47
Is same-day registration available for forming an LLP?
Yes, but it is more expensive
48
When does an LLP legally come into existence?
On the date of incorporation on the certificate issued by the Registrar
49
What do the LLP Regulations 2001 provide?
A default contract with implied provisions for partners
50
What is a limited liability partnership (LLP)?
A partnership where individual members register as self-employed.
51
What are companies limited by guarantee used for?
Non-profit organizations.
52
How do shareholders in a company limited by guarantee guarantee the company's debts?
By guaranteeing up to a specified amount, usually £1.
53
Why are unlimited companies rare?
Most people prefer running a business with limited liability.
54
What are community interest companies?
Limited liability companies that use profits for public good.
55
What are charitable incorporated organisations?
Corporate structures with reduced personal liability and single regulation.
56
What must overseas companies do if they want to operate in the UK?
Register details of their establishment within one month of opening.
57
What is a joint venture?
A commercial enterprise undertaken jointly by two or more parties.
58
What factors determine the best type of business?
Liability, tax, formalities, publicity, cost, status, finance.
59
Which types of businesses have a high risk of personal liability?
Sole traders and partnerships (not LLPs).
60
Which types of businesses have a low risk of personal liability?
Companies (private and public) and LLPs.
61
What are the advantages of a limited liability partnership (LLP)?
Individual members can register as self-employed.
62
What are the advantages of companies limited by guarantee?
Suitable for non-profit organizations.
63
What are the advantages of community interest companies?
Profits and assets used for public good.
64
What are the advantages of charitable incorporated organisations?
Reduced personal liability and single regulation.
65
What are the advantages of joint ventures?
Parties retain their own identity while pooling resources.
66
What are the disadvantages of unlimited companies?
Rare due to high personal liability for debts.
67
What are the disadvantages of overseas companies operating in the UK?
Must register details of establishment within one month.
68
What are the disadvantages of sole traders, partnerships, and LLPs in terms of tax?
May have higher tax obligations compared to companies.
69
What is the tax treatment for self-employed individuals?
Individuals are taxed as self-employed individuals.
## Footnote
Self-employed people only pay income tax on their profit, not their total earnings like employed people.
70
Who suffers the direct tax charge on the taxable profit for a company?
The company itself.
71
What is the standard rate of tax charged for companies?
A standard rate is charged irrespective of the company's profit level.
72
What are the formalities required to set up sole traders and partnerships?
No formalities are required.
73
What are the formalities required to set up companies and LLPs?
Costly and time-consuming formalities, legal advice is likely required.
74
Are there any legal documents to be prepared after setting up sole traders and partnerships?
No, except for tax formalities to HMRC.
75
What formalities and documents must companies maintain and file?
Companies must maintain certain formalities, file documents to Companies House, and may require auditing.
76
Do sole traders and partnerships have freedom over decision-making?
Yes, they have freedom over decision-making.
77
Are companies subject to rules and requirements in decision-making?
Yes, companies are subject to the rules and requirements of the CA 2006.
78
What can partners do to ensure decision-making in partnerships?
Partners may enter into a partnership agreement to set out how decisions must be made.
79
What documents must limited liability partnerships file at Companies House?
LLPs are required to file certain documents, but not as many as companies.
80
Do LLPs have freedom over decision-making?
Yes, LLPs have freedom over how they make decisions, similar to general partnerships.
81
What is a partnership agreement?
A contract between partners that sets out terms and conditions of their relationship.
82
Is a partnership agreement made public?
No, it is confidential and there is no requirement to publish it.
83
Why is a partnership agreement advisable?
To address provisions in the PA 1890 that may be unacceptable for modern businesses.
84
What information must sole traders and partnerships disclose?
They must disclose the identity of the sole trader/partners and an address for service of documents.
85
What information must companies and LLPs reveal to the public?
They must reveal certain financial information and other information to the public at large.
86
What information must companies make public?
Directors, shareholders, significant decisions
87
What is the cost to set up sole traders and partnerships?
No legal or administrative costs
88
What is the cost to set up companies and LLPs?
Charge to set up and legal costs
89
What are the general charges for sole traders and partnerships?
General business charges
90
What are the general charges for companies and LLPs?
Extra administrative and legal requirements
91
What is the status of sole traders and partnerships?
Less commonly used
92
What is the status of companies and LLPs?
Preferred by businesses and individuals
93
What is a disadvantage of privacy for sole traders and partnerships?
Can make it undesirable to do business with them
94
What is an advantage of publicity for companies and LLPs?
Makes doing business with them easier
95
What is the finance security for sole traders and partnerships?
No additional security
96
What is the finance security for companies and LLPs?
Floating charge over all business assets
97
What is the advantage of finance security for companies and LLPs?
More desirable to lenders
98
What forms and documents are required to incorporate a new company?
Form IN01, Memorandum of association, Articles of association
99
Where are the applications processed for incorporating a new company?
Companies House in Cardiff
100
Who can make the application for incorporating a new company?
Individuals or professionals like solicitors, accountants, and company formation agents
101
How can an individual make their own application for incorporating a new company?
By post or online
102
How can professionals make an application for incorporating a new company?
By post, online, or using specialized software
103
What is a shelf company?
A pre-existing company used to avoid starting from scratch.
104
Who is the application addressed to?
The Registrar of Companies.
105
What does Companies House process and check?
Completeness, disqualified directors, and correct fee.
106
What does the certificate of incorporation state?
Company name, number, incorporation date, type, and registered office.
107
Who signs the certificate of incorporation?
The Registrar or their official seal.
108
What does the certificate of incorporation serve as?
Conclusive evidence of compliance.
109
What is the requirement for registering with HMRC?
All companies must register for corporation tax.
110
How is tax registration done if the application is made online?
It is automatic.
111
How is tax registration done if the application is made by post, formation agent, or third-party software?
Separate application to HMRC within three months of starting business.
112
What information is required on the IN01 form?
Company name and required ending for private and public companies.
## Footnote
private- Ltd lw public- plc
113
What are the requirements for choosing a different/new name for a company?
Cannot be the same or similar to another company's name.
114
Under what circumstances can a new company have a similar name to an existing one?
If it is part of the same group and written confirmation is provided.
115
What types of names are prohibited or restricted?
Offensive words, names suggesting a connection with the government, names containing sensitive words, names referring to geographical areas or regulated professions.
116
What are some examples of letters, characters, signs, symbols, and punctuation that cannot be used in a company name?
Not specified in the notes.
117
What is the maximum character limit for a company name?
160 characters, including spaces.
118
When can a trading name be decided?
Once a company is incorporated.
119
Can a trading name be different from the registered name?
Yes, a trading name can be different from the registered name.
120
What can happen if a company or trading name is too similar to a trademark?
The owners of the trademark can make a complaint for it to be changed or bring a claim for trademark infringement.
121
Can a complaint be made for passing off if a name is not registered as a trademark?
Yes, a complaint can still be made in tort for passing off based on suggesting association and benefiting from the trademark's good reputation.
122
What is the purpose of a registered office?
To serve as an address for correspondence by Companies House and for any official documents, including court documents.
123
Is the registered office address publicly available?
Yes, the registered office address must be publicly available.
124
Where must the registered office be located?
In the same part of the UK where the company is registered.
125
Can a solicitor or accountant address be used as the registered office address?
Yes, smaller companies often use a solicitor or accountant address as the registered office address.
126
What is required to change the registered office address?
A board resolution and an AD01 form to Companies House.
127
What happens to documents sent to the old registered office address after it has been changed?
Documents can still be sent to the old address for 14 days after changing.
128
Where are board and general meeting minutes held?
At the registered office.
129
What form is the registered office address inserted in?
The IN01 form.
130
Who uses the registered office address for correspondence?
Companies House and for any official documents, including court documents.
131
What is the purpose of the IN01 form?
To insert the registered office address.
132
What are statutory books?
Records kept by companies or at Companies House.
133
What information must be included for the first directors?
Name and date of birth.
134
What is the minimum age requirement for directors?
16 years old.
135
What is a director's service address?
Address for official documents.
136
Can a director's service address be the same as the registered address?
Yes.
137
Are residential addresses public?
No, they are private.
138
Under what circumstances can a director's residential address be kept private?
Evidence of serious risk of violence.
139
Do private companies need to have a company secretary?
No, but they can choose to have one.
140
What tasks are the company secretary responsible for?
Filing documents and keeping board minutes.
141
Who is liable if the company secretary fails to carry out their duties?
Directors.
142
What are first shareholders called?
Subscribers.
143
What information must be provided for first shareholders?
Name, address, and shareholding details.
144
What is the minimum number of first shareholders?
At least one.
145
Can a company issue more shares after trading starts?
Yes, to raise money.
146
What does the Statement of Capital provide information about?
Shares and shareholders.
147
What is included in the Statement of Capital?
Number and value of shares, and names and addresses of shareholders.
148
What are prescribed particulars?
Information about the rights each type of share gives the shareholder.
149
What must prescribed particulars include?
Share of dividends, redeemability, voting rights, and number of votes.
150
What is the nominal value of shares?
The nominal value of a share is the minimum amount a shareholder must pay for a share of a company.
151
What is the significance of £1 shares?
They will always be called £1 shares, regardless of their future value.
152
What does it mean for a share to be sold at 'par value'?
It was sold for its nominal value.
153
What is a company's constitution?
It consists of the memorandum of association, articles of association, certificate of incorporation, current statement of capital, court orders and legislation, shareholders' resolutions, and certain agreements involving shareholders.
154
What are articles of association?
They are the rules that company officers must follow when running their companies.
155
What is the purpose of articles of association?
To act as a form of internal rulebook and part of the constitution of a company.
156
What information do articles of association contain?
Rules on voting, shareholders, and other company matters.
157
What are model articles of association?
The standard articles a company can use.
158
Who prescribes the model articles of association?
The companies (Model Articles) Regulations 2008.
159
What happens if a company does not prescribe its own articles?
The model articles will apply by default.
160
What is the memorandum of association?
A document that sets out the company's name, registered office, and objects.
161
What is the certificate of incorporation?
A document that confirms the company's legal existence.
162
What is the current statement of capital?
A document that shows the company's share capital and shareholders.
163
What can alter a company's constitution?
Court orders, legislation, and shareholders' resolutions.
164
What are shareholders' resolutions?
Decisions made by the shareholders that affect the company's constitution.
165
What are certain agreements involving shareholders?
Agreements that have an impact on the company's constitution and involve shareholders.
166
What is a Memorandum of Association?
Legal statement signed by initial shareholders to form the company.
167
What is the purpose of a Memorandum of Association?
To indicate the subscribers' wish to form a company and become shareholders.
168
What is the role of a Memorandum of Association in a company?
In the past, it had a wider role in the company's constitution.
169
What is the significance of reading the memorandum for older companies?
It may contain rules that still apply to the company.
170
What are articles in relation to a company?
Company rule book that addresses specific matters.
171
What are some examples of matters addressed in the articles?
Notice for board meetings, minimum number of directors for a valid board meeting, power of board to reject a shareholder, circumstances when a director cannot vote.
172
What is the purpose of signing the memorandum?
To indicate the subscribers' agreement to become shareholders and take at least one share each.
173
What are model articles?
Standard set of articles provided for private and public companies.
174
When are model articles applied?
By default if an applicant does not provide their own articles.
175
Can companies choose to adopt the model articles?
Yes, to avoid drafting their own from scratch.
176
Can companies disapply certain articles from the model articles?
Yes, if it is not in the interest of their business.
177
What is Table A Article?
Set of articles incorporated based on the CA 1985 for companies before October 2009.
178
When did the CA 2006 come into force?
October 1, 2009.
179
What is the difference between the Memorandum of Association and Table A Article?
Companies incorporated after October 2009 have the Memorandum of Association, while those before have Table A Article.
180
Can companies have different rules depending on which set of articles they have adopted?
Yes, there may be differences between the two sets of articles.
181
What is an example of a difference between the Memorandum of Association and Table A Article?
MA requires 14 clear days' notice for a general meeting, while Table A requires 21 days' notice.
182
How can the articles be amended?
By way of special resolution passed by a majority of at least 75% of shareholders.
183
What must a company do when amending its articles?
File a copy of the amended articles at Companies House within 15 days.
184
When must a company file a copy of the special resolution to amend the articles?
Within 15 days after it is passed.
185
What are voluntary provisions?
Provisions that apply unless excluded by the company's articles.
186
What are mandatory provisions?
Provisions that cannot be excluded by the company's articles.
187
What are the three options for submitting a company's proposed articles?
Adopt Model Articles in entirety, adopt Model Articles with amendments, or supply bespoke articles.
188
What must the applicant indicate on the IN01 form?
Whether they are adopting Model Articles or have drafted their own articles.
189
What must be submitted if the applicant has drafted their own articles?
A copy of the drafted articles.
190
What is a person with significant control?
A person/body that holds more than 25% of shares, voting rights, or the right to appoint/remove a majority of the board of directors.
191
What is the definition of control deemed significant?
Holding more than 25% of shares, voting rights, or the right to appoint/remove a majority of the board of directors.
192
What are the three thresholds for holding shares/voting rights?
More than 25% but not more than 50%, more than 50% but less than 75%, or 75% or more.
193
What do the thresholds reflect?
The percentage of shares needed to block or pass resolutions.
194
What power does a person with 25% to 50% of shares have?
Can block special resolutions and may be able to block ordinary resolutions.
195
What power does a person with 50% to 75% of shares have?
Can both block and pass ordinary resolutions, but cannot pass special resolutions.
196
What power does a person with 75% or more of shares have?
Can pass special resolutions alone and block both ordinary and special resolutions.
197
What must a company do once it has been incorporated?
Keep a register of persons with significant control.
198
What must the applicant do after inserting all required information on the IN01 form?
Complete the statement of compliance in Part 9.
199
What does the statement of compliance confirm?
That the requirements of the CA 2006 as to registration have been complied with.
200
What happens when the application is made accurately?
Companies House issues a certificate of incorporation.
201
When does a company officially exist as a separate legal person?
When the certificate of incorporation is issued.
202
What must an applicant do to register as a public company?
Comply with the requirements of a public company.
203
What must be the form of the articles for a public company?
Suitable for a public company.
204
What are the Model Articles?
Default articles for public companies.
205
When will the Model Articles apply?
If no bespoke or amended articles are provided.
206
What does the certificate of incorporation prove?
Company's existence and status as a public company.
207
What is a trading certificate?
Proof that a company can trade and borrow.
208
Where is the application for a trading certificate made?
Companies House on form SH50.
209
What are the requirements for converting to a public company?
Special resolution, name and articles alteration, meeting share capital requirements.
210
Is a trading certificate required for re-registering as a public company?
No, share capital requirements are sufficient.
211
What documents must be filed for re-registration?
Special resolution, application form, fee, revised articles, balance sheet, auditors' statement.
212
What additional document is required for re-registration?
Valuation report on shares allotted for non-cash consideration.
213
What is the purpose of the certificate of re-registration?
To confirm incorporation as a public company.
214
What is the purpose of the statement of compliance?
To confirm compliance with re-registration requirements.
215
What is the purpose of the balance sheet?
To provide financial information about the company.
216
What is the purpose of the auditors' statement?
To confirm the accuracy of the balance sheet.
217
What is the purpose of the valuation report?
To assess the value of shares allotted for non-cash consideration.
218
What is the form of a public company's name?
Must include 'public' or 'plc'.
219
What is the purpose of altering the articles?
To make them suitable for a public company.
220
What is the purpose of satisfying share capital requirements?
To meet the necessary capital for a public company.
221
What is the purpose of the re-registration application?
To request the change of company status.
222
What is the purpose of the fee for re-registration?
To cover the cost of the re-registration process.
223
What is a certificate of incorporation?
Proof of company's existence and public status.
224
What is the purpose of a shelf company?
To provide a pre-set up company for quick use.
225
Who creates shelf companies?
Law firms, company formation agents, and law stationers.
226
How many directors and shareholders does a shelf company usually have?
Two directors and two shareholders.
227
What is the share structure of a shelf company?
Each shareholder owns one ordinary £1 share.
228
Why are shelf companies used?
To save time and cost in company registration.
229
Who are the initial subscribers of a shelf company?
Employees of the law firm.
230
What are the post-incorporation steps for a shelf company?
Steps to prepare the company for operation.
231
What is the role of a chairperson in a company?
To lead board meetings and have a casting vote.
232
What is the purpose of having a bank account for a company?
To manage company's finances and authorize payments.
233
Is having a bank account mandatory for a company?
No, but it is necessary.
234
Who decides the authorized spend limit for a company?
The board of directors.
235
What is a bank mandate?
A document authorizing individuals to make payments on behalf of the company.
236
Do companies need a company seal?
No, but some choose to have one.
237
Why do companies choose to have a company seal?
To make their documents look more official.
238
How can a company adopt a company seal?
By passing a board resolution.
239
What is the role of a company seal?
To add authenticity to company documents.
240
What is the purpose of a company seal?
To make company documents look more official.
241
What is the advantage of using a shelf company?
Saves time and cost compared to same-day registration.
242
What is the purpose of a company seal?
To execute a document.
243
What is required when a company seal is used to execute a document?
The document must also be signed by an authorised person in the presence of a witness.
244
Can a company choose to disapply the requirement of having a witness for a company seal?
Yes, they can insert their own provisions regarding the use of a company seal.
245
How can a company change its name?
By a special resolution of the shareholders or by other means provided in the company's articles.
246
What form needs to be filed at Companies House to change a company's name?
Form NM01, along with a copy of the special resolution and the applicable fee.
247
Can a company operate using a business name?
Yes, but the board needs to agree on the name by board resolution.
248
What happens when a company changes its name?
Companies House issues a new certificate of incorporation.
249
What is the accounting reference date?
The date up to which a company must prepare its annual accounts.
250
What is the default accounting reference date for a newly incorporated company?
The last day of the month in which the company was incorporated.
251
How can a company change its accounting reference date?
By passing a board resolution and completing form AA01 to file at Companies House.
252
Can the accounting reference period be extended for more than 18 months?
No, it cannot be extended beyond 18 months.
253
When can the accounting reference period be extended?
At least five years after the end of an earlier extended accounting reference period.
254
What is the requirement for all companies regarding annual accounts?
They must prepare annual accounts.
255
What is the requirement for all companies regarding appointment of an auditor?
They must appoint an auditor.
256
What are service contracts?
Contracts for directors' employment.
257
What should be included in a director's employment contract?
Terms, duties, salary, notice period, etc.
258
When does a service contract require shareholder approval?
If it is for a guaranteed term of more than two years.
259
What happens when a new company is registered with Companies House?
HMRC is automatically notified.
260
What does HMRC send to the registered office address of a new company?
An introductory pack regarding tax affairs.
261
What is included in the introductory pack from HMRC?
A form to initiate corporation tax registration.
262
What should directors do to deduct income tax from salaries?
Register the company with HMRC under the PAYE scheme.
263
How can directors register the company for PAYE and National Insurance?
Online via the UK government's website.
264
Are directors considered employees?
Yes.
265
Which businesses must register for value added tax (VAT)?
Most businesses, except those with a very small turnover.
266
What happens when a company registers for VAT?
It is allocated a VAT number.
267
Who approves the applications for tax registration?
The directors at the first board meeting.
268
What is the Streamlined Company Registration Service?
A service that allows new companies to register and apply for tax registration simultaneously.
269
Who decides on insurance policies for the company?
The board of directors.
270
Where are shareholders' agreements held?
Not at a board meeting, but involve shareholders instead of directors.
271
What is a shareholder agreement?
A legally binding agreement between shareholders of a company.
