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BL&P > 1. Business Mediums > Flashcards

1. Business Mediums Flashcards

1
Q

DEF: Sole Traders

A

Individual runs business as a self-employed person and can be in any industry / profession. Professionals who are sole traders = sole practitioners.

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2
Q

Personal Liability of Sole Traders

A

Unlimited: The sole trader must personally pay for liability incurred in connection with his business (personal assets may be seized)

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3
Q

Regulations for Sole Traders

A

No single set of rules, governed by statute more generally (ie. tax legislation and sale of goods legislation)

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4
Q

Bankruptcy for Sole Traders: Process

A

(1) All of the sole trader’s property (including house) is transferred to the trustee in bankruptcy, who will sell of the property and use the money to pay off the creditors (2) The sole trader will be prohibited from borrowing more than nominal sums of money or being involved in running a company (3) Bankruptcy ends, sole trader has a clean slate

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5
Q

DEF: Partnership

A

“The relationship which subsists between two or more people carrying on a business in common with a view of profit” s1 Partnership Act 1890

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6
Q

How does ‘authority’ work in a partnership

A

Actual: Will bind partners to contract, Apparent: can still bind both if one partner has apparent authority, if partners led other party to believe that this one partner had authority - regardless, privity of contract between that partner and the other party even if no authority

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7
Q

Personal Liability in Partnership

A

Same as if sole trader, if one partner is sued by a creditor they can claim a contribution from the other partner

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8
Q

Liability of Partners in Partnership

A

Same as sole trader: risk bankruptcy, liable for the actions of your partners even if you have no knowledge

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9
Q

How does the law regulate partners?

A

Strict Fiduciary Obligations: Imposed by law: (1) A duty to make full disclosure to your other partners of what you are doing. (2) A duty to share any profits that you make using partnership property. (3) A duty not to compete with the firm whilst you are a partner (Partnership Act 1890)

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10
Q

DEF: Limited Partnerships

A

At least one general partner who has unlimited liability for debts, but may also have a partner who is liable only for the amount they initially invested in business (conditional liability).

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11
Q

Liability in Limited Partnerships

A

This ‘limited partner’ must not:
- Control or manage LP
- Have power to take binding decisions on behalf of LP
- Remove their contribution to LP for as long as it is in business
- If in breach of these, limited partner will have unlimited liability

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12
Q

Creation: Private Limited Company

A

1) Filing documents with the office of the Registrar of Companies (based in Companies House)

2) Documents including articles of association: rules which determine the detail of how the company is going to be run (in combination with the rules in Companies Act 2006)

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13
Q

Characteristics: Assets in Private Company

A

All assets of the Private Ltd. Company are owned by the company, the company is owned by the shareholders

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14
Q

Who manages Private Limited Companies?

A

Directors manage the company, they owe ‘fiduciary duties’ to it, may be same people as shareholders but would make decisions in their capacity as directors

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15
Q

How does a Private Limited Company enter into contracts?

A

The Company is the party to contracts that the business enters into (which acts through agents)

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16
Q

Liability of Shareholders in Private Limited Company

A

Limited to amount they have agreed to pay the company for their shares

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17
Q

Shares in Private Limited Company

A

Offer shares to people who know the company or specialist investors (therefore, they are less regulated)

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18
Q

Guarantees in Private Limited Company

A

Used for organisations not seeking to make profit (ie. professional society); shareholder guarantee the company’s debts up to a specified amount (usually 1 pound)

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19
Q

Shares in Public Companies

A

Offered to public at large, may be traded on the stock exchange, unlisted public companies can also offer shares but its harder for them to find buyers

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20
Q

Significance of Saloman v Saloman

A

The court will consider whether a business is properly formed and if so, the creditors can only claim payment from the company itself and not personal assets. Confirmed concept of ‘separate legal personality’: as long as company is legally incorporated it must be treated like any other independent person with right and liabilities.

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21
Q

DEF: Veil of Incorporation

A
  • Separation between company and owners once company comes into being
  • Courts may decide to ‘pierce the veil’
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22
Q

Significance of Prest v Petrodel

A

Supreme Court rules that the corporate veil can only be pierced when a person ins under an existing legal obligation or liability and is subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates, by interposing a company under his control - even if this occurs, veil only pierced so as to deprive the company (or controller) of advantage they would otherwise have obtained by company’s separate legal personality

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23
Q

Characteristics of Public Companies

A

Issues shares to the public (can also be traded on stock market), can expect to have a wide range of shareholders. Shareholders require lots of extra regulation to protect them and ensure directors act in their interests.

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24
Q

How are Public Companies Regulated

A

(1) Rules in Companies Act
(2) Regulations made by financial services regulations
(3) Rules of stock exchange where stock is traded (can change quickly)

25
Q

Requirements to Create Public Company

A

1) Constitution of company must state it is public

2) Plc must be included at the end of the company’s name

3) Company’s owners must invest a specified minimum amount of money for use by company (must be ‘authorised minimum’: currently 50k in ss 761 and 763 CA 2006) Each allotted share must be paid up to atleast 1/4 of its nominal value plus whole of any premium on it (s 586 CA 2006)

26
Q

DEF: LLPs

A

Concerns about unlimited liability of partners in large firms led to the creation of many LLPs: It is a hybrid company and partnership
Company: Separate legal person and has to be incorporated, partner’s liability limited to amount they contribute, has to file accounts at Companies House
Partnership: Governed by rules which apply to many standard partnerships (which can be changed in express agreements to the contrary)

27
Q

Types of Incorporated Businesses

A

Limited Companies: Separate legal entity from owners and managers, formed when complying with various legal requirements (owners often not liable for business debts)

28
Q

Types of Unincorporated Businesses

A

Sole traders, partnerships, limited partnerships
- Businesses run by individuals who have not set up a separate legal entity to run the business + who have full personal liability for business debts

29
Q

Requirements for Forming a Company

A

Applicant must complete Companies House form IN01 to incorporate the company, and submit it along with a memorandum of association and possibly the company’s articles of association (to Companies House with fee enclosed)

30
Q

Application Process: Limited Companies

A

(1) Applications IN01 and relevant submissions
(2) If person processing app is satisfied that requirements of the CA 2006 have been met, they will incorporate the company and issue a certificate of incorporation
(3) - Company comes into existence upon the certificate of incorporation being issued (ss 15(4) and 16(2) CA 2006). The certificate of incorporation must state, under s 15 CA 2006:
- Name and registered number of the company
- date of incorporation
- Whether its limited or unlimited (if limited: by shares of guarantee)
- Private or public company
- whether company’s registered office is in England and Wales (or in Wales) in Scotland or Northern Ireland
(4) All companies must be registered with HMRC for corporation tax (if registered online, automatic registration, but if in person / via post the registration will need to be done separately, within 3 months of starting to do business)

31
Q

Rules about naming limited companies

A
  • Private companies must end in Limited or Ltd (if in Wales, can end in cyfyngedig or cyr; s 59 CA 2006).
  • Public companies must end in plc of public limited company or welsh equivalent (s 58 CA 2006)
  • Must not be the same as an existing company (s 66 CA 2006)
  • Certain names are prohibited / can only be used with permission (criminal offence or offensive or suggest connection with government department or authority) (eg. no ‘British’)
  • No need to register trading names (will not need to be changed unless trademark infringement - should look on IPO’s website_
32
Q

Changing a Company’s Registered Office

A

(1) A board resolution is required to change the company’s registered office (s 87 CA 2006), and company must file form AD01 at Companies House

33
Q

Appointing first directors / requirements

A

(1) Applicant must decide who the company’s director / directors will be and include name and DOB on IN01
(2) Every company must have at least one director (public companies must have 2 or more; s 154 CA 2006), directors must be 16 or over (s 157 CA 2006)

34
Q

Information on IN01 about Directors

A

(1) Name and addresses of directors (official and residential address - unless applied to keep this private)

35
Q

Who needs a company secretary?

A

Not necessary for private companies (s 270 CA 2006), if they choose to have one name and service address must be on the IN01 (could also be a director)

36
Q

Form IN01: Shareholders

A

Call subscribers: their names, addresses and details of their shareholdings will be entered on the IN01
- Common Practise: companies incorporated with two shareholders, each owns one ordinary share (1 GBP) but can be incorporated with 1 shareholder instead

37
Q

Form IN01: Statement of Capital

A

In IN01, applicant needs to provide information about the shares on the IN01 including:
- number of shares of each type the company has + total nominal (amount paid for) value (company’s share capital)
- Names and addresses of all shareholders (known as subscribers)
- Must give info on what rights each type of share gives the shareholder: prescribed particulars
- what share of dividends they receive;
- whether they can exchange (’redeem’) shares for money
- Whether they can vote on certain matters
- How many votes they get

38
Q

What comprises the Company’s Constitution?

A

(1) memorandum of association and articles of association
(2) certificate of incorporation
(3) current statement of capital
(4) copies of any court orders and legislation altering the company’s constitution
(5) shareholders’ resolutions affecting the constitution and certain agreements involving shareholders

39
Q

When do the Model Articles apply?

A

Will apply by default of applicant does not provide a bespoke set of article when applying to incorporate a company (s 20 CA 2006)

40
Q

How can Model Articles / Articles of Association be amended? + Filing Requirements

A
  • Shareholders can amend articles by special resolution (s 21(1) CA 2006), must be passed by majority of 75% of the shareholders (s 283(1) CA 2006)
  • Must file amended articles at companies house within 15 days of them taking effect (s 26(1) CA 2006)
  • Must send copy of special resolution to amend the articles (s 29 and s 30 CA 2006) to be filed within 15 days after it passed (s 30 CA 2006)
41
Q

If a company wanted to use bespoke articles, where / when would they do this?

A

The applicant must indicate on the IN01 whether they are adopting the Model Articles or whether they have drafted their own articles. If they have drafted their own articles, they must submit a copy of them when they file the IN01.

42
Q

Definition of ‘Persons with Significant Control’

A

Deemed significant if the person / corporate body / firm:

  • holds more than 25% shares in company
  • holds more than 25% of voting rights in company
  • holds the right to appoint / remove a majority of the board of directors of the company
43
Q

PSC and Form IN01

A

Person filing IN01 must indicate PSCs and amount of shares: either -
(1) >25% but 50% or less OR
(2) >50% but <75% OR
(3) 75% or more of company’s shares / voting rights

44
Q

Extra Requirements for forming public companies: trading

A

Once Companies House issues certificate of incorporation, must obtain a trading certificate as proof it can trade / borrow and has met allotted share capital requirements set out in 1.6.2 (s 761 CA 2006) (FORM SH50)

45
Q

How can a private company convert to a public company?

A

Pass special resolution approving re-registration of company (s90(1)(a) CA 2006) altering company’s name to make it suitable and altering articles similarly
- company must have satisfied capital requirements

46
Q

Definition of a Shelf Company

A
  • formed and then ‘left on the shelf’ at the law firm until the client needs a company quickly
    • Directors and initial subscribers of shelf company will be employees at the law firm
47
Q

Post-Incorporation Steps:

A

(1) Chairperson
(2) Bank Account
(3) Company Seal
(4) Changing company name / adopting business name

48
Q

DEF: Accounting Reference Date

A

Date up to which it must prepare its annual accounts: last day of the month in which the company was incorporated (s 391(4))
- Company may change this to align with tax year or calendar year

49
Q

Process for Changing the Accounting Reference Date

A

To change: pass board resolution to extend / shorten its ARD, and complete form AA01 and file at Companies House (s 392 CA 2006)
- Cannot be extended so that accounting reference period lasts more than 18 months, cannot be extended less than 5 years after end of earlier accounting reference period of the company that was also extended

50
Q

Which companies need an auditor?

A

(1) all companies must prepare annual accounts
(2) those who are exempt (small companies) need not appoint auditor

51
Q

DEF: Service Contracts

A

Employment contracts for directors which set out terms of employment: duties, responsibility, working hours, salary, holidays and duration of contract and any notice period

52
Q

What must companies do with HMRC after incorporation?

A

(1) Directors should register company with HMRC to arrange income tax deductions from salaries under PAYE scheme and for payment of NI contributions, can be done on UK Government Website
(2) Most companies have to register for value added tax with HMRC (except those with very small turnover)

53
Q

Model Article 2

A

The liability of the members is limited to the amount, if any, unpaid on the shares held by them.

54
Q

Model Article 3

A

Subject to the articles, the directors are responsible for the management of the company’s business, for which purpose they may exercise all the powers of the company.

55
Q

MA 4

A

(1) The shareholders may, by special resolution, direct the directors to take, or refrain from taking, specified action.
(2) No such special resolution invalidates anything which the directors have done before the passing of the resolution.

56
Q

MA 5

A

Directors may delegate their powers as they think fit

57
Q

MA 7

A

(1) The general rule about decision-making by directors is that any decision of the directors must be either a majority decision at a meeting or a decision taken in accordance with article 8.
(2) If— (a) the company only has one director, and (b) no provision of the articles requires it to have more than one director, the general rule does not apply, and the director may take decisions without regard to any of the provisions of the articles relating to directors’ decision-making.

58
Q

MA 8

A

Directors can exercise their powers unanimously without a meeting as long as they indicate that they share a common view on matter

59
Q

MA 14(1)

A

If a proposed decision of the directors is concerned with an actual or proposed transaction or arrangement with the company in which a director is interested, that director is not to be counted as participating in the decision-making process for quorum or voting purposes.

BL&P (14 decks)

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