4. Legal Principles

Question 1

How are partners in a partnership taxed?

Answer 1

As self employed income

Question 2

What is the required structure of an LLP?

Answer 2

At least 2 partners

At least 2 “designated partners”

Question 3

What are the 4 key personal representatives in the case of inheritance?

Answer 3

Testator: person making a will
Executor: named in the will to manage distribution of estate

Intestate: deceased without a will
Administrator: manages distribution of estate when there is no will (intestacy)

Question 4

What are the key features of an Ordinary Power of Attorney?

Answer 4

In place while donor still has mental capacity
Cannot make non-financial decisions or large/unusual gifts
Ends when:
- donor dies or loses mental capacity
- donor becomes bankrupt
- specified time limit

Question 5

What are the key features of an Ensuring Power of Attorney?

Answer 5

Cannot be created since 30 Sep 2007

Same as Ordinary PoA + provision to continue if donor loses mental capacity

Must be registered with Office of Public Guardian

Donor + 3 relatives must be informed

Question 6

What are the key features of a Lasting Power of Attorney?

Answer 6

Replaced Ensuring PoA 1 Oct 2007

Requires registration with Office of the Public Guardian

2 types:
Personal welfare; attorney starts when donor loses mental capacity
Property & affairs; attorney starts immediately - same as Ensuring PoA

Question 7

What are the 7 requirements of a contract?

Answer 7

1. Offer & acceptance
2. Consideration
3. Capacity (18+ and sound mind)
4. Terms (certain, complete and free from doubt)
5. Intention to create legal relationship
6. Legality - no illegal purposes
7. Cannot be entered into under misrepresentation, duress or undue influence

Question 8

What were the key changes introduced under the Consumer Insurance (Disclosure and Representations) Act 2012?

Answer 8

Removed the duty for consumers to volunteer facts

Requires consumers to take reasonable care to answer questions fully & accurately, and not mislead

Question 9

Difference between joint tenancy and tenancy in common?

Answer 9

Joint tenancy: each own the whole asset. Ownership automatically transfers to the other on death - cannot be override

Tenancy in common: each has a set share. Ownership for ones share is included in their estate on death.
Must be 2 legal owners to sell a property

Question 10

What are the 2 situations causing insolvency?

Answer 10

Liabilities exceed assets

Unable to meet financial obligations in reasonable time

Question 11

What are the debt requirements to apply for a petition for bankruptcy, for your own or for a debtor?

Answer 11

Own: none

Debtor: £5k owed

Question 12

What is the normal bankruptcy discharge period and what happens?

Answer 12

12 months

Assets are surrendered to trustee to sell. Excludes clothing, household items and items required for work
Includes jointly owned assets

Question 13

What are the 3 key features of an Individual Voluntary Arramgement & how long does it remain on your credit record?

Answer 13

Creditors representing 75% of debt must agree

Must be supervised by insolvency practitioner

Can agree interest freeze or partial write off

IVA remains on credit record for 6 years

Question 14

Key features and 7 requirements of a Debt Relief Order?

Answer 14

Creditors are subject to a 12 month moratorium during which they cannot seek repayment
After 12 months the debts are written off
A debtor must apply through an approved intermediary

1. Unable to pay debts
2. Owe max £30k unsecured
3. Total gross assets max £2k (excl 1 vehicle)
4. Disposable monthly income <£75
5. No DROs in last 6 years and not subject to any other insolvency
6. Cannot have gifted or undersold assets in last 2 years
7. Pay a fee of £90