BLP Flashcards
What is the minimum number of directors required for public companies?
2 minimum directors
What is the mandatory annual requirement for public companies?
Annual General Meeting (AGM) mandatory
What is the minimum share capital required for public companies?
£50,000 share capital
What is the primary duty of directors?
Ultimately to the company
What does limited liability refer to in the context of shareholders?
Limitation on shareholders: limited to an amount of the unpaid shares
In LLPs, what can an outgoing partner do for 6 months?
Hide behind the corporate veil
What percentage of shares constitutes a Person with Significant Control (PSC)?
More than 25%
What is the notice period required for a written resolution?
Written = 28 days’ notice
How much notice is required for Board Meetings?
Requires reasonable notice
What is the minimum notice required for General Meetings?
14 days clear notice for GMs shareholders
What is required for a Special Resolution to be filed?
15 days to file/ send Special Resolutions to Companies House
What is the quorum for a Special Resolution?
Quorum of 2
What is the majority required for an Ordinary Resolution?
Majority over 50%
What is the minimum percentage of shareholders required to call a short meeting?
SHORT COMPANIES —> the majority of shareholders with at least 90% of the voting rights collectively. e.g out of 5 shareholders at least 3 holding 90% of the voting rights together should agree to short notice
PUBLIC COMPANIES —> Over 95% minimum number of shareholders
What form is required to form a limited partnership?
Form IN01
What is the clawback rule in relation to insolvency?
All money taken out within 2 years of insolvency are subject to clawback rules
What is the liability of partners under the 1890 Partnership Act?
Unlimited joint and several liability
What is required to incorporate a company from scratch?
Form IN01, fee, Articles, Memorandum
(note that a -“public company”- must receive a Trading Certificate to be able to conduct business)
(note also that the memorandum is is not a constitutional requirement but needed on incorporation)
What is a show of hands in company voting?
One vote per hand
Who can demand a poll vote in a company meeting?
Person with more than 10% voting rights, 2 or more shareholders, any simultaneous director, Chairperson
What is the maximum duration for which directors must be re-appointed?
Every three years
What is the minimum amount for loss of compensation requiring shareholder approval?
£200
What is the standard of proof for derivative actions?
Prima facie case
What is the standard of proof for unfair prejudice claims?
Reasonable bystander
What is required to amend a Shareholders Agreement?
100% unanimous consent
What must be disclosed in relation to significant property transactions?
Nature and extent of their interest to the Board
What is the presumption for preference shares regarding dividends?
That they are: Cumulative preference shares
This means there is an expectation to carry over any dividends into the next year which were not previously received.
What must happen to vary class rights of shares?
Written consent by 75% or more of that issued class or a Special Resolution with holders of that class
What is the requirement for a financial promotion in private companies?
Prohibited unless FSMA approval or approval by authorised person
What is the definition of a connected person?
Members of the director’s family, a body corporate connected to the director, trustee of a trust, partner
What is a quasi-partnership?
Big shareholder players in a small private company with strong bargaining power
What is the penalty for disqualification of a director?
Max 15 years disqualified
What is the procedure for issuing or allotting shares?
Check cap limit, authority to allot, file minutes, and follow statutory requirements
What is a Credit Transaction?
Payment for supply of goods and services greater than £15,000
What is required for transfer of shares?
Stock transfer form, share certificate, stamp duty, registration in the company’s Register
What is the minimum share capital required for private companies?
Nominal = par value, minimum amount fixed
What is a Special Resolution in the context of private companies?
Specific provision for private companies with the same class of shares
A Special Resolution is a resolution passed by a specified majority of shareholders, often required for significant corporate actions.
What is required for listed public companies regarding Special Resolutions?
By Special Resolution AND Written Statement
This means that both a Special Resolution and a written statement from the shareholders are needed for certain corporate actions.
What must be justified when allotting shares?
Amount to be paid to company post-allotment
Justification for the amount ensures transparency and accountability in share allotment.
What is the last resort for introducing new class rights in a company?
By permanent exclusion in Articles
This means that if the Articles of Association are amended to permanently exclude certain rights, it serves as a last resort for managing class rights.
What must be done to introduce a new kind of class right?
Follow all the procedures above; AND by Special Resolution insert new provisions in the Articles
This involves a formal process of amending the Articles of Association to accommodate new class rights.
What is the Doctrine of Maintenance of Share Capital?
General rule against returning capital to shareholders
This doctrine is designed to protect creditors by ensuring that a company’s capital is not returned to shareholders except under specific conditions.
What are the exceptions to the Doctrine of Maintenance of Share Capital?
- Redeeming shares
- Buyback
These exceptions allow companies to return capital to shareholders under specified circumstances.
What counts as financial assistance under company law?
Formula: Specified type of assistance + actual assistance + financial
This includes various forms of financial support that may affect a company’s net assets.
Who do the financial assistance rules apply against?
- Public companies
- Public target companies and their subsidiaries
These rules are designed to regulate financial assistance involving public entities.
Who is NEVER caught by the financial assistance rules?
- NOT private target companies
- NOT private subsidiary of a private target
Generally, private companies are exempt unless they are subsidiaries of public companies.
What is the first stage in the financial assistance regulation process?
Identity of the target company
This stage involves identifying the company that is issuing shares and the one that is subject to acquisition.
What is required for a buyback procedure by distributable profits?
- NO LIMIT in the Articles
- Distributable PROFITS available
- Shares fully PAID UP
- Other shares besides buyback will still be EXISTING
These conditions must be met to legally execute a buyback of shares using distributable profits.
What must be done after a buyback of shares?
File cancellation notice, updated statement of capital, and cash returns WITHIN 28 DAYS
This ensures compliance with regulatory requirements following a buyback.
What is the automatic and mandatory form needed for any buyback?
Notice of Cancellation
This form is required to formally execute a buyback of shares.
What is the maximum time allowed for potential challenges after a buyback by capital?
5 weeks from the Special Resolution
This period allows shareholders and creditors to object to the proposed buyback.
What is the first step in the Income Tax calculation process?
Income Sum – Reliefs = NET INCOME SUM
This calculation determines the net income after accounting for various reliefs.
What is the annual exemption for Capital Gains Tax (CGT)?
Current annual exemption is £6,000
This amount can be deducted when calculating chargeable gains for tax purposes.
What is the effect of reliefs on Capital Gains Tax?
They can bring the rate down to 10% CGT rate
Reliefs significantly reduce the amount of tax owed on capital gains.
What is the formula for calculating Chargeable Gain for CGT?
Consideration Received – Allowable Expenditure [DIS] = Chargeable Gain
This formula is essential for determining the taxable gain from a sale or gift.
D= disposable income
I = income relief
S= savings
What type of assets are considered chargeable assets under CGT?
- Almost all capital assets
- NOT wasted chattels (e.g., lottery winnings, cars)
Chargeable assets are those that can incur CGT upon disposal.
What is the tax rate for Capital Gains Tax for higher/additional rate taxpayers?
Mostly 20%
This rate applies to chargeable gains for individuals in higher tax brackets.
What is the personal allowance for Income Tax?
£12,570
This is the amount of income that is tax-free for individuals.
What is the tax rate for dividends for basic rate taxpayers?
8.75%
This unique rate applies specifically to dividend income.
What is the rule regarding repairs in Capital Expenditure?
ABSOLUTE RULE AGAINST DEDUCTING repairs
Only replacement, enhancement, and improvement costs can be deducted.
What is a key feature of CGT regarding sales or gifts?
Sales or gifts are deemed at MARKET VALUE
This ensures that the true value of an asset is considered for tax purposes.
What is the purpose of Capital Gains Tax (CGT)?
To tax the profit made from the sale of assets.
What is the difference between CGT and IHT?
CGT taxes profits from asset sales, while IHT (Inheritance Tax) is based on the value of an estate at death.
What are the four types of reliefs available for CGT?
- BADR/BADR Lifetime
- IR
- Business Relief (rollovers) 50 or 100%
- Hold-over relief
What is BADR?
Business Asset Disposal Relief, allowing a reduced CGT rate on qualifying business assets.
What is the BADR Lifetime limit?
The first £1 million of gains is taxed at a 10% CGT rate.
What does Hold-Over relief apply to?
Gifts of business assets.
What is the key ownership requirement for BADR?
At least 5% of voting rights, profits, or net assets on winding up.
What is the registration threshold for VAT?
£85,000.
What is the standard rate of VAT?
20%.
When does VAT fall due?
On the date of invoicing or payment, whichever is first.
What is the definition of Corporation Tax?
Tax payable by companies on receipts of income and capital gains at a single rate.
What is the Corporation Tax rate for profits above £250,000?
25%.
What is the Corporation Tax rate for profits below £50,000?
19%.
What are allowable deductions when calculating Corporation Tax?
- Deductible Expenditure on income profits
- Capital Allowances
- Trading Losses
What is the definition of a close company?
A company owned by five or fewer people or any number of participators who are also directors.
What is the tax liability rate for close companies?
The same rate as higher rate tax on dividends (33.75%).
What is the issued share capital (ISC) criterion for a close company?
More than 50% ownership or has the greater majority of assets on winding up.
What is the purpose of a Trial Balance Sheet?
To ensure all accounts and ledgers balance at the end of the accounting year.
What are current assets?
Assets that are expected to be converted into cash within 12 months.
What are non-current assets?
Assets that are expected to provide economic benefits over more than 12 months.
What does the Profit and Loss Account record?
Income minus expenses over a specific accounting period.
What is depreciation?
The reduction in value of an asset over time.
What is the purpose of capital allowances?
To allow businesses to spread the cost of certain capital assets over time.
Fill in the blank: The first £1 million of gains under BADR is taxed at a _____ rate.
10%
True or False: Trading losses can only be set off against profits from the same trade.
False
What is the combined cap limit on deductions for capital and trading losses?
£5 million every year.
What type of companies can apply for Investor’s Relief (IR)?
Unlisted trading companies.
What is the ownership requirement for IR?
Three years of ownership.
What are the two types of VAT rates?
- Reduced rate (5%)
- Zero-rated (0%)
What is the primary rationale for accruals in accounting?
To reflect expenses incurred that have not yet been invoiced.
What does ALCIE stand for?
Assets, Liability and Capital Entries
What is meant by ‘current net worth’?
The current value of assets minus liabilities
What is depreciation?
The gradual reduction in value of an asset over time
How is the depreciation charge calculated?
Percentage % of the reducing value x years left to pay off
What is an exception to the standard depreciation calculation?
Assets with a residual value
What are accruals?
Expenses that are incurred but not yet invoiced, representing future payments
What is the rationale for accruals?
To reflect future payments on the balance sheet
What is a prepayment?
An expense paid in advance for future benefits
How are prepayments accounted for?
Charged as an expense for the next year, not the current year
What are gross receivables?
Money owed to the business that is expected to be received
What are bad debts?
Debts that are written off completely as uncollectible
What are doubtful debts?
Debts that may not be received, requiring a provision
What is the purpose of a Profit Appropriation Statement (P.A.S)?
To show each partner’s account in partnership accounts
How should partnership profits be shared?
According to interest on capital or salaries due under the Partnership Agreement
What is the accounting reference date (ADR)?
The last day of the anniversary month of a company’s incorporation
What is the filing deadline for private companies’ accounts?
Within 9 months of the relevant ADR
What is the filing deadline for public companies’ accounts?
Within 6 months of the relevant ADR
Are dividends considered expenses?
No, they are appropriations after tax
What happens to share capital when a company issues shares?
Increases at their nominal value
What is a geared company?
A company with more long-term debt than equity
What is ‘gearing’ also known as?
Leverage
What is a loan overdraft?
A loan that can be demanded at any time
What is a loan for a term?
A loan with a fixed term before it can be demanded
What are debentures?
Securities issued by a company as acknowledgment of debt
What is a pledge in terms of debt security?
Possession of an item until the debt is paid
What is a lien?
Retaining possession of an item until the debt is paid
What is a mortgage?
Transfers legal ownership until the debt is repaid
What is a fixed charge?
A charge over fixed assets like machinery or vehicles
What is a floating charge?
A charge over a class of circulating assets
What is the deadline for registering charges at Companies House?
21 days after the charge is created
What is the test for corporate insolvency?
Inability to pay debts as they fall due
What are the two types of liquidation?
Compulsory liquidation and voluntary liquidation
What is the primary purpose of a moratorium?
To pause all wind-up procedures and legal actions
What is a Company Voluntary Arrangement (CVA)?
A formal agreement with unsecured creditors to repay debts
What is required for a restructuring plan to be binding?
75% of votes from each class of creditors
What is the role of an administrator in administration?
To take control and help the company during financial difficulties
What triggers receivership?
Appointment by a Qualifying Floating Charge Holder
What is the overall purpose of liquidation?
To sell the company’s assets and pay creditors
What is compulsory liquidation?
A mandatory process required by court when a company is unable to pay its debts or if it is just and equitable for the company to be wound up.
What are the two statutory grounds for compulsory liquidation?
- The company is unable to pay its debts
- It is just and equitable for the company to be wound up
What is voluntary liquidation?
A process initiated by the company itself.
What is a Members Voluntary Liquidation (MVL)?
A type of voluntary liquidation where members must be solvent and requires a Declaration of Solvency.
What is a Creditors Voluntary Liquidation (CL)?
The most common form of liquidation where creditors must be insolvent.
What is the risk for directors regarding the Declaration of Solvency?
Directors face prison or fines if they lie about the solvent state of the company.
What is a winding up order?
An order that voids any charges or transactions made after the order is issued.
What is the statutory order of priority upon liquidation?
- Liquidators fees and expenses
- Fixed charges
- Other expenses from the liquidation
- Preferential creditors
- Floating charges
- Unsecured creditors
- Shareholders
What are the first tier preferential creditors?
- Employees (max £800)
- Pension
- Holidays
What is an Individual Voluntary Arrangement (IVA)?
A proposal to create an adjusted timetable for an individual to pay debts to creditors, alternative to bankruptcy.
What is the voting requirement for an IVA proposal?
Requires 75% by value of total debt owed to creditors.
What is a Bankruptcy Order?
An order enabling the orderly collection, sale, and distribution of an insolvent individual’s assets for creditor benefit.
What are the grounds for a Bankruptcy Order from creditors?
- Unable to pay
- Cannot meet a statutory demand in 21 days
- Unsatisfied judgment
Who can be a trustee in a bankruptcy?
- Insolvency Practitioner
- Official Receiver
What is the automatic release period for a bankrupt individual?
Automatic release occurs after 1 year of the Bankruptcy Order unless varied by the court.
What is the purpose of voidable transactions for individuals?
To increase assets available to creditors by challenging transactions declared voidable.
What is a transaction at an undervalue?
A transaction where the consideration received is significantly less than what was paid by the bankrupt entity.
What is the time limit to claim for transactions at an undervalue?
Claims can be made within 5 years of the transaction.
What is wrongful trading?
A provision allowing claims against directors for continued trading when they knew there was no reasonable prospect of avoiding liquidation.
What is the balance sheet test in wrongful trading?
A test to determine if the company was insolvent based on its financial statements.
What are the remedies for fraudulent trading?
Contribution to Assets Order or any remedy at the court’s discretion.
What is the purpose of voidable transactions for corporate directors?
To challenge transactions by directors that are declared voidable to increase assets available to creditors.
What is the presumption of insolvency?
It arises when a transaction occurs with an associate of the bankrupt entity.
What is a connected person in the context of corporate transactions?
A person associated with a director or the company, influencing the presumption of bad faith.
What is the Good Faith defence in transactions at an undervalue?
A defence claiming the transaction was made in good faith to benefit the company’s business.
What is the time limit to claim for preferences by a company?
Claims can be made within 6 months before insolvency proceedings or 2 years for connected transactions.
What is the significance of a floating charge over a loan?
A floating charge can be voided if obtained by an unsecured creditor during the 12 months before insolvency.
What are the defences against voiding a floating charge?
- Valid Floating Charge defence
- New money or fresh consideration provided to the company
What is the role of the liquidator in bankruptcy?
To gather and distribute the bankruptcy estate and oversee creditor claims.
What is the maximum amount for preferential creditors after 2020?
Up to £800,000.
True or False: Fraudulent trading requires proof of insolvency.
False
What is a Valid Floating Charge defence?
It was established in two instances:
* Re Yeovil Glove Co: each time the company uses its overdraft facility, it is deemed to be ‘new money’ advanced by the bank.
* Devaynes v Noble (Re Clayton’s Case!): payments into a bank account discharge earlier credit loans/overdrafts on a ‘first in, first out’ basis.
What type of transaction does a floating charge relate to?
Unsecured creditors.
What happens if the claim regarding a floating charge is successful?
The floating charge is declared void, but the loan/debt itself remains valid.
What occurs regarding overdrafts once the existing pre-charge debt is paid off?
Any existing overdraft is considered ‘new debt’.
What does ‘Connected Person’ refer to in the context of floating charges?
It refers to individuals like sureties or guarantors, with a time extension of 2 years applicable.
What is the significance of the ‘insolvency requirement’?
It must be evaluated at the time of the transaction or as a result of the transaction; the causation requirement must be met.
What must be checked to determine the timing of insolvency?
The company accounts.
What is one method of court procedure regarding floating charges?
Application to court.
What is an out of court procedure related to floating charges?
Notice of Intention to Appoint.
What is a process that can lead to the conclusion of a floating charge?
Liquidation – Winding Up Petition.
