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My Revision Practice Subjects > BLP Flashcards > Flashcards

BLP Flashcards

1
Q

What is the minimum number of directors required for public companies?

A

2 minimum directors

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2
Q

What is the mandatory annual requirement for public companies?

A

Annual General Meeting (AGM) mandatory

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3
Q

What is the minimum share capital required for public companies?

A

£50,000 share capital

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4
Q

What is the primary duty of directors?

A

Ultimately to the company

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5
Q

What does limited liability refer to in the context of shareholders?

A

Limitation on shareholders: limited to an amount of the unpaid shares

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6
Q

In LLPs, what can an outgoing partner do for 6 months?

A

Hide behind the corporate veil

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7
Q

What percentage of shares constitutes a Person with Significant Control (PSC)?

A

More than 25%

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8
Q

What is the notice period required for a written resolution?

A

Written = 28 days’ notice

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9
Q

How much notice is required for Board Meetings?

A

Requires reasonable notice

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10
Q

What is the minimum notice required for General Meetings?

A

14 days clear notice for GMs shareholders

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11
Q

What is required for a Special Resolution to be filed?

A

15 days to file/ send Special Resolutions to Companies House

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12
Q

What is the quorum for a Special Resolution?

A

Quorum of 2

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13
Q

What is the majority required for an Ordinary Resolution?

A

Majority over 50%

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14
Q

What is the minimum percentage of shareholders required to call a short meeting?

A

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

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15
Q

What form is required to form a limited partnership?

A

Form IN01

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16
Q

What is the clawback rule in relation to insolvency?

A

All money taken out within 2 years of insolvency are subject to clawback rules

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17
Q

What is the liability of partners under the 1890 Partnership Act?

A

Unlimited joint and several liability

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18
Q

What is required to incorporate a company from scratch?

A

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)

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19
Q

What is a show of hands in company voting?

A

One vote per hand

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20
Q

Who can demand a poll vote in a company meeting?

A

Person with more than 10% voting rights, 2 or more shareholders, any simultaneous director, Chairperson

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21
Q

What is the maximum duration for which directors must be re-appointed?

A

Every three years

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22
Q

What is the minimum amount for loss of compensation requiring shareholder approval?

A

£200

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23
Q

What is the standard of proof for derivative actions?

A

Prima facie case

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24
Q

What is the standard of proof for unfair prejudice claims?

A

Reasonable bystander

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25
Q

What is required to amend a Shareholders Agreement?

A

100% unanimous consent

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26
Q

What must be disclosed in relation to significant property transactions?

A

Nature and extent of their interest to the Board

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27
Q

What is the presumption for preference shares regarding dividends?

A

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.

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28
Q

What must happen to vary class rights of shares?

A

Written consent by 75% or more of that issued class or a Special Resolution with holders of that class

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29
Q

What is the requirement for a financial promotion in private companies?

A

Prohibited unless FSMA approval or approval by authorised person

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30
Q

What is the definition of a connected person?

A

Members of the director’s family, a body corporate connected to the director, trustee of a trust, partner

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31
Q

What is a quasi-partnership?

A

Big shareholder players in a small private company with strong bargaining power

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32
Q

What is the penalty for disqualification of a director?

A

Max 15 years disqualified

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33
Q

What is the procedure for issuing or allotting shares?

A

Check cap limit, authority to allot, file minutes, and follow statutory requirements

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34
Q

What is a Credit Transaction?

A

Payment for supply of goods and services greater than £15,000

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35
Q

What is required for transfer of shares?

A

Stock transfer form, share certificate, stamp duty, registration in the company’s Register

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36
Q

What is the minimum share capital required for private companies?

A

Nominal = par value, minimum amount fixed

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37
Q

What is a Special Resolution in the context of private companies?

A

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.

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38
Q

What is required for listed public companies regarding Special Resolutions?

A

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.

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39
Q

What must be justified when allotting shares?

A

Amount to be paid to company post-allotment

Justification for the amount ensures transparency and accountability in share allotment.

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40
Q

What is the last resort for introducing new class rights in a company?

A

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.

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41
Q

What must be done to introduce a new kind of class right?

A

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.

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42
Q

What is the Doctrine of Maintenance of Share Capital?

A

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.

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43
Q

What are the exceptions to the Doctrine of Maintenance of Share Capital?

A
  • Redeeming shares
  • Buyback

These exceptions allow companies to return capital to shareholders under specified circumstances.

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44
Q

What counts as financial assistance under company law?

A

Formula: Specified type of assistance + actual assistance + financial

This includes various forms of financial support that may affect a company’s net assets.

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45
Q

Who do the financial assistance rules apply against?

A
  • Public companies
  • Public target companies and their subsidiaries

These rules are designed to regulate financial assistance involving public entities.

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46
Q

Who is NEVER caught by the financial assistance rules?

A
  • NOT private target companies
  • NOT private subsidiary of a private target

Generally, private companies are exempt unless they are subsidiaries of public companies.

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47
Q

What is the first stage in the financial assistance regulation process?

A

Identity of the target company

This stage involves identifying the company that is issuing shares and the one that is subject to acquisition.

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48
Q

What is required for a buyback procedure by distributable profits?

A
  • 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.

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49
Q

What must be done after a buyback of shares?

A

File cancellation notice, updated statement of capital, and cash returns WITHIN 28 DAYS

This ensures compliance with regulatory requirements following a buyback.

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50
Q

What is the automatic and mandatory form needed for any buyback?

A

Notice of Cancellation

This form is required to formally execute a buyback of shares.

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51
Q

What is the maximum time allowed for potential challenges after a buyback by capital?

A

5 weeks from the Special Resolution

This period allows shareholders and creditors to object to the proposed buyback.

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52
Q

What is the first step in the Income Tax calculation process?

A

Income Sum – Reliefs = NET INCOME SUM

This calculation determines the net income after accounting for various reliefs.

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53
Q

What is the annual exemption for Capital Gains Tax (CGT)?

A

Current annual exemption is £6,000

This amount can be deducted when calculating chargeable gains for tax purposes.

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54
Q

What is the effect of reliefs on Capital Gains Tax?

A

They can bring the rate down to 10% CGT rate

Reliefs significantly reduce the amount of tax owed on capital gains.

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55
Q

What is the formula for calculating Chargeable Gain for CGT?

A

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

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56
Q

What type of assets are considered chargeable assets under CGT?

A
  • Almost all capital assets
  • NOT wasted chattels (e.g., lottery winnings, cars)

Chargeable assets are those that can incur CGT upon disposal.

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57
Q

What is the tax rate for Capital Gains Tax for higher/additional rate taxpayers?

A

Mostly 20%

This rate applies to chargeable gains for individuals in higher tax brackets.

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58
Q

What is the personal allowance for Income Tax?

A

£12,570

This is the amount of income that is tax-free for individuals.

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59
Q

What is the tax rate for dividends for basic rate taxpayers?

A

8.75%

This unique rate applies specifically to dividend income.

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60
Q

What is the rule regarding repairs in Capital Expenditure?

A

ABSOLUTE RULE AGAINST DEDUCTING repairs

Only replacement, enhancement, and improvement costs can be deducted.

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61
Q

What is a key feature of CGT regarding sales or gifts?

A

Sales or gifts are deemed at MARKET VALUE

This ensures that the true value of an asset is considered for tax purposes.

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62
Q

What is the purpose of Capital Gains Tax (CGT)?

A

To tax the profit made from the sale of assets.

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63
Q

What is the difference between CGT and IHT?

A

CGT taxes profits from asset sales, while IHT (Inheritance Tax) is based on the value of an estate at death.

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64
Q

What are the four types of reliefs available for CGT?

A
  • BADR/BADR Lifetime
  • IR
  • Business Relief (rollovers) 50 or 100%
  • Hold-over relief
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65
Q

What is BADR?

A

Business Asset Disposal Relief, allowing a reduced CGT rate on qualifying business assets.

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66
Q

What is the BADR Lifetime limit?

A

The first £1 million of gains is taxed at a 10% CGT rate.

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67
Q

What does Hold-Over relief apply to?

A

Gifts of business assets.

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68
Q

What is the key ownership requirement for BADR?

A

At least 5% of voting rights, profits, or net assets on winding up.

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69
Q

What is the registration threshold for VAT?

A

£85,000.

70
Q

What is the standard rate of VAT?

A

20%.

71
Q

When does VAT fall due?

A

On the date of invoicing or payment, whichever is first.

72
Q

What is the definition of Corporation Tax?

A

Tax payable by companies on receipts of income and capital gains at a single rate.

73
Q

What is the Corporation Tax rate for profits above £250,000?

A

25%.

74
Q

What is the Corporation Tax rate for profits below £50,000?

A

19%.

75
Q

What are allowable deductions when calculating Corporation Tax?

A
  • Deductible Expenditure on income profits
  • Capital Allowances
  • Trading Losses
76
Q

What is the definition of a close company?

A

A company owned by five or fewer people or any number of participators who are also directors.

77
Q

What is the tax liability rate for close companies?

A

The same rate as higher rate tax on dividends (33.75%).

78
Q

What is the issued share capital (ISC) criterion for a close company?

A

More than 50% ownership or has the greater majority of assets on winding up.

79
Q

What is the purpose of a Trial Balance Sheet?

A

To ensure all accounts and ledgers balance at the end of the accounting year.

80
Q

What are current assets?

A

Assets that are expected to be converted into cash within 12 months.

81
Q

What are non-current assets?

A

Assets that are expected to provide economic benefits over more than 12 months.

82
Q

What does the Profit and Loss Account record?

A

Income minus expenses over a specific accounting period.

83
Q

What is depreciation?

A

The reduction in value of an asset over time.

84
Q

What is the purpose of capital allowances?

A

To allow businesses to spread the cost of certain capital assets over time.

85
Q

Fill in the blank: The first £1 million of gains under BADR is taxed at a _____ rate.

A

10%

86
Q

True or False: Trading losses can only be set off against profits from the same trade.

A

False

87
Q

What is the combined cap limit on deductions for capital and trading losses?

A

£5 million every year.

88
Q

What type of companies can apply for Investor’s Relief (IR)?

A

Unlisted trading companies.

89
Q

What is the ownership requirement for IR?

A

Three years of ownership.

90
Q

What are the two types of VAT rates?

A
  • Reduced rate (5%)
  • Zero-rated (0%)
91
Q

What is the primary rationale for accruals in accounting?

A

To reflect expenses incurred that have not yet been invoiced.

92
Q

What does ALCIE stand for?

A

Assets, Liability and Capital Entries

93
Q

What is meant by ‘current net worth’?

A

The current value of assets minus liabilities

94
Q

What is depreciation?

A

The gradual reduction in value of an asset over time

95
Q

How is the depreciation charge calculated?

A

Percentage % of the reducing value x years left to pay off

96
Q

What is an exception to the standard depreciation calculation?

A

Assets with a residual value

97
Q

What are accruals?

A

Expenses that are incurred but not yet invoiced, representing future payments

98
Q

What is the rationale for accruals?

A

To reflect future payments on the balance sheet

99
Q

What is a prepayment?

A

An expense paid in advance for future benefits

100
Q

How are prepayments accounted for?

A

Charged as an expense for the next year, not the current year

101
Q

What are gross receivables?

A

Money owed to the business that is expected to be received

102
Q

What are bad debts?

A

Debts that are written off completely as uncollectible

103
Q

What are doubtful debts?

A

Debts that may not be received, requiring a provision

104
Q

What is the purpose of a Profit Appropriation Statement (P.A.S)?

A

To show each partner’s account in partnership accounts

105
Q

How should partnership profits be shared?

A

According to interest on capital or salaries due under the Partnership Agreement

106
Q

What is the accounting reference date (ADR)?

A

The last day of the anniversary month of a company’s incorporation

107
Q

What is the filing deadline for private companies’ accounts?

A

Within 9 months of the relevant ADR

108
Q

What is the filing deadline for public companies’ accounts?

A

Within 6 months of the relevant ADR

109
Q

Are dividends considered expenses?

A

No, they are appropriations after tax

110
Q

What happens to share capital when a company issues shares?

A

Increases at their nominal value

111
Q

What is a geared company?

A

A company with more long-term debt than equity

112
Q

What is ‘gearing’ also known as?

A

Leverage

113
Q

What is a loan overdraft?

A

A loan that can be demanded at any time

114
Q

What is a loan for a term?

A

A loan with a fixed term before it can be demanded

115
Q

What are debentures?

A

Securities issued by a company as acknowledgment of debt

116
Q

What is a pledge in terms of debt security?

A

Possession of an item until the debt is paid

117
Q

What is a lien?

A

Retaining possession of an item until the debt is paid

118
Q

What is a mortgage?

A

Transfers legal ownership until the debt is repaid

119
Q

What is a fixed charge?

A

A charge over fixed assets like machinery or vehicles

120
Q

What is a floating charge?

A

A charge over a class of circulating assets

121
Q

What is the deadline for registering charges at Companies House?

A

21 days after the charge is created

122
Q

What is the test for corporate insolvency?

A

Inability to pay debts as they fall due

123
Q

What are the two types of liquidation?

A

Compulsory liquidation and voluntary liquidation

124
Q

What is the primary purpose of a moratorium?

A

To pause all wind-up procedures and legal actions

125
Q

What is a Company Voluntary Arrangement (CVA)?

A

A formal agreement with unsecured creditors to repay debts

126
Q

What is required for a restructuring plan to be binding?

A

75% of votes from each class of creditors

127
Q

What is the role of an administrator in administration?

A

To take control and help the company during financial difficulties

128
Q

What triggers receivership?

A

Appointment by a Qualifying Floating Charge Holder

129
Q

What is the overall purpose of liquidation?

A

To sell the company’s assets and pay creditors

130
Q

What is compulsory liquidation?

A

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.

131
Q

What are the two statutory grounds for compulsory liquidation?

A
  • The company is unable to pay its debts
  • It is just and equitable for the company to be wound up
132
Q

What is voluntary liquidation?

A

A process initiated by the company itself.

133
Q

What is a Members Voluntary Liquidation (MVL)?

A

A type of voluntary liquidation where members must be solvent and requires a Declaration of Solvency.

134
Q

What is a Creditors Voluntary Liquidation (CL)?

A

The most common form of liquidation where creditors must be insolvent.

135
Q

What is the risk for directors regarding the Declaration of Solvency?

A

Directors face prison or fines if they lie about the solvent state of the company.

136
Q

What is a winding up order?

A

An order that voids any charges or transactions made after the order is issued.

137
Q

What is the statutory order of priority upon liquidation?

A
  • Liquidators fees and expenses
  • Fixed charges
  • Other expenses from the liquidation
  • Preferential creditors
  • Floating charges
  • Unsecured creditors
  • Shareholders
138
Q

What are the first tier preferential creditors?

A
  • Employees (max £800)
  • Pension
  • Holidays
139
Q

What is an Individual Voluntary Arrangement (IVA)?

A

A proposal to create an adjusted timetable for an individual to pay debts to creditors, alternative to bankruptcy.

140
Q

What is the voting requirement for an IVA proposal?

A

Requires 75% by value of total debt owed to creditors.

141
Q

What is a Bankruptcy Order?

A

An order enabling the orderly collection, sale, and distribution of an insolvent individual’s assets for creditor benefit.

142
Q

What are the grounds for a Bankruptcy Order from creditors?

A
  • Unable to pay
  • Cannot meet a statutory demand in 21 days
  • Unsatisfied judgment
143
Q

Who can be a trustee in a bankruptcy?

A
  • Insolvency Practitioner
  • Official Receiver
144
Q

What is the automatic release period for a bankrupt individual?

A

Automatic release occurs after 1 year of the Bankruptcy Order unless varied by the court.

145
Q

What is the purpose of voidable transactions for individuals?

A

To increase assets available to creditors by challenging transactions declared voidable.

146
Q

What is a transaction at an undervalue?

A

A transaction where the consideration received is significantly less than what was paid by the bankrupt entity.

147
Q

What is the time limit to claim for transactions at an undervalue?

A

Claims can be made within 5 years of the transaction.

148
Q

What is wrongful trading?

A

A provision allowing claims against directors for continued trading when they knew there was no reasonable prospect of avoiding liquidation.

149
Q

What is the balance sheet test in wrongful trading?

A

A test to determine if the company was insolvent based on its financial statements.

150
Q

What are the remedies for fraudulent trading?

A

Contribution to Assets Order or any remedy at the court’s discretion.

151
Q

What is the purpose of voidable transactions for corporate directors?

A

To challenge transactions by directors that are declared voidable to increase assets available to creditors.

152
Q

What is the presumption of insolvency?

A

It arises when a transaction occurs with an associate of the bankrupt entity.

153
Q

What is a connected person in the context of corporate transactions?

A

A person associated with a director or the company, influencing the presumption of bad faith.

154
Q

What is the Good Faith defence in transactions at an undervalue?

A

A defence claiming the transaction was made in good faith to benefit the company’s business.

155
Q

What is the time limit to claim for preferences by a company?

A

Claims can be made within 6 months before insolvency proceedings or 2 years for connected transactions.

156
Q

What is the significance of a floating charge over a loan?

A

A floating charge can be voided if obtained by an unsecured creditor during the 12 months before insolvency.

157
Q

What are the defences against voiding a floating charge?

A
  • Valid Floating Charge defence
  • New money or fresh consideration provided to the company
158
Q

What is the role of the liquidator in bankruptcy?

A

To gather and distribute the bankruptcy estate and oversee creditor claims.

159
Q

What is the maximum amount for preferential creditors after 2020?

A

Up to £800,000.

160
Q

True or False: Fraudulent trading requires proof of insolvency.

A

False

161
Q

What is a Valid Floating Charge defence?

A

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.

162
Q

What type of transaction does a floating charge relate to?

A

Unsecured creditors.

163
Q

What happens if the claim regarding a floating charge is successful?

A

The floating charge is declared void, but the loan/debt itself remains valid.

164
Q

What occurs regarding overdrafts once the existing pre-charge debt is paid off?

A

Any existing overdraft is considered ‘new debt’.

165
Q

What does ‘Connected Person’ refer to in the context of floating charges?

A

It refers to individuals like sureties or guarantors, with a time extension of 2 years applicable.

166
Q

What is the significance of the ‘insolvency requirement’?

A

It must be evaluated at the time of the transaction or as a result of the transaction; the causation requirement must be met.

167
Q

What must be checked to determine the timing of insolvency?

A

The company accounts.

168
Q

What is one method of court procedure regarding floating charges?

A

Application to court.

169
Q

What is an out of court procedure related to floating charges?

A

Notice of Intention to Appoint.

170
Q

What is a process that can lead to the conclusion of a floating charge?

A

Liquidation – Winding Up Petition.

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