👔Business 1: Types of Business and Co incorporation Flashcards
How are priv cos different to public cos
Private cos cant open shares to public (only to person already connected with the company or certain other targeted individuals
Requirements to be registered as plc
- constitution must state is a plc
- words plc/abbrv/welsh equivalent must be inc. at end of name.
- owners must invest a specified allotted share capital of at least ‘authorised minimum’ for use by co. (currently £50k). Each allotted share must be paid up to at least a quarter of its nominal value, plus the whole of any premium on it
Formation requirements for sole trader
None
Formation requirements for general partnership
None if S1 Partnership Act 1890 met : ‘The relationship which subsists between two or more people carrying on a business in common with a view of profit’
Formation requirements for Limited partnership
Governed by Limited Partnerships Act 1907.
Must be registered with the registrar of companies
Formation requirements for limited liability partnership
File at CH:
* form LL IN01
* fee.
Registrar will issue a certif of incorporation (legally comes into existence on this date)
Formation requirements for private limited company
File at CH:
1. Form IN01
2. Memorandum of association
3. Articles if not using MA
4. Statement of compliance
5. Fee
Formation requirements for public limited companies.
File at CH:
1. Form IN01
2. Memorandum of association
3. Articles if not using MA
4. Statement of compliance
5. Fee
£50,000 is the minimum allotted share capital.
Which business types do/don’t have separate legal personality?
NO:
* Sole traders
* Partnerships
YES:
* LLPS
* Companies
Liability for sole traders
Unlimited liability
Personal and business assets all treated same fore legal purposes.
Liability for partnerships
- Unlimited liability
- Partners jointly and severally liable
- Personal assets at risk
Liability for limited partnerships
Must be at least 1 general partner who has unlimited liability for partnership debts.
Can have a limited partner whos liability is limited to the amount they initially invested in business, IF they don’t/cant:
1. Control/manage the LP
2 Make binding decisions on behalf of the LP
3.Remove their contribution to the LP for as long as it is in business
Liability for LLP
Limited to amount agreed
(May be liable to contribute under modified IA 1986 – e.g. wrongful trading)
Liability for private ltd co
SH limited to amount unpaid on shares (on insolvency, SH only have to contribute any unpaid amount on their shares)
SH/DirMay be liable to contribute if wrongdoing/breach of dir duty
Liability for public companies
SH limited to amount unpaid on shares (on insolvency, SH only have to contribute any unpaid amount on their shares)
SH/DirMay be liable to contribute if wrongdoing/breach of dir duty
Sharing of profits for partnerships/limited partnerships/ LLPS
Equal unless otherwise agreed
Sharing of profits for companies
- Shared amongst the shareholders (by way of dividend) in proportion to the number of shares they own
- Directors earn a wage, which is taken before profits are shared
Owners (Who and how many?) for a partnership
Partners
At least 2
Owners (Who and how many?) LLP
- Members
- At least 2.
- At least 2 must be designated members (who have certain additional administrative responsibilities)
Owners (Who and how many?) company
Shareholders
At least 1
What business structure must have a secretary
Public company
Accounting requirements/disclosure for sole trader
- None
- Only name and address for service must be disclosed
Accounting requirements/disclosure for partnership
- Accounts: Produced but not audited or published.
- Disclosure: Only names and address for service must be disclosed.
Accounting requirements/disclosure for LLPs
Audited and published accounts
(although might be abbreviated accounts and/or exempt from audit). Records at Companies House are open to public inspection.
Accounting requirements/disclosure for private companies
Audited and published accounts (although might be abbreviated accounts and/or exempt from audit). Records at Companies House are open to public inspection.
Accounting requirements/disclosure for private companies
Audited and published accounts
Records at Companies House are open to public inspection.
Which business structures can only grant fixed security?
Sole trader
Partnership
Which business structures can grant both fixed and floating security?
LLPs
Companies
Termination of sole traders business
at will
Termination of LLP
Application to the registrar for voluntary striking off, subject to various conditions such as a majority of the members signing the application.
Termination of company (2 ways)
- App to registrar (CH) to strike off the company if the co has not carried on any activity for three months (inactivity)
- Voluntary or compulsory liquidation.
Which business structures pay income tax?
- Sole traders
- Partnerships
- LLPs
(paid by individuals)
Which business structures pay corporation tax?
Companies
What is separate legal personality?
the company is a separate legal entity from those who control and run it so subject to legal rights/responsibilities
What is limited liability?
SH liability for co debts is limited to the amount of initial investment
When will the corporate veil be pierced?
Will ONLY piece where person:
1) under existing legal obligation/liability/restriction
2) AND use company to deliberately frustrate (dishonesty required).
3) Even then, ONLY to deprive the company/its controller of advantage they would have obtained by the Cos separate legal personality
AND theres no other remedy to achieve that purpose.
What factors determine what type of business is best for a client?
Liability of owners
Tax
Formalities/admin burden/costs
Publicity of info
Cost/funding
Status
Finance
Flexibility of ownership management
What is the memorandum of association
- Statement that the subscribers wish to form a company, agree to become SH and take at least 1 share each
- Must be signed by subscribers and in from set out in Companies (registration) Regs 2008
- Largely a formality and has little impact on the company
Form to send to CH to incorporate a company
IN01
What initial decisions are recorded in INO1?
Name
Principle business activity
Registered office
First directors
Directors residential and service addresses
Company secretary (if relevant)
First shareholder/s
Statement of capital (info about shares)
PSC register
What is the required ending for company names?
Private: Limited or Ltd (Wales: cyfngedig or cyf)
Public: plc or public limited company (Welsh: cwmni cyfyngedig cyhoeddus, or ccc)
What are 5 restrictions on company names?
Cant:
1. Not same as existing co
2. Cant constitute crim offence/be offensive
3. Approval of sec of state needed if:
a. suggests connection with gov dept/agency
b. certain sensitive words inc. ref to geographical areas/ regulated professions
4. Cant exceed 160 character inc. spaces
How to check co name isn’t already taken? (2 ways)
- Check CH name availability checker to see if name available.
- Check Intellectual Property Office to check not similar to an existing trademark.
How is a companies registered office changed?
- Board resolution
- File form AD01
How can a directors residential/service address be kept private?
Need to prove theres serious risk of violence, intimidation to director/fam member
Is there a max number of 1st shareholders?
No
What info on first shareholders must be recorded
- Name
- Address
- Details of shareholdings
What is the statement of capital in INO1
- No. of shares of each type the company has, and their total nominal value (aka. Companies share capital)
- Names and addresses of all shareholders
- Prescribed particulars (info abt rights of each type of share) inc:
◊ what share of dividends they receive;
◊ whether they can exchange (‘redeem’) their shares for money;
◊ whether they can vote on certain company matters
◊ how many votes their shares entitle them to.
3
Who is a PSC?
Holds:
>25% shares
>25% voting rights
Right to appoint/remove a majority of the board of directors of the company.
How are PSC indicated in IN01?
Applicant must tick the relevant box on the form to show that the person holds:
*more than 25% but not more than 50% of shares/ voting rights
*more than 50% but less than 75% of shares/ voting rights
*75% or more of shares/ voting rights
What are the articles of association?
Set the rules that company officers must follow when running their companies. They act as a form of internal rulebook and are part of the constitution of a company
What are the model articles
Standard articles a co. can use and will apply by default if a co doesn’t prescribe what its articles are.
Prescribed by the Companies (Model Articles) Regulations 2008
How can company articles be amended, inc admin requirements?
Special resolution
Within 15d of the amended articles taking effect, file at CH:
1. Copy of the amended articles
2. Copy of SR
Is it possible for a co to provide that its articles cannot be altered?
No but some articles may be ‘entrenched’. Ie. conditions imposed which make it more difficult (but not impossible) to alter (eg. unanimous decision of members)
When does a company come into existence
When the certificate of incorporation is issued
What must the certificate of incorporation state?
- Name/reg no. of company
- Date of incorporation
- If its ltd/unlimited company and if limited, whether by shares or guarantee
- Priv/public
- Whether registered office is in Eng, wales, scotland, NI?
What is a companies constituton formed of?
- Memorandum of association
- Articles of association
- Certificate of incorporation
- Current statement of capital
- Copies of any court orders
- Legislation altering the company’s constitution
- Shareholders’ resolutions affecting the Constitution
- Certain agreements involving shareholders.
How does a private company re register as a public company?
- Pass SR approving re registration of co (eg. changing name (eg. Adding plc) and amending articles)
- File for re-registration at CH:
Copy of SR
App for reregistration RR01 which inc. statement of compliance
Revised articles
Fee
Balance sheet, written auditors statement, valuation report on any shares which have been allotted for non- cash consideration between the date of the balance sheet and the passing of the special resolution. - CH issue certificate of re-registration on incorp as public company
What post incorporation steps must be done/what are the 1st board meeting decisions?
- Chairperson
- Bank account
- Co seal
- Accounting reference date
- Auditor
- Directors service contracts
- Tax, PAYE, NI, insurance
Post incorporation steps: how can a company seal be adopted?
Via board resolution
What is the accounting reference date and how can it be changed?
○ The date up to which it must prep annual accounts
○ Will be last day of the month in which the company was incorporated
○ To change:
Pass board res
File AA01
What must be done regarding Tax, PAYE, NI, insurance after incorporation?
○ CH notify HMRC wholl send a pack to registered office inc form to return initiating registration for corporation tax
○ Most businesses must register for VAT
What are SHs rights under the statutory contract created by a company’s constitution?
- Can sue any other member if his membership rights are infringed.
- Can bring an action against the company to enforce his rights under the constitution
Difference between nominal and market value of shares?
- Nominal (aka ‘at par’) value=original fixed value
- Market value=price share is currently traded on a stock exchange at, reflecting the value investors are willing to pay based on supply, demand, and market conditions.
Personnel requirements of an LLP
At least 2 members
At least 2 must be designated members (who have certain additional administrative responsibilities)
Are records at companies house open to public inspection?
Yes
