Business

Question 1

What is a partnership?

Answer 1

An unincorporated business- relationship between persons carrying on a business in the common view to making a profit

Question 2

What are the requirements?

Answer 2

Has to be at least two persons.

Actual Person is not specified - thus could be a company

No other requirements - whether it is exists is a question of fact and be can drawn upon a partnership agreement, or express words or implied conduct

Question 3

What is a partnership agreement and what the purpose of it?

Answer 3

A formal document setting out the terms of the partnership.

It is not required but the purpose of it is

• to set out and evidence the terms and relations between partners
• to put in place contrary terms from the default ones place by the Partnership Act
• Note liability between partners starts from the formation of partner under facts of law and then when a PA is entered into everything after that is governed by the PA

Question 4

What are the default terms from the PA?

Answer 4

Parties - parties to the agreement will be the partners, and there is to no new partners without consent of all partners

Commencement date -

Nature of the business - unanimity is required to change the nature of business

Duration - a partnership that runs after expiry date will be considered to be a partnership at will, otherwise it will be dissolved.

Capital - capital and losses should be shared equal and there is no default interest on capital

Income - PA does not require salaries to be paid

Partnership property - all property brought into the partnership on account of the firm or for its purpose and in the course of the partnership business belong to the firm.

Management - all partners are entitled to take part in management and all matters connected with a partnership may be decided by a majority.

Death, retirement and bankruptcy - partnership will dissolve

Expulsion - no majority can expel a partner

Question 5

What is a partnership at will and what is the consequence

Answer 5

Partnership at will is a partnership with no fixed end date.

A partner can leave at any time but will have to give notice. Notice can come in form (unless partnership was made by deed) but must be communicated. It can be immediate or at a later date.

Partnership will dissolve at the time specified at when the partner leaves, if the remaining partners wish to continue, they will do so under a new partnership.

Question 6

What are partners duties toward each other?

Answer 6

1. Duty to provide true accounts and full information on partnership agreements.
2. Duty to account for profits derived from position as a partner
3. Duty to account for profit derived from position in competing business.

Question 7

Will the partnership be liable for a partners act and when?

Answer 7

If a partner has entered into a transaction with either actual or apparent authority the partnership will be bound by the act.

If a partner has enter with apparent authority - the partnership will still be liable (unless third party knew) but the partner will be accountable to the partnership for any loss.

Question 8

How can you tell when a partner has acted with apparent authority?

Answer 8

1. The transaction is related to the business of the partnership
2. It can be expected to be usual for a partner to have authority to enter into the transaction
3. The partner does not know they dont have actual authority .

Question 9

Which partners are liable?

Answer 9

All partners are liable jointly and severally. Where the partnership can’t pay the debt, creditor can obtain it from any of the partners privates assets.

Question 10

Tell me about liability of partners for existing and future debts?

Answer 10

A partner is liable for debts incurred while they were a partner

A new partner is not liable for debts that were incurred before they joined

A retiring partner is not released for debts that were incurred whilst they were a partner unless there is a deed of release, deed agreement with a creditor or idemeity from continuing partners

A retiring partner is liable for future debts of partnership unless they give notice to third parties/creditors of their retirement. Actual notice - to former and current customers and constructive - to potential clients

Question 11

What’s the difference between unincorporated business and incorporated business?

Answer 11

unincorporated business - does not have its own separate legal entity - thus no distinction between the business and members - thus can sue both

incorporated business - has its own separate legal entity. There is a distinction between the business and its memebers - thus can only sue the business.

Question 12

What are examples of an unincorporated business

Answer 12

• sole traders
• traditional partnerships

Question 13

What types of businesses are incorporated business?

Answer 13

Companies

Limited liability partnerships

Question 14

What does limited liability mean and what can it be limited by?

Answer 14

Limited liability means that members have a limit on liability to contribute to the company’s debts.

Limited by shares - lability of members are limited by any amount unpaid on their shares.

Limited by guarantee - liability of members of any amount they promised to pay in the event the company is wound up.

Question 15

What are the differences between private company and a public company

Answer 15

Question 16

What are two ways you can help a client obtain a company?

Answer 16

• incorporate a company
• give them a shelf company

Question 17

How do you incorporate a business?

Answer 17

For a new company to be incorporated, the following must be send to company house

• form IN01 (application to register business)
• memorandum of association.
• Articles of association.
• the requisite fee

Question 18

What are articles of association and what the difference between it and model articles?

Answer 18

Articles of association - the contract (internal rule book) between 1) shareholders and the company, and 2) shareholder and other shareholders.

The model articles - are a standard set of articles for different companies set out in statue.

A company may chose to adopt the whole or part of the model articles or have their own bespoke articles. The model articles will automatically apply unless excluded or modified in company articles.

Question 19

What is the procedure to change a company articles?

Answer 19

• a special resolution
• a copy of the special resolution and the amended articles must be filed on companies act within 15 days.

Question 20

What is a special resolution?

Answer 20

Needs 75% or more of shareholder votes

Question 21

What is a Person with significant control

Answer 21

Has either

• more than 25% in share
• more than 25% in voting rights
• can appoint or remove the majority of the board

Question 22

What is a memorandum of association

Answer 22

A statement of intention of the subscribers to form a company and become shareholders , taking at least one share each.

Question 23

What will the default accounting period be for a company

Answer 23

• the last day of the month they incorporated.

Question 24

What is a board meeting and what is a general meeting?

Answer 24

Board meetings - meetings of directors who pass board resolutions to make decisions.

General meetings - meets with shareholders who pass ordinary resolution and special resolution to make decisions..

Question 25

What is the process of when an act/decision needs a special or ordinary resolution?

Answer 25

Question 26

What are some key provisions of a Board meeting

Answer 26

• any director or company secretary may call a Board meeting
• all directors must be given reasonable notice.
• directors can waive rights of notice
• a new meeting can be demanded if no notice is given
• quorum (maximum people that need to be on attendance) is 2
• voting - show of hands or oral assent, chairman casting vote in case of deadlock and conflict of interest rules apply
• Resolutions and majority - simple majority required
• minutes of BM must be kept for at least 10 years

Question 27

What is ordinary resolution?

Answer 27

Simple majority: Needs more than 50% of shareholder votes.

Question 28

What are some key provisions of a general meeting?

Answer 28

• directors can call a GM OR shareholders with 5% of paid up share capital
• written or electronic notice to be given to all directors and member within 14 clear days (dont include date of meeting and date of service - 16 days) (add extra two days is service is email or post - 18)
• short notice can be given if approved by majority (if there is 10, then 6) of members hold 90% in voting rights
• quorum - 2
  Voting - show of hands one vote per member, poll one vote per a share. Poll vote can only be demanded by any who holds more than 10%, or chairperson, or at least 2 voting members.
• minutes to be kept for min 10 years

Question 29

When must accounts be published and who is excempt

Answer 29

• every financial year -
• small companies are except - they are 2 or more of the following
• turner over not more than 10.2m
• balance sheet not more than 5.1m
• not more than 50 employees

Small companies - no later than 9 months of the accounting period.
Public companies - no later than 6 months of the accounting period

Question 30

Confirmation statement - what is it and when must it be published?

Answer 30

• a confirmation tha all the information required to be delivered to company house has been duly filed and provides any changes
• every year within 14 days of anniversary of date of incorporation.

Question 31

What are the procedural and administrative requirements for changing company name

Answer 31

Question 32

What are the procedural and administrative requirements for change of trading name

Answer 32

Question 33

What are the procedural and administrative requirements for change of registered office

Answer 33

Question 34

What are the procedural and administrative requirements for change of articles

Answer 34

Question 35

What are the procedural and administrative requirements for appointing chairperson

Answer 35

Question 36

What are the procedural and administrative requirements for change of accounting period?

Answer 36

Question 37

What is a shadow director and what is a de facto director?

Answer 37

A person who is not properly appointed as director but exercises major influence on the director - the directors are accustomed to act according to their instruction

De facto director - someone is not properly appointed as director but acts in the role as director.

Question 38

How many directors do these company need?

Answer 38

• private - 1
• public - 2

Question 39

Who can be a director

Answer 39

A company can be a director, but there has to be at least one human director.

Anyone over 16, who is not
- disqualified
- bankrupt
- mentally or physically incapable

Question 40

What’s the difference between executive director and non executive director and how are they appointed.

Answer 40

Non executive director
- a person who holds office of director but do not work for the company is a paid position yet will be entitled to fees for duty performed
- can be done by BM or GM

Executive director - hold office of director and works in a paid position at the company
- can be done by BM

Question 41

What is a board resolution?

Answer 41

Resolution passed at Board meeting of directors - simple majority: more than 50%

Question 42

Discuss minority shareholders protection - what are their rights?

Answer 42

1. Petition for unfairly prejudice conduct
2. Derivative order on the behalf of the company
3. Petition to wind up the company

Question 43

What is the 5 step procedure for issuing shares?

Answer 43

1. Check if there is a cap on the number of shares that can be issued in the articles.
2. Check whether directors has authority to allot share.
   
   • has authority - unamended articles and only class of share before and after issue.
     Otherwise
   • pre 2009 - check mendorum and OR to change
   • post 2009 - check articles and SR to change
3. Disapply any preemption rights - existing members right to refusal for 14 days.
   
   • waived by members
   • disapplied by Special resolution
   • restricted on companies articles
4. New class rights to be created for the shares
5. Pass a board resolution

Question 44

Discuss financial assistance

Answer 44

A company can’t provide financial assistance for the purchases of its own shares
- if they are a public company
- and private company offering assistance for the purchase of shares in a public holding company.

Exceptions
- not for that purpose and is incidental in a larger purpose
- dividends payment is unconditionally excempt
- assistance in employee share scheme and ordinary course of business - conditional on that 1. the company giving assistance is a private company or 2. It’s a public company where their net assets are not reduced by giving the assistance or assistance is not given out of distributable funds.

Penalties - fine or up 2 years imprisonment

Question 45

Individuals - How do you calculate income tax?

Answer 45

1. Calculate total income
2. Deduct allowable reliefs = net income
3. Deduct personal allowance = taxable income
4. Calculate the tax of each source of income
5. Add them together

Question 46

What is a fixed change?

Answer 46

A fixed charge is charge taken over a particular asset. The consent of the lender is needed in order to deal with the asset.

Question 47

What is a floating charge?

Answer 47

A fixed charge is charge taken over a particular asset. The consent of the lender is not needed to deal with the asset until crystallisation.

Question 48

What is the statutory order for priority?

Answer 48

1. Liquidators fees and expenses for preserving and realising assets subject to fixed charge.
2. Fixed charge creditors out of sale proceeds from fixed charge asset.
3. Other costs and expenses of the liquidator
4. Preferential creditors (1. Employees 2.PAYE 3. HMRC)
5. Creation of the prescribed part fund
6. Floating charge
7. Unsecured creditors (including payment of the prescribed fund) - Paid in proportion.
8. Interest owed to unsecured creditors
9. Shareholders

Question 49

Name me all of the directors duties

Answer 49

1. To act in the company’s constitution (articles) and to exercise their powers for proper purpose
2. To promote the success of the company
3. To exercise independent judgement
4. To exercise reasonable care, skill and diligence
5. To avoid third party interest
6. Not to accept benefits from third party
7. To declare any interest in proposed transaction

Question 50

When a directors personally liable for breaching their director’s duties?

Answer 50

1. When they gave a personal guarantee
2. When they are liable for
   A. Wrongful trading
   B. Fraudulent trading
   C. Misfeasance

Question 51

Directors powers: where can you find them and how can they later be restricted?

Answer 51

Can find them in the company’s articles

Can be restricted by special resolution

Question 52

In what ways does the Companies Act restrict the directors powers?

Answer 52

1. Director’s service contracts longer than 2 years
2. Substantial property transaction
3. Loans to directors of more than 10k
4. Payments to directors for loss of office for £200 or more

All of these need to be approved by ordinary resolution

Question 53

Breakdown substantial property transactions

Answer 53

Substantial property transaction involves the acquisition or disposal of an asset where:
- the parties involved is a director or connected to a director.
Connected:
A. Family - not siblings, aunts/uncles, or grandparent.
B. Corporate bodied - directors or connected to the director who own 20% or more voting right
- the asset
A. is not 5k or less,
B. More than 100k or 10% of the company’s net asset value

Question 54

What is the procedure for shareholders to remove a director by Ordinary resolution?

Answer 54

1. Special notice (28 day notice) must be given to the company regarding the proposed resolution.
2. Director concerned may excessive their right to make representations arguing against the removal (in writing or at the meeting itself)
3. The company must then serve notice at the General meeting
4. The members may need to requisition the GM if the board is uncooperative

Make sure to check
- removal of a director is without prejudice to any right to compensation, that they might have. Check the service contract to see any potential contractual liability.
- company’s articles for Bushell v Faith clause - weighted voting rights for any proposal to remove them
- shareholders agreements - to see how votes are divided

Question 55

What does the company need to do after a direct resigns or is removed?

Answer 55

• update register of directors (if there is one)
• file form TMO1 (individual directors) or TMO2 (corporate directors) to company’s house in 14 days

Question 56

Who can disqualify a director, on what grounds and for how long?

Answer 56

Who - the court

How long - 2 - 15 years

Grounds
1. Conviction of indictable offence
2. Persistent breaches of companies legislation
3. Fraud in winding up
4. Summary conviction for failing to comply with company’s legislation
5. Wrongful or fraudulent trading
6. Being an unfit director of an insolvent company

Question 57

Give examples of Shareholders powers

Answer 57

1. Receive a share certificate
2. Receive notice of GMs, Vote at GMs , appoint a proxy
3. Receive a company of the company’s annual accounts
4. Inspect minutes of the GMs, the company books and directors service contracts
5. Receive dividends where payables and declared
6. Request the court to hold Gm
7. Bring widening up proceedings
8. Claim minority shareholder protection

Question 58

Give a summary of shareholders rights

Answer 58

Question 59

Who is a minority shareholder and who is a majority shareholder

Answer 59

Majority shareholder - individually holds more than 50%
Minority shareholder - individually hold 50% or less

Question 60

Breakdown derivative claims

Answer 60

1. Who brings it? Member of the company
2. On the behalf of? The company
3. On what grounds? Breach of duty
4. Against who? The director who breached
5. Two part test?
   1. Prima facie case - must get permission to court to carry on the case - will be granted if it the claim can be seen to be in the best interests of the company
   2. Court will then have particular regard to any evidence it has before it

Question 61

Breakdown petition to unfair prejudice

Answer 61

Unfair prejudice petition - allows a member to bring a petition to court on the grounds that the company is being run in such a way that they suffered or will suffer unfair prejudice.

Most likely remedy is purchase of petitioners shares by the wrongdoers on most likely valuation of the date of the court order

Question 62

Breakdown widening up on just and equitable grounds

Answer 62

Petition to the court to wound up the company because it is just and equitable to do so

Question 63

What are the ways a company can raise funds
?

Answer 63

Equity finance is the issuing of shares in exchange for consideration. Helps the company raise funds and assets for the company.

Debt finance - borrow money on an secured on unsecured loan to finance the company.

Question 64

How is it decided whether shareholders should be paid dividends?

Answer 64

1. Check whether there is ‘profits available for purpose’ = accumulated realised profits to date (net profits to date) - accumulated realised loss to date
2. Check company’s articles on how and when a dividend should be paid
3. Directors decide whether a dividend ought to be recommend and make a recommendation at the general meeting
4. Members vote by Ordinary resolution to pay themselves

Question 65

What is buyback of shares and what is the restriction on it?

Answer 65

Buyback of shares is a company buying back their shares from a memeber and thus cancelling them.

Capital of maintenance restricts this practice - as it requires the funds provided by shareholders to be maintained and not given back to shareholders as creditors rely on it.

Question 66

Breakdown buyback from profits

Answer 66

A buyback of share being brought by distributable profits (dividends pot).

1. Check the shares are fully paid
2. Check article do not prohibit buyback of shares
3. Check whether this align with - promoting the success of the company and exercising reasonable care, skill and diligence
4. Check their are distributable profits
5. OR to approve contact of sale, copy of the contract to be available 15 days before GM and at GM
6. Payment to made at buyback
7. File forms SHO2 and SHO3 within 28 days, update registers of members and PSC register, file relevant PSC forms.
8. Make contract available for inspection for 10 years

Question 67

Breakdown Buyback of share by capital

Answer 67

A buyback of share being brought by capital is only allowed when there is no distributable profits (dividends pot).

1. Check the shares are fully paid
2. Check article do not prohibit buyback of shares
3. Check whether this align with - promoting the success of the company and exercising reasonable care, skill and diligence
4. Check their are distributable profits no more than 3 months of statement of solvency.
5. No earlier than one week of meeting, the company should make a statement of solvency declaring they would be solvent for at least a year, accompanied by auditors report confirming this is not unreasonable.
6. OR to approve contact of sale and SR to approve buyback of capital, copy of the contract SOS and auditor report to be available 15 days before GM and at GM
7. Notice to be made at Gazzette or national newspaper, or to each creditors specifically, to be informed where copies of SOS and report can be found and 5 weeks to stop it. Copies should be filed before or at the same time to companies house.
8. Copies of SOS and report should be made available 5 weeks after the SR
9. Payment for share can be no earlier than 5 and no later than 7 week after passing of SR
10. File forms SHO2 and SHO6 within 28 days, update registers of members and PSC register, file relevant PSC forms.
11. Make contract available for inspection for 10 years

Question 68

How do you know whether a business has the power to borrow and grant securities?

Answer 68

Partnership - check the partnership agreement

Companies
Unamended articles - Can barrow and grant securities by BR
Mended articles - pre oct 2009 - OR to change, or post oct 2009 SP to change

Question 69

What is crystallisation?

Answer 69

When a floating charge fixates over a charge - due to insolvency or any other term specified e.g. default in payment

Question 70

What is a debenture?

Answer 70

Document which gives security in the form of a floating charge and sometime both floating and fixed.

Remedies include:
- suing the company as creditor
-petition on widening up
- utilise any powers given by the debenture document.

Question 71

What is the difference between a charge and a mortgage?

Answer 71

A mortgage is the highest form of security as it transfers the legal title of the assets into the lenders name and then back to the borrower after the debt is staffed. This give it the immediate right to possession.

A charge provided an interest in the property not legal title

Question 72

How do you register a charge?

Answer 72

Send the following to companies house within 21 days of charge creation
- Form MRO1
- Certified copy of the charge document
- Relevant fee

Question 73

What are the consequences for failing to register a charge?

Answer 73

It is void against any administrator, liquidator, and creditor of the company.
The debt will still be payable immediately but from the unsecured creditors fund.

Question 74

What is profit and loss account and how is it calculated?

Answer 74

Profit and loss account tells you whether the business has made a profit or loss in the relevant period.

Basic formula - income - costs = net profit.

Income - includes sales, rent, interest
Expenses includes, wages, utilities, rent, insurance, etc.

Question 75

Breakdown the balance sheet for unincorporated business (sole trader)

Answer 75

Has two halves:

1. Value of the business at a particular time (Assets - liabilities = value
   A. current asset - current liabilities = Net current Assets
   B. Total assets - total liabilities = Net assets
2. What is owed to the owner at that particular time (Capital + net profit (from profit and loss account) - drawing)

Note - capital is what was invested into the company by owners

Question 76

What are the main types of adjustments to a balance sheet?

Answer 76

1. Prepayments (Deducted as an expense in Profit and loss account and added as a current asset in the balance sheet)
2. Accruals (deducted from income in profit and loss account and no entry in the balance sheet)
3. Depreciation - decrease of asset value (current year depreciation is added as an expense in profit and loss account, and accumulated depreciation is deducted from the value of the asset in the balance sheet)
4. Bad debts - (added as an expense in the profit and loss account and deducted for debtor figure in the balance sheet)
5. doubtful debts- (added as an expense in the profit and loss account and deducted for debtor figure in an separate entry)

Question 77

Balance sheet for partnerships

Answer 77

Has two halves:

1. Value of the business at a particular time (Assets - liabilities = value)
   A. current asset - current liabilities = Net current Assets
   B. Total assets - total liabilities = Net assets
2. Capital account and current account for each partner
   Capital account - amount invested by the partner
   Current account - the partners share of the business (opening balance + net profit share - drawing)

Note - capital is what was invested into the company by owners

Question 78

Profit and loss account differences for partnerships

Answer 78

At the bottom of the account they have an appropriation account - divisions of profits between partners.

1. Salaries
2. Interest on capital
3. Anything else = profit

Question 79

What accounts do corporated companies keep

Answer 79

Profit and loss account
Share capital account - funds contributed by shareholders in exchange at nominal value
Share premium account - funds contributed by shareholders in exchange over nominal value
Balance sheet

Question 80

What does the corporated company balance sheet look like?

Answer 80

Has two halves:

1. Value of the business at a particular time (Assets - liabilities = value
   A. current asset - current liabilities = Net current Assets
   B. Total assets - total liabilities = Net assets
2. Capital reserves and revenue reserves
   Capital reserves - funds by shareholders that cannot be distributed when solvent due to maintenance of capital
   Revenue reserves - distributable funds - profit and loss reserves (profit - tax and dividends)

Question 81

When does individual insolvency occur?

Answer 81

When an individual is insolvent and has inability to pay

An individual may be insolvent when
- a debt is immediately payable or in the near future
- is unable to pay it or has no reasonable prospects of paying it.

Inability to pay can be shown in 2 ways:
1. A statutory demand has been served for a liquidated and secured sum of 5k or more and three weeks have passed without reasonable prospect of paying it
2. Attempt of judgment debt enforcement of at least 5k has been unsuccessful

Question 82

Explain the bankruptcy process

Answer 82

1. Creditor application (sum of 5k or more) or debtor application
2. Bankruptcy order made with 28 days
3. Official receiver appointed by the court take control of the bankrupt’s assets and acts as trustee in bankruptcy - they have wide powers to realise assets and void old transactions.
4. Assets are sold to create funds or income payment agreement is made (contributions to funds for creditors from salary)

Question 83

What transactions will the trustee in bankruptcy investigate

Answer 83

1. Disclaiming onerous property - assets that drain on resources. Anyone harm because of this i.e. landlord of a lease can claim as an unsecured creditor.
2. Transaction at undervalue
3. Preferences
4. Transactions defrauding creditors - an undervalue transaction intended to put the assets beyond the reach of a creditor - there is no time limit on this - so people use this when they can’t use transaction at an undervalue
5. extortionate credit transactions - in the last 3 years from relevant date - that grossly contravenes ordinary fair dealings

Question 84

Breakdown translation at an undervalue

Answer 84

A gift or sale at a lower cost than the value of the asset.

Trustee in bankruptcy can set aside any undervalue transaction from

• 2 years from the relevant date with no further conditions
• 5 years from the relevant date if the individual can be proven to be insolvent at the time.
  
  • there is a rebuttable presumption that the individual was insolvent at the time if the undervalue was to a connected person. (Family, business partners, employees and employers)

Question 85

Breakdown preferences (past transactions)

Answer 85

An arrangement that places a creditor or guarantor in a better position than they would of otherwise been in, in the event of insolvency.

A desire to prefer a particular creditor must be shown. Desire is presumed if it a connected person - rebuttable

Can be set aside
Up to 6 months from relevant date
Up to 2 years from relevant date if to a connected person.

Question 86

Lists the order of distribution - bankrupt individual

Answer 86

1.secured creditor
2. Bankrupt fees
3. Prefectural debts (1. Employees 2. HMRC) - proportionate sum of what is left
4. Unsecured creditors - proportionate sum of what is left
5. Postpone creditors

Question 87

What restrictions are there for bankrupt individuals

Answer 87

• cannot be a director
• must disclose when obtaining credit
• must disclose bankruptcy if trading under another name
• cannot be a partner
• cannot be involved with company management without leave front the court
• they require leave from the SRA to practice

Question 88

What alternatives are there from individual bankruptcy

Answer 88

1. Individual voluntary agreements - A binding agreement between parties. A nominee is appointed to oversee it. Statement of affairs must be produced. 75% in value (50% not being connected persons) must agree IVA.
2. DRO - online application to write off debts, unsecured debt cannot exceed 30k, cannot have a disposal income of £75 a month, a car worth more than 2k and gross assets 2k
3. Debt respite scheme - breathing space for 60 days and extra 30 days for any treatment period

Question 89

When is a company insolvent

Answer 89

Inability to pay

1. statutory demand of 750 or more unpaid after 21 days
2. Judgment order was made but unsatisfied
3. Company unable to pay debts as they fall due
4. Companies liabilities are more than their assets

Question 90

Breakdown liquidation

Answer 90

Compuory liquidation
1. Creditor makes petition for winding up by proving inability to pay
2. Company may dispute it - if they pay it or can pay it - court will adjourn
3. Otherwise, court will issue winding up.

Creditors voluntary liquidations
1. Application made by the company to wind up after special resolution.

Members voluntary liquidation
1. Made by a SOLVENT COMPANY because of restructuring or company no longer needed after a special resolution.

Question 91

What effect does liquidation have?

Answer 91

Liquidator takes over company
Directors powers cease
Liquidator can investigate and set asset past transaction.
After final accounts and liquidators release, company is dissolved

Question 92

What past transaction can be set aside when a company is being liquidated?

Answer 92

1. Floating charges
   
   • can be set aside 12 months before insolvency (need to prove insolvency) or 2 years if connected person
2. Transaction of an undervalue
   
   • can be set aside from 2 years of insolvency if it can be proved that they were insolvent at the time.
   • insolvency is presumed (rebuttable) if connected person
   • defence - made in good faith to benefit and continue the business.
3. Preferences
   
   • 6 months from insolvency - insolvency and desire to prefer must be proven.
   • 2 years from insolvency - connected person, insolvency and desire to prefer must be proven
     *desire to prefer is presumed if connected person.
4. Extortionate credit transactions.
5. Defrauding creditors.

Question 93

What are the alternatives to liquidation?

Answer 93

Administration - appointing an administrator to save or sell the company but ultimately acting in the interests of the creditors and receive a better result than widening up

CVA - binding agreement between parties. A nominee is appointed to oversee it. Statement of affairs must be produced. 75% in value creditors (50% not being connected persons) must agree IVA.

Corporate insolvency and governance act - 20 business day breathing space and restructuring plan. Plan must be approved by 75% in value creditors (50% not being connected persons).

Secured creditors appointing LPA receiver or administrator receiver - when power is given in charge document.

Question 94

What sources of income are not taxable?

Answer 94

Child benefit
Interest paid on national savings certificate, or ISA or damages for personal injury and death

Question 95

Individuals income tax - deductible reliefs

Answer 95

A loan to buy shares in a partnership
A Loan to invest in a close trading company

Question 96

Income tax - personal allowances

Answer 96

Individual can earn up to 12,570 without being taxed
Reduced by 50% if income is over 100k (net income - 100k/2)
Marriage allowance of £1260 of undued personal allowance
Property and trading - 1k each allowance

Question 97

What will taxable incomes for income tax tell you?

Answer 97

What taxpayer band they are in.

Basic rate - does not exceed 33.7k
Higher rate - 33.k - 150k
Additional rate - exceed 150k

Question 98

Income tax - what order shall streams of income be calculated

Answer 98

1. Non-saving and dividends income
2. Savings
3. Dividends

Question 99

How is capital gains tax calculated?

Answer 99

1) Disposable value - (acquisition cost + allowable expenditure) = Basic gain
allowable expenditure is solicitor and surveyor fees and expenditure of property to increase value
2) Basic gain - (reliefs and exceptions) - chargeable gain
3) Chargeable gain x appropriate charge rate

Question 100

Capital gain tax - reliefs and exceptions

Answer 100

Annual exceptions - £12,300
Business asset disposal relief
Handover relief
Roll over relief on business assets - postponed till replacement is sold
Deferral relief on enterprise investment scheme shares - postponed till replacement is sold
Investors relief - on disposal of shares in unlisted company that was fully paid and held for 3 year after 2016 - 10% rate for 1st million
Roll over relief on incorporation of a business - postponed until incorporated

Question 101

Breakdown business asset disposal relief

Answer 101

1, the sale of whole or part of a sole trader or partnership buisness if it has been longer than 2 years
2. The sale or gift of shares of a trading company of 5% or more voting rights, they are employee of the business and these conditions have been present for 2 years
3. The sale or gift of assets used by trading company but owned individually

1st million is taxed at 10% and the rest at the appropriate rate

Question 102

Breakdown handover relief

Question 103

Explain the types of VAT

Answer 103

Standard rated - 20%
Reduced rated - 5% on domestic heating and power, installation of mobility aids for the elderly, smoking cessation products and child seats.
Zero rated - 0% on food, sewage, water, books, newspapers, talking books for the blind, new houses and the construction of new houses, public transport and children clothing. These business can recover any VAT suffered in their inputs.
Exempt - supplies that are except are insurance, finance, education , health services, sale of land and buildings (unless a commercial building or the seller of commercial building has waived the right)

Question 104

How do you calculate corporation tax?

Answer 104

1. Calculate income profits = chargeable receipts - deductible expenses and allowances
2. Calculate chargeable gain
   
   • Indexation allowance may be added here -
3. Add together income profits and chargeable gain
4. Apply reliefs
5. Calculate tax

Question 105

Corporation tax - reliefs

Answer 105

1. Carry across or carry back
   Carry across: set trading losses against total profits for the same accounting year
   Carry back: if not fully absorbed, set trading loss against total profits of the last 12 months of the account period
   Time limit - 2 years from loss making account period
2. Terminal carry back for trading loss
   Allows you to carry back any trading losses that occurred in the final 12 months and set them against profits made in any or all of the 3 years up to the period when you made the loss.
   Time limit - 2 years from loss making account period
3. Carry forward
   set trading losses against total profits for the next accounting year and subsequent accounting period until loss is absorbed.

Question 106

How do you calculate the minimum you need to pay for shares?

Answer 106

25% of Nominal value + one whole of premium = minimum to pay

Issue price - nominal value = premium