Business Flashcards
1
Q
What is the Personal Allowance for 2024/25?
A
£12,570 (Tax-free)
2
Q
What are the Basic, Higher, and Additional Rate bands for income tax in 2024/25?
A
Basic Rate Band: £12,570 to £37,700 @ 20%
Higher Rate Band: £37,701 to £125,140 @ 40%
Additional Rate Band: Remainder (over £125,140) @ 45%
3
Q
How do you calculate income tax for an individual?
A
Deduct the Personal Allowance (if available) = £12,570 (Tax-free)
Calculate tax due on the amount left using the rate rules
4
Q
What is the Dividend Allowance and how does dividend taxation work?
A
Dividend Allowance = £500 (Tax-free)
Calculate tax on the amount left based on income tax band:
* Basic Band = @8.75%
* Higher Band = @33.75%
* Additional Band = @39.35%
5
Q
What is the Annual Exempt Amount for Capital Gains Tax (CGT) in 2024/25?
A
£3,000 (Tax-free)
6
Q
When is CGT paid and what is it based on?
A
CGT is paid on the profit when you sell or dispose of an asset that’s increased in value
7
Q
How do you calculate CGT?
A
Deduct the Annual Exempt Amount = £3,000 (Tax-free)
Calculate tax due on the amount left based on income tax basic rate band
8
Q
What CGT rate applies for trustees and personal representatives as of April 2024?
A
The CGT rate for trustees and personal representatives has increased from 20% to 24%
9
Q
What is Roll-over Relief?
A
Allows defer tax on chargeable gain when selling a business asset if matched with a replacement within 3 years
10
Q
What is Hold-over Relief?
A
Chargeable gain is not taxed when giving away (or selling at undervalue) a business asset but is held over until disposal by the new owner
11
Q
What is Business Asset Disposal Relief (BADR)?
A
Reduces CGT payable by business owners to 10% up to a lifetime limit of £1 million under certain conditions
12
Q
What is Incorporation Relief?
A
Allows to defer CGT when transferring a business to a company in return for shares in the new company
13
Q
What are Share Exchanges?
A
When shares are exchanged for other shares, not treated as a disposal for CGT if conditions are met
14
Q
What is Investors’ Relief?
A
Allows reduced CGT rate of 10% on disposal up to a lifetime limit of £10 million for investors in unquoted trading companies
15
Q
What are Capital Allowances?
A
Enable a business to deduct costs of certain capital assets from profits before tax
16
Q
What is the Enterprise Investment Scheme (EIS)?
A
Allows defer CGT where gains are reinvested in eligible shares of unquoted trading company
17
Q
What are Sale/Gifts between Spouses/CPs?
A
Exempt from CGT but may incur tax if sold later
18
Q
What is the main Corporation Tax rate for profits over £250,000 in 2024/25?
A
25%
19
Q
You’re advising a client, Bright Minds Ltd, a small UK-based consultancy firm. They’ve recently expanded and had taxable profits of £120,000 in the last financial year. They ask:
“I thought corporation tax was 19%, but our accountant says we’ll be taxed more than that. Why?”
A
Corporation tax uses a tired system. For taxable profits up to 50k it is taxed at a rate of 19%. For profits over 250,000 it is 25%.
Since Bright Minds Ltd made £120,000, your company falls between those two thresholds. That means you’ll pay tax at a tapered rate, gradually moving toward 25%.
The government provides Marginal Relief, which slightly reduces your tax bill from the full 25%, but it’ll still be higher than 19%. So overall, you’ll likely pay an effective tax rate of around 22–23% on those profits.
This sliding scale helps smaller companies transition into the higher tax bracket without a sudden jump.”
20
Q
What is the Small Profits Rate for corporation tax?
A
19% (for profits up to £50,000)
21
Q
On what is Corporation Tax paid?
A
On profits and chargeable gains
22
Q
What are the deductibles for Corporation Tax?
A
Costs for running business such as salaries, interest, business expenses, and capital allowances
23
Q
What is the VAT registration threshold as of April 2024?
A
If a business’s taxable turnover exceeds £90,000 in a 12-month rolling period, it must register for VAT.
24
Q
What happens to trading losses in cases of ownership changes?
A
If ownership changes by 50% or more, trading losses can only be used if the company continues the same business activity.
Losses may be restricted or disallowed if the business changes its nature after the ownership change.
25
What is the Stamp Duty Tax rate on shares transfer?
0.5% (rounded up to the nearest £5)
26
What notice must be given to remove a director?
Special notice to the company AT LEAST 28 days before the GM
27
What must the company do upon receiving the special notice for director removal?
Send a copy of that special notice to the relevant director without delay
28
What are the two scenarios for convening a GM to vote on director removal?
Cooperative Board: The board supports the GM, and an ordinary resolution is passed by a simple majority to remove the director.
Uncooperative Board: Shareholders can force a GM by giving special notice, and an ordinary resolution is still used, but the shareholders may have to call the meeting themselves if the board refuses.
29
When must the GM take place when removing a director?
NO EARLIER THAN 28 days from the date the company received the special notice
30
How can members force a GM if the Board is uncooperative?
Members representing AT LEAST 5% of voting rights can request the Board to hold a GM
31
What support is needed for a resolution to remove a director?
More than 50% of members who are eligible to vote
32
What administrative matters must be handled after removing a director?
* Notify Companies House within 14 days
* Update Register of Directors
* Update Minute Books
33
What decisions can Directors make?
* Appointment of directors
* Removal of auditor
* Distribution of interim dividends
* Allotment of shares
* Change of address
* Registration of shares transfer
* Consent to call a general meeting on short notice
* Change accounting reference date
34
What decisions require Members' approval through an Ordinary Resolution?
A – Appoint directors
R – Remove directors (under s168 Companies Act 2006)
D – Declare final dividends
I – Issue shares (if authorized capital exists)
E – Elect auditors
S – Set director pay (in some setups)
* Political donations
35
What decisions require Members' approval through a Special Resolution?
Mnemonic for that? Try "SCARE":
S – Share structure change
C – Change company name
A – Alter articles
R – Re-register company type
E – End (wind up)
36
What is the eligibility requirement for Administration?
If the company is (or likely to become) unable to pay its debts
37
What are the two routes to Administration?
* Court Route
* Out-of-Court Route
38
What are the objectives of Administration in order of priority?
* To rescue the company
* To achieve a better result for the creditors as a whole
* To realise assets to distribute to secured or preferential creditors
39
What effects does Administration have?
No security can be enforced without administrator's consent or court permission
40
Who controls the company in Administration?
Administrator takes control of the company
41
How long does Administration last?
Automatically terminates after 1 year but can be extended
42
What effects does Administration have?
No security can be enforced without administrator's consent or court permission. Automatic statutory moratorium on other insolvency and legal proceedings.
43
Who controls the company in Administration?
Administrator takes control of the company.
44
How long does Administration last?
Automatically terminates after 1 year but can be extended by the court or with creditors' consent.
45
What must business docs/websites state when a company is in administration?
That the company is in administration.
46
What are potential outcomes of Administration?
Usually results in:
* Selling assets and distributing proceeds
* 'Rescue'
* Dissolution or liquidation
47
What are the advantages of Administration?
Assets are protected from creditor action and pressure during the moratorium. Gives space to consider long term solutions to its financial difficulties.
48
What are the disadvantages of Administration?
Potentially expensive, negative publicity, control given up to administrator, may adversely affect credit rating.
49
What is the eligibility requirement for a Company Voluntary Arrangement (CVA)?
No formal requirements; the company does not need to demonstrate insolvency.
50
What is the procedure for a CVA?
Directors draft proposals, appoint a nominee, submit proposals, and hold creditors' meeting for approval.
51
What is the voting requirement for a CVA to be approved?
75% of unsecured creditors (by debt value) must vote in favor, but cannot proceed if more than 50% of total value of unconnected creditors vote against.
52
What is the objective of a CVA?
To rescue the company by coming to a binding arrangement or compromise with its creditors.
53
What effect does a CVA have on creditors?
Proposals bind all creditors except secured and preferential creditors who disagree.
54
Who controls the company in a CVA?
Directors continue to run the company, but the CVA is overseen by the supervisor.
55
How long does a CVA last?
Depends on CVA terms; ends once terms have been implemented.
56
What are potential outcomes of a CVA?
Company may revert to its former position, result in restructuring plan, or supervisor may petition for winding-up or administration.
57
What are the advantages of a CVA?
Flexible arrangement, allows company to continue trading, less costly than administration, and less publicity.
58
What are the disadvantages of a CVA?
No automatic moratorium, may not bind secured creditors without consent, relatively high approval threshold needed.
59
Can rescue mechanisms like CVA and Administration be combined?
Yes, a company may enter into a CVA while in administration.It is possible to combine CVA with administration to benefit from the statutory moratorium.
Further, a company may enter into a CVA whilst in administration, which offers the possibility of coming out of administration and beginning to repay creditors
60
What decisions require Members' approval through an Ordinary Resolution?
Think of 'DULL DRAPES SCARF':
* Directors: Appointment, Removal
* Loans to directors
* Loss of office payments
* Ratification of director's breach
* Allotment of shares
* Pre-emption disapplication
* Earnings (Final Dividend)
* Shares Buyback
* Substantial property transaction
* Consolidate/Subdivide capital
* Auditor removal
61
What decisions require Members' approval through a Special Resolution?
Think of 'BAR CARC':
* Buyback from capital
* Alteration of share capital
* Reduction of share capital
* Change of name
* Amend Articles
* Re-register as public company
* Command board to act/refrain
62
What are the main business media in the UK?
Sole trader, company, partnership, and LLP
63
What is the first step in setting up a new private company limited by shares?
Submit the Application Form and pay the fees
64
What must the proposed name of a new company end with?
'Limited' or 'Ltd'
65
What document states that the subscribers wish to form a company?
Memorandum of association
66
What happens after the Registrar issues the certificate of incorporation?
A notice is placed in the London Gazette and the name is entered on the Index of Company Names
67
How long must members' resolutions and GM minutes be kept?
10 years
68
What is a PSC in the context of company registration?
Persons directly or indirectly holding more than 25% of shares or voting rights
69
Fill in the blank: A partnership may be formed by two or more persons starting to carry on 'a business in common with a view to _______.
a profit
70
What is required if a partnership carries on business under a name other than the surnames of its partners?
Certain trading disclosures must be made
71
What is the recommended document for a partnership but is optional?
Partnership Agreement
72
What is an LLP?
A hybrid between a traditional partnership and a company
73
What must an LLP's proposed name end with?
'LLP' or 'limited liability partnership'
74
What is the purpose of a holding company in a group structure?
To isolate or ringfence major assets from commercial risks
75
What must be kept in the statutory registers of an LLP?
* Register of PSC
* Register of Members
* Register of Members' Usual Residential Addresses
76
What is 'piercing the corporate veil'?
The legal effect of treating the subsidiary and its parent as one single entity
77
Who are the owners of a company?
Shareholders (also called 'Members')
78
What are the responsibilities of directors in a company?
Managing the company’s business and making beneficial decisions
79
True or False: An LLP has shareholders and directors.
False
80
What is a key consideration when setting up a group structure?
It requires more than one set of accounts and tax returns
81
What is the optional document that can be created for an LLP?
LLP Agreement
82
What are the statutory requirements for keeping registers in a company?
* Register of Members
* Register of People with Significant Control
* Register of Directors
* Register of Directors’ usual residential address
* Register of Secretaries
83
What must happen if there are changes to PSC information?
It must be updated within 14 days and notified to Companies House within a further 14 days
84
What is a statutory remedy against unfair prejudice?
A remedy to seek relief against unfair prejudice resulting from specific acts or omissions by the company or its general conduct.
85
What actions can challenge transactions before liquidation or administration?
Actions by or on behalf of the company to challenge transactions if there was wrongful or fraudulent trading or incorrect payments to creditors.
86
What is a breach of warranty of authority?
A claim by third parties against a director for acting without authority, leading to losses for the third party.
87
Are all directors responsible for a breach by one of them?
Yes, each director has shared responsibility for management and may be held accountable if they failed their duties.
88
What is Directors & Officers Insurance?
Insurance purchased by a company to cover its directors against liabilities relating to negligence, default, breach of duty, or breach of trust.
89
What are the limitations of Directors & Officers Insurance?
Does not cover fraud, deliberate dishonesty, or criminal fines.
90
What is indemnity for directors?
A company can indemnify its directors against liabilities to third parties, with certain exceptions like criminal liability.
91
What is ratification in the context of a director's breach?
A company can ratify acts by a director amounting to negligence or breach of duty by an Ordinary Resolution.
92
What is required for valid ratification?
Must be fully informed, not unfair to minority shareholders, not relate to fraudulent conduct, and be ratifiable.
93
What is court relief for directors?
A director may apply to the court for relief from liability if they acted honestly and reasonably.
94
What is the process for removing a director under s.168 CA?
A director can be removed by an Ordinary Resolution passed at a General Meeting.
95
What is the importance of special notice in removing a director?
A member must give special notice of their intention to propose the removal resolution at least 28 days before the General Meeting.
96
What happens if a director is removed but not replaced immediately?
A vacancy may be filled at any time, but the company must not be without a director.
97
What is the significance of Bushell v Faith provisions?
Check for enhanced voting rights on shares held by the director being removed, as they may affect the removal process.
98
What is unfair dismissal?
Applies to directors with employment contracts dismissed for unfair reasons or improper procedure.
99
What is wrongful dismissal?
A breach of contract where a director is terminated without adequate notice.
100
What is statutory redundancy pay?
Payment for employees whose roles are no longer needed, subject to strict requirements.
101
What is a discrimination claim in the context of director termination?
A claim if a director is terminated for reasons relating to protected characteristics like age or sex.
102
What does the Disqualification Act prohibit?
An undischarged bankrupt or person under a debt relief order from acting as a director.
103
What is the role of weighted voting rights?
Allows a director to have enhanced voting rights to protect against removal resolutions.
104
What is a Shareholders’ Agreement (SHA)?
An agreement stating that shareholders will not exercise their statutory rights to remove a director.
105
Fill in the blank: A director may apply to the court for _______ from liability.
[relief]
106
True or False: A director can be removed by a Written Resolution.
False
107
What must happen if a company amends its Articles?
A copy of the amended Articles must be sent to the registrar within 15 days.
108
What is a potential solution to defeat a Bushell v Faith article?
Pass a Special Resolution to amend the Articles conferring equally weighted voting rights
## Footnote
This requires sufficient votes from other members to remove the director.
109
What can a Shareholders’ Agreement (SHA) stipulate regarding the removal of a director?
Members will not exercise statutory rights to remove the director or vote against removal resolutions
## Footnote
SHA can also provide a power of veto to block appointments/removals.
110
True or False: A Shareholders’ Agreement can override the Articles or Companies Act.
False
## Footnote
SHA cannot prevent removal but can allow claims for breach of contract.
111
What is one way to entrench certain provisions of the Articles?
Add a provision requiring more restrictive conditions to amend or remove specified provisions
## Footnote
This may include higher thresholds for approval or unanimous consent.
112
What is the implication of amending the Model Articles regarding directors' qualifications?
Directors may be required to hold qualification shares, such as not less than 35%
## Footnote
This could affect director appointments and terminations.
113
What might a service contract over 2 years provide in the context of director removal?
Employment compensation which may discourage members from removing the director
## Footnote
This does not technically prevent removal but offers financial protection.
114
What right does a director have concerning the company's affairs?
The right to be informed and to inspect all books and records
## Footnote
This is crucial for transparency and accountability.
115
What happens if business is conducted at a Board Meeting (BM) with defective notice?
The business conducted may be held invalid
## Footnote
This applies even if some directors received notice.
116
What is required for a company with a SINGLE CLASS of shares to allot shares?
Directors have the power to allot shares without approvals from the members
## Footnote
Companies incorporated before Oct 2009 will still require an Ordinary Resolution unless the company specifically adopts the MA.
117
What must be included in an Ordinary Resolution for a company with MORE THAN ONE CLASS of shares to allot shares?
The resolution must state the max. number of shares that can be allotted and the expiry date of authority (not more than 5 years)
## Footnote
This applies if the proposed allotment creates a new class of shares.
118
What are the statutory exceptions to the need for member approval for share allotment?
Employees' share schemes
## Footnote
There may be other exceptions based on statutory provisions.
119
What should a company do if there are pre-emption rights in the Articles or an SHA?
Follow the relevant provisions
## Footnote
If there are no tailored pre-emption rights, statutory pre-emption (s.561) will apply.
120
Under what conditions does statutory pre-emption (s.561) apply?
1. Shares are ‘ordinary’
2. Consideration is fully in cash
3. Not excluded or disapplied
## Footnote
Ordinary shares include any shares not carrying a right to participate up to a specified amount in distribution & capital.
121
What options does a company have when pre-emption rights are applicable?
1. Offer the shares to existing members in proportion to their current shareholding
2. Each shareholder to sign a Letter of Waiver
3. Disapply pre-emption rights by a Special Resolution.
122
What is the first step in the procedures for allotting shares?
Hold a Board Meeting to resolve to allot the new shares
## Footnote
This must comply with any pre-emption rights if necessary.
123
What is required from shareholders when their approval is needed for share allotment?
Resolve to seek the members’ permission to allot the shares and/or disapply the pre-emption right.
124
What must be issued to the allottee after shares are allotted?
New share certificates within 2 months
## Footnote
Records must also be updated in the Register of Members and Register of Allotment.
125
What are some reasons a company may wish to reduce its share capital?
1. Return surplus capital to shareholders
2. Release liabilities on partly paid shares
3. Increase distributable reserves to pay dividends
4. Buy back its own shares.
126
What are the methods a company can use to reduce its capital?
1. Reducing number of shares
2. Reducing nominal value of shares
3. Reducing amount paid up on shares
4. Reducing statutory reserves.
127
What must a company do to reduce its share capital using a solvency statement?
Hold a board meeting to approve the proposed reduction and Directors' Solvency Statement
## Footnote
Directors must confirm no grounds for inability to pay debts.
128
What is required for a private company to buy back its own shares?
The Articles must not prohibit it, and shares must be fully paid up.
129
What are the financing options for a share buyback?
1. Distributable Profits
2. Proceeds of a Fresh Issue of shares
3. Permissible Capital
4. De Minimis Exemption.
130
What is the first step in the procedures to buy back shares in a private company?
Hold a Board Meeting to approve the proposed buyback.
131
What must be provided to members when seeking approval for a buyback agreement?
Circulate proposed resolutions and buyback agreement to all eligible members.
132
Can a shareholder whose shares are to be bought back vote on a Written Resolution?
No, such shareholder cannot vote
## Footnote
They are not considered an eligible member.
133
What is necessary for a buyback contract to be valid?
It must be approved by an Ordinary Resolution before it is entered into.
134
What must happen after the buyback agreement is executed?
The company must receive share certificates and complete the buyback process.
135
What is a share buyback?
A process where a company repurchases its shares from shareholders
136
When can a company implement a share buyback?
After the shareholder resolution is passed
137
What is the stamp duty rate for share buybacks over £1,000?
0.5%
138
What must happen to repurchased shares if purchased from capital?
They must be cancelled
139
What is required to be updated after a share buyback?
The company's balance sheet and Register of Members
140
What form must be submitted to HMRC after payment of stamp duty?
Form SH03
141
What is needed for a buyback out of capital?
A solvency statement and an auditor's report
142
How long must the buyback agreement be kept?
10 years
143
What type of resolution is needed to approve a buyback out of capital?
A Special Resolution
144
What is the maximum time frame for repurchasing shares after a Special Resolution is passed?
7 weeks
145
What must be published within 1 week of a Special Resolution for a buyback?
Gazette notice and notice to creditors
146
True or False: A partnership can have a separate legal personality.
False
147
What is the minimum number of partners required to form a general partnership?
2 partners
148
What governs the mutual rights and duties of partners in a partnership?
Partnership Act 1890 (PA) or a partnership agreement
149
What is the default rule regarding the sharing of profits in a partnership?
Partners share capital and profits equally
150
Fill in the blank: Partners are entitled to _______ by the firm for payments made in the ordinary conduct of the business.
indemnification
151
What is required for a partner to be expelled from the partnership?
Unanimous consent, unless otherwise agreed
152
What is the primary responsibility of a partner regarding partnership books?
Keep them at the principal place of business
153
What does the Partnership Act 1890 say about the obligation to devote time to the business?
There is no statutory obligation to spend time on the partnership business
154
What is the role of a partner in terms of binding the partnership?
Every partner is an agent of the firm for business purposes
155
What happens if a partner acts without authority?
The firm is not bound unless the third party knows of the lack of authority
156
What must be done if a partner makes unauthorized profits?
They must account for any benefit derived from partnership transactions
157
What is the rule regarding partners as agents of the firm?
Every partner is an agent of the firm and other partners for the purpose of the business.
158
Under what condition does a partner bind the firm?
A partner binds the firm unless he/she has no authority and the other party knows or believes he/she is not a partner.
159
What binds the firm and all partners according to section 6 PA?
Acts done and instruments executed in the firm-name by any person authorized to do so.
160
Can a partner bind the firm by pledging its credit?
No, unless he/she has specific authority for a purpose connected with the firm's ordinary business.
161
When does a restriction on authority bind third parties?
Only if third parties have notice of the restriction.
162
What is implied authority in the context of partners?
Every partner has implied authority to bind the firm in acts and contracts entered into in the ordinary course of business.
163
What are examples of acts that a partner can perform under implied authority?
* Hiring/firing staff
* Contracts with suppliers or customers
* Business loans or overdrafts
164
What limitations exist for a single partner to bind the firm?
The act must be for the purpose of the partnership, in the usual way of business, and related to the business of the firm.
165
What happens if a partner acts outside the normal business activities?
The act does not bind the firm or other partners unless expressly authorized or ratified by the partners.
166
What must happen for deeds to be executed in a partnership?
Deeds must be executed by all partners.
167
What are the two scenarios regarding a partner's authority?
* Scenario 1: Partner has actual authority → Act binds the firm.
* Scenario 2: Partner has no actual authority → Act does not bind the firm unless certain conditions apply.
168
What happens if a third party knows of a partner's lack of authority?
The act will not bind the firm and other partners.
169
Fill in the blank: A partner has ______ authority to execute deeds unless expressly authorized.
no implied
170
True or False: A partner can bind the firm for acts unrelated to the usual business without express authority.
False
171
What is apparent authority in the context of partnerships?
When partners hold out an individual as being authorized to act on behalf of the firm.
172
Give an example of an act that is not usually incidental to a firm's business.
Authorising a third party to use the firm’s name.
173
What can happen if a partner takes on a debt for private purposes?
The firm may be liable without specific authority.
174
What is the consequence if a third party does not believe they are dealing with a partner?
The act will not bind the firm and other partners.
175
Fill in the blank: A partner's authority may be limited by express authority in ______ agreements.
partnership
176
What is the liability of partners for debts and obligations under s.9 PA?
Partners are jointly personally liable for debts and obligations.
177
What does 'jointly and severally liable' mean in the context of partnership?
'Jointly and severally liable' means partners are responsible for the whole debt and can be sued individually or together.
178
Under what circumstances are partners jointly and severally liable for wrongful acts?
Partners are jointly and severally liable for wrongful acts or omissions in the ordinary course of business or with the authority of partners.
179
What happens if a partner misapplies money received from a third party?
The firm is liable if a partner misapplies money received from a third party while acting within their apparent authority.
180
What is the significance of a partnership not being a separate legal entity?
Each partner has unlimited liability for the firm’s debts and other obligations.
181
What is the liability of a new partner for debts incurred before joining the partnership?
A new partner is not liable for debts incurred before becoming a partner.
182
What happens to a retiring partner's liability for debts incurred before retirement?
A retiring partner remains liable for debts incurred before their retirement.
183
Under what condition is a retiring partner not liable for debts incurred after retirement?
A retiring partner is not liable for debts incurred after retirement if not represented as a partner.
184
What is the liability of a deceased partner's estate for partnership debts?
The estate is severally liable for obligations and debts incurred while the partner was alive, subject to prior payment of separate debts.
185
What is the rule regarding the use of partnership property under s.20 PA?
Partnership property must be used exclusively for the partnership.
186
What must a partner do if they benefit from unauthorized use of partnership property?
The partner must account for any benefit derived from the unauthorized use.
187
What is a partner's duty regarding competing businesses?
A partner must account for all profits made from a competing business without the consent of other partners.
188
What happens when a partner leaves a partnership without a fixed duration agreement?
Any partner may dissolve the partnership at any time by giving notice to all other partners.
189
What are the grounds for dissolution of a partnership under s.33 PA?
Dissolution can occur due to bankruptcy, death, or charge.
190
What is the effect of a partner's death on the partnership?
A partner's death automatically dissolves the partnership unless agreed otherwise.
191
What measures can protect a partner after leaving the partnership?
Measures include giving actual notice to creditors and publishing a notice in the London Gazette.
192
What is the order of distribution of partnership assets after dissolution?
1. Losses paid first, 2. Advances made by partners, 3. Remaining money divided as profits.
193
True or False: A retiring partner can be discharged from existing liabilities without agreement.
False
194
Fill in the blank: A partner who knowingly allows themselves to be represented as a partner may be liable as a partner to _______.
[third parties]
195
What is the significance of a partner's apparent authority in liability cases?
A partner acting within apparent authority can create liability for the firm through misapplication of funds.
196
What does s.29 PA state regarding partnership property?
A partner benefits from using partnership property without permission must account for any resulting benefits.
197
What is the legal consequence of unauthorized use of partnership property?
The firm can demand the return of items and the partner may be liable for profits made.
198
What is a 'technical' dissolution of a partnership?
A technical dissolution occurs when one partner leaves and a new partner joins, but the business continues.
199
What must be done to ensure a retiring partner is not liable for future debts?
Proper notice must be given to creditors and their name removed from all firm documents.
200
What restrictions can be placed on outgoing partners regarding competition?
Outgoing partners may be restricted from soliciting clients and competing with the firm, based on partnership agreements.
201
How are losses met among partners after dissolution?
Balance of losses outstanding is met by partners individually in proportion to their profit share.
202
What happens to advances made by partners after dissolution?
Advances made by partners are paid out before any remaining money is divided.
203
What is the priority of creditors in case of insolvency of a partnership?
Partnership's creditors have priority on partnership assets before the partner’s creditors.
204
What defines a company as insolvent?
A company is insolvent if its assets are insufficient to discharge its debts and liabilities.
205
What is an unsatisfied statutory demand?
A written demand served on the company that remains unsatisfied for 21 days.
206
What is cash-flow insolvency?
The company is unable to pay its debts as they fall due.
207
What is balance-sheet insolvency?
The company has liabilities in excess of its assets.
208
What must directors consider when insolvency is a possibility?
Directors must consider the interests of creditors, not shareholders.
209
What actions should directors take when facing potential insolvency?
* Keep creditors' interests in mind
* Pursue debtors aggressively
* Avoid taking more debts
* Seek professional advice
* Be alert to statutory demands
* Keep the Board updated
* Maintain full minutes and accounts.
210
What are the risks for directors of an insolvent company?
Directors may face disqualification proceedings and personal liability for wrongful trading.
211
What is wrongful trading?
Continuing to trade when the company is insolvent, leading to personal liability for losses.
212
Who can apply for claims against directors for wrongful trading?
Either the liquidator or administrator can apply.
213
What is fraudulent trading?
Carrying on business with intent to defraud creditors.
214
What is the priority order of debts in liquidation?
* Fixed charges holders
* Expenses of liquidation
* Preferential debts
* Floating charges holders
* Unsecured creditors
* Post-liquidation interest
* Shareholders.
215
What is a Creditors' Voluntary Liquidation (CVL)?
Voluntarily initiated by members passing a Special Resolution, controlled by creditors.
216
What is required for a statement of affairs in liquidation?
Must be prepared by the directors.
217
What are undervalue transactions?
Transferring an asset at an undervalue within 2 years before insolvency.
218
What defines a preference transaction?
Paying or granting preference to a creditor within 6 months before insolvency.
219
What is the purpose of a transaction defrauding creditors?
To put assets beyond the reach of claimants.
220
What is invalid floating charge?
A floating charge created only for prior consideration within 1 year before insolvency.
221
What are the alternatives to winding up a company?
* Enter into informal negotiations
* Rescue/reorganisation procedures
* Fixed Charge Receivership.
222
How are partnerships treated in insolvency?
Partnerships are treated as companies for insolvency purposes but cannot enter voluntary liquidation.
223
What can secured creditors initiate in a partnership?
Fixed charge receivership
## Footnote
Secured creditors have specific rights in insolvency situations, including the ability to initiate fixed charge receivership.
224
Can partnerships enter voluntary liquidation?
No
## Footnote
Partnerships have restrictions regarding voluntary liquidation due to their unique legal structure.
225
Is a partnership insolvent solely based on one partner being individually insolvent?
No
## Footnote
A partnership is not deemed insolvent if it can still pay its debts or its assets exceed liabilities.
226
What can creditors do regarding a partnership's debts?
Creditors can apply to:
* Wind up the partnership
* Make any partners bankrupt
* Both
## Footnote
Creditors have multiple avenues to pursue debt recovery from partnerships.
227
What is the liability of partners in a partnership?
Unlimited
## Footnote
Partners are personally liable for partnership debts, exposing their personal assets.
228
What is the process that starts when an individual applies for a bankruptcy order?
Application or petition for a bankruptcy order
## Footnote
This process can be initiated voluntarily or through a creditor's petition.
229
What must creditors prove to present a bankruptcy petition?
All of the following must apply:
* Debt of at least £5,000
* Unable to pay the debt
* Petition debt is unsecured
* No outstanding application to set aside a statutory demand
## Footnote
These conditions ensure that bankruptcy petitions are valid and enforceable.
230
What is the role of the trustee in bankruptcy (TIB)?
Manages the bankrupt's estate
## Footnote
The TIB is responsible for handling the assets and liabilities of the bankrupt individual.
231
What does the bankruptcy estate include?
Broadly, it includes:
* Property owned by the bankrupt
* Cash and deposits
* Shares or stock
* Things in action (like litigation)
## Footnote
The bankruptcy estate encompasses a wide range of assets and interests.
232
What items are excluded from the bankruptcy estate?
Bankruptcy estate does NOT include:
* Domestic and household items
* Tools of trade
* Property held in trust
* Approved pension schemes
* Certain personal claims
## Footnote
These exclusions protect essential personal items and certain rights from being seized.
233
How does a bankruptcy order affect the bankrupt's business?
Automatically dissolves partnerships
## Footnote
The bankruptcy order has significant implications for partnerships and their operations.
234
What happens to a bankrupt's income during bankruptcy?
It does not automatically form part of the bankruptcy estate
## Footnote
However, any surplus income may be claimed by the TIB.
235
What is the statutory order of payment in bankruptcy?
The order is:
1. Secured creditors
2. Bankruptcy costs
3. Preferential debts
4. Ordinary unsecured debts
5. Interest on debts
6. Debts to spouse or civil partner
7. Other postponed debts
## Footnote
This order dictates how available funds are distributed among creditors.
236
Can pre-bankruptcy transactions be challenged?
Yes, certain transactions can be challenged
## Footnote
This includes transactions that defraud creditors or are undervalued.
237
What is an Individual Voluntary Arrangement (IVA)?
A statutory arrangement between debtor and unsecured creditors
## Footnote
It allows debtors to restructure their debts while continuing to operate.
238
What are the two types of funding options in business finance?
Debt vs Equity
## Footnote
Each has different implications for control, return on investment, and risks.
239
What is the main difference in control between debt finance and equity finance?
Debt Finance: No control
Equity Finance: Voting rights
## Footnote
Investors in equity finance have a say in company decisions, unlike debt investors.
240
What is the tax treatment of debt finance?
Interest is deductible before taxation
## Footnote
This makes debt finance more tax-efficient compared to equity finance.
241
True or False: Preference shares carry full voting rights.
False
## Footnote
Preference shares typically have limited voting rights, making them less risky for existing shareholders.
242
What are preference shares generally viewed as by investors?
Safer than ordinary shares.
243
Why might companies offer preference shares instead of business loans?
To seek new investment without giving away control to new investors.
244
What should you consider regarding security and guarantee terms in debenture documents?
Check for personal guarantees and security charges on borrower assets.
245
What is a fixed charge?
A charge over specific assets that restricts their use and sale.
246
What is a floating charge?
A charge over a class of assets described generically, allowing flexibility.
247
What is the priority of distributions to creditors for fixed charge holders?
They get paid out of the proceeds of sale of charged assets before floating charge holders.
248
What is a mortgage in the context of security?
The highest form of security involving the transfer of title to the lender as collateral.
249
What happens during the crystallisation process?
A floating charge is converted into a fixed charge, restricting the chargor's ability to deal with assets.
250
What is the consequence of failing to register a charge within the specified time limit?
The security becomes void against liquidators, and the debt remains payable as unsecured.
251
What should be checked regarding repayment terms in debenture documents?
Repayment date, payment on-demand provision, and interest provisions.
252
What does the Profit and Loss Statement summarise?
Income, costs, and expenses incurred during a specified period.
253
What is another name for the Profit and Loss Statement?
Income Statement or Statement of income and expense.
254
What is a key feature of a fixed charge compared to a floating charge?
Fixed charges restrict the use and sale of assets, while floating charges allow flexibility.
255
Fill in the blank: A _______ is a charge over specific assets.
fixed charge.
256
True or False: A floating charge provides the lender with more control over specific assets than a fixed charge.
False.
257
What are the implications for a borrower if a charge becomes void?
Liabilities secured by the charge become immediately payable.
258
What must be checked regarding the authority of the person signing a contract?
Check if the person has the authority to enter the contract.
259
What is the role of enforcement provisions in debenture documents?
They outline when and how the lender can enforce its security.
