Business - Full Deck Flashcards
What constitutes a partnership?
Persons (humans or legal entities) carrying on a business in common with the intention of making a profit, regardless of actual profit. No formalities required; evidence of agreement to share profits is a presumption of partnership.
Is a written agreement required to form a partnership?
No, but a written agreement is advisable for clarity and evidence. An oral agreement is less reliable.
Is there a requirement for partners to make financial contributions?
No requirement for financial contribution. The minimum number of partners is 2, and there’s no upper limit.
What is meant by actual authority in a partnership?
Actual authority is the authority a partner believes they have based on communications or dealings. It can be express (granted explicitly) or implied (arising from course of dealings).
What is apparent authority?
Apparent authority is when a partner’s act appears to be related to the business of the partnership and thus binds the firm, even if the partner lacks actual authority.
Is a partnership liable for a partner’s torts?
Yes, if committed in the ordinary course of business or with authority from fellow partners.
How is liability for partnership debts structured?
Each partner is personally liable for all debts. Incoming partners are liable for debts incurred after joining, while outgoing partners are liable for debts incurred during their tenure unless a novation agreement is made.
What happens to property bought with partnership funds?
It is deemed partnership property and cannot be used for personal purposes. It is not available to satisfy individual partner’s personal debts.
How are profits and losses shared in a partnership?
Profits and losses are shared equally unless otherwise agreed. The right to share profits is assignable, but the assignee cannot manage or demand profit shares.
How are management decisions made in a partnership?
Each partner has equal management rights unless agreed otherwise. Most decisions require a simple majority, while changes like admitting new partners or changing business nature require a unanimous vote.
What are some key duties of partners?
(i) Render true accounts and full information, (ii) Account for profits from the partnership’s property or name, (iii) Refrain from competing with the partnership, (iv) Fiduciary duty to act in good faith for the partnership’s benefit.
What happens to a partnership upon dissolution?
The business continues only to wind up existing affairs. New business cannot be undertaken. Debts are settled, and remaining funds are distributed among partners based on their capital contributions.
How are partners taxed?
Each partner is liable for income tax on their share of profits, even if the profits are not distributed.
What is the default rule for participation in the management of a partnership?
All partners have an equal right to participate in management unless the partnership agreement specifies otherwise.
Do partners have a right to remuneration for their services to the partnership?
No, partners have no right to remuneration unless there is an agreement to the contrary.
How are profits and losses shared among partners if the partnership agreement does not specify otherwise?
Partners share profits and losses equally if the agreement is silent on this matter.
What is the right of a partner regarding indemnification?
A partner has the right to be indemnified by fellow partners for expenses incurred on behalf of the partnership.
What can the other partners do if a partner wilfully or persistently breaches the Partnership Agreement?
The other partners may apply to a court for dissolution.
What are the characteristics of an LLP?
An LLP consists of two or more persons carrying on a business with a view to profit, with incorporation documents filed at Companies House. It is a separate legal entity and liable for its own debts. Members cannot be pursued for the LLP’s debts.
What documents are required for LLP incorporation?
The incorporation documents must include the LLP’s name, country and address of the registered office, names and addresses of each member, identities of designated members, and details of people with significant control.
How many designated members must an LLP have?
At least 2 must be designated members.
What happens if an LLP has only one member for more than 6 months?
The sole member will become personally liable for the debts of the LLP.
What are the rights of LLP members?
Members have the right to share profits equally (unless agreed otherwise), indemnification, inspect books and records at any time, and manage the LLP.
What are the duties of LLP members?
Members must refrain from competing with the LLP, profiting from the use of the LLP’s name or property, and must account to the LLP for any profits.
What is the liability of members for LLP debts and wrongful acts?
Members are not liable for LLP debts or wrongful acts of the LLP or omissions of fellow members beyond their capital contribution but are subject to rules for wrongful and fraudulent trading.
How is an LLP terminated?
An LLP continues despite a member’s death, must be removed from the Companies House register, and will be struck off following insolvency. Members can apply for strike off with a majority vote. Notice must be given to other members and creditors. The LLP is dissolved by the registrar 3 months after notice.
How are LLPs taxed?
LLPs are not taxable entities; individual partners are charged income tax on their share of the profits.
What is a limited company (by shares)?
A company where the liability of its members is limited to the amount of their shares. It is a separate legal entity from its members, incorporated at Companies House (CH), and members are not personally liable for the company’s debts beyond their shareholding.
What is a shelf company?
A pre-incorporated company that has not traded and is available for immediate purchase by clients who wish to start business quickly. It is registered at CH and can be used as-is or with modifications.
What are the key formation requirements for a limited company?
1.Memorandum of Association
What are the key formation requirements for a limited company?
2.Application for Registration(includes name, location, business details, share capital, initial shareholding, directors, officers, and PSCs)
What are the key formation requirements for a limited company?
3.Statement of Compliancewith Companies Act 2006.
What are the company name requirements for private and public companies?
-Private Company: Must include “Limited” or “Ltd” in its name.
What are the company name requirements for private and public companies?
-Public Company: Must include “Public Limited” or “PLC” in its name.
What are the company name requirements for private and public companies?
- Name cannot be the same as an existing company name. Some names require approval (e.g., “dentist” requires GDC approval).
What does the Certificate of Incorporation include?
Issued by Companies House (CH) upon registration, it includes a unique company number that never changes.
What is the purpose of the Articles of Association?
They are the contract between the company and its members. They can be based on the Model Articles or customized as Special Articles, which must be filed with CH and are public. Alterations require special resolution (75% approval) or greater for entrenched provisions.
What is a Shareholders’ Agreement?
A private document not filed with CH that includes provisions not covered by the Articles of Association.
What is the extent of a shareholder’s liability in a limited company?
Shareholders are not liable for the company’s debts beyond the unpaid amounts for their shares. This is known as the ‘corporate veil’.
How many directors must a private company have on incorporation, and what about a public company?
A private company must have at least 1 director, and a public company must have at least 2 directors.
How should a new director be appointed after incorporation?
Directors are appointed according to the company’s articles of association. The new director must consent to the appointment.
What must happen if there are any changes in directors (appointment, removal, or change in details)?
Changes must be notified to Companies House within 14 days.
What is the difference between a de jure director and a de facto director?
A de jure director is formally appointed, while a de facto director is not formally appointed but still carries out duties.
What is a shadow director?
A shadow director stands behind the board of directors and effectively controls them.
What is the role of an executive director compared to a non-executive director (NED)?
An executive director is employed by the company, whereas a NED operates as a consultant.
What are the powers of directors in a company?
Directors can make all decisions of the company unless reserved for shareholders, make decisions at board meetings, and enter into contracts on behalf of the company.
What are directors’ duties towards the company?
Directors must act in good faith, exercise reasonable care and skill, use independent judgment, avoid conflicts of interest, act within their powers, declare interests in transactions, and not accept benefits from third parties.
How can a board meeting be called and what is the quorum requirement?
Any director can call a board meeting with reasonable notice (not necessarily in writing). The quorum requirement is 2 directors.
What is required to pass a written resolution by directors?
Unanimous approval is required to pass a written resolution.
What is the procedure for removing a director?
Shareholders can remove directors by a simple majority vote. Notice of the resolution to remove a director must be given at least 28 days before the meeting, and the director must be given notice and a right to respond.
What are the responsibilities of a company secretary?
The company secretary maintains the company’s internal records and arranges filings at Companies House. Public companies must have one, but private companies do not.
Do all companies need to prepare accounts?
Yes, all companies must prepare accounts. Large companies (with an annual turnover greater than £10m and more than 50 employees) must hire an auditor.
What happens to a director’s duty to the company in the case of insolvency?
The duty to the company is displaced by the duty to creditors when the company is insolvent or on the brink of insolvency.
What is the duty to act within powers?
Directors must use their powers for proper purposes and act within the powers conferred by the company’s memorandum and articles.
What does the duty to promote the success of the company entail?
Directors must promote the success of the company for the benefit of its members as a whole, considering long-term consequences, community/environmental impact, employee interests, and fairness among members.
What is the test for whether the duty to promote the success of the company has been breached?
The test is subjective; no breach if the director honestly believes their decision would promote the company’s success. Directors must record considerations in the minutes of meetings.
What does the duty to exercise independent judgment require?
Directors must make decisions independently and not contract out their decision-making. It’s not breached if following professional advice or entering into a contract requiring future actions, as long as it’s done in good faith.
How is the duty to exercise reasonable care, skill, and diligence measured?
(i) For directors with no special skills: objective test of a reasonable director. (ii) For directors with special skills: objective test of a reasonable director with the same skill, knowledge, or experience.
What must directors do to avoid conflicts of interest?
Avoid situations where there is a direct or indirect interest that could benefit themselves, a close relative, or another business they have a significant interest in.
What is the duty regarding benefits from third parties?
Directors should comply with the company’s policy on the Bribery Act 2010 and declare any gifts received to other directors.
What is required when declaring an interest in a proposed or existing transaction with the company?
Directors must declare the nature and extent of their interest in writing or at a board meeting before the transaction is entered into. The declaration only needs to be made once, e.g., upon joining.
What are the remedies for a breach of duty by a director?
Remedies include an account of profits, return of company property, payment of compensation, rescission of a contract, and an injunction to prevent further breach.
How can shareholders address a breach of duty by a director?
Shareholders can vote to approve the breach (unless they are the director in breach) or bring a derivative action on behalf of the company.
What is involved in the removal of a director?
Shareholders can remove a director through a majority vote (not by written resolution). If removal violates the director’s service contract, the company may need to pay damages.
What is director disqualification, and when can it occur?
Disqualification prevents a director from being involved in management or being a director of any company for a specified period. It usually follows an investigation after insolvency but can also occur for other misconduct or unfitness.
How does a person become a member of a company?
A person becomes a member when their name is added to the Register of Members, and the company issues a share certificate to the member.
What must be kept up to date and is an internal register?
The Register of Members must be kept up to date and is an internal register.
