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Business General Flashcards

1
Q

What options do a sole proprietor or partnership have if they go insolvent?

A
  • IVA - a number of creditors agree to accept less money/payment at a later date.
  • Bankruptcy.
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2
Q

Test for insolvency:

A
  1. If there’s an outstanding statutory demand 750 pounds or more unpaid for 21 days.
  2. If someone has a judgment debt against the company and has tried to enforce it and failed.
  3. If the company is insolvent on a cash flow or balance sheet test (liabilities more than the assets).
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3
Q

What are the implications for the directors in insolvency of a company?

A

When it becomes evident that a director would reasonably realize that they wont get out of the cash flow issues, their duty shifts from the company, to the creditors. If they don’t, could be liable for wrongful trading and contribute to the debts of the company.

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4
Q

How can a director in insolvency avoid liability for wrongful trading?

A

They gotta do everything possible to minimize the risk to the creditors:
- Not taking out any more credit.
- Trying to chase up ppl who owe them money.
- Seeking and following legal and financial advice.
- Considering whether the director should still be paid.

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5
Q

Any way the liquidator could try increase the assets available to the creditors?

A
  • Try get assets back which havent been paid for, or get the money.
  • Are the directors guilty of wrongful trading? Then theyd be liable financially a bit.
  • Set aside a floating charge (can be made after the original loan too).
  • Check for transactions at an undervalue.
  • Check if there was a preference.
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6
Q

What’s a transaction at a undervalue in terms of insolvency?

A

Assets sold for cheap within 2 years of insolvency + was company insolvent at that particular point? If to a connected person, presumption that yes it was.

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7
Q

What is a preference in terms of insolvency?

A

It is moving someone up the order of creditors. someone who wouldve been unsecured in an ordinary liquidation, youre giving them something better than they wouldve been.

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8
Q

Defense for transaction at an undervalue and preference?

A

TAU defense:
Transaction was entered into in good faith and was beneficial for the company at the time.

Preference defense:
Did the company have to do this at the time? i.e. court judgment debt, or to save the business.

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9
Q

What’s the order of payment of creditors on liquidation?

A

Firstly - consider any fixed charge holders. Bc they dont rly go into the same order for priority. They will be paid first out of the proceeds of sale of the assets - if the charge was correctly registered. ONLY from the sale of the asset that has actually been charged. Then, any money they’re still owed, they become ordinary unsecured creditor for that amount.

Then, liquidator gets paid.
Then, any preferential debtors. Employees holiday pay and wages of the last 4 months and any money owed to HMRC.

Next, floating charge holders.

Then, any ordinary unsecured creditors.

If any money left, shareholders.

For each stage, they each rank equally and get a certain %.

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10
Q

What can a company do if they’re insolvent?

A
  • Restructuring plan = Company can restructure debts if 75% of debtors in value agree. More for larger/complex companies than CVA. Also more costly.
  • Administration = An independent insolvency practitioner will run/reorganize/sell the company.
  • CVA = company voluntary agreement. Seeks to rescue the company. 75% value of creditors must agree. For smaller/simpler companies. Less costly. Less court involvement.
  • Moratorium = Can be sought while applying any of the above. It halts creditors from enforcing their rights. Insolvency practitioner will be appointed to save the company. Directors remain in charge of running the business.
  • Liquidation.
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11
Q

CGT - what assets are excluded?

A
  • If you’re a non-UK resident selling an asset in the UK.
  • Wasting chattels (life of less than 50 years).
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12
Q

CGT - what are some reliefs that can be applied?

A
  • Private Residence Relief 100%.
  • Business Asset Disposal Relief
    (shares or assets in their sole tradership or partnership -> taxed at 10%).
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13
Q

How much is CGT rate?

A

BADR = 10%.
The rest (i.e. shares and non-residential property) =
10% for basic rate band.
20% for higher rate band.
Residential =
18% basic rate band.
28% higher rate band.

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14
Q

How much is corporation tax? (i.e. tax paid on income of the company)

A

25%

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15
Q

How do you calculate how a corp shall be taxed?

A

(Trade Profits + Other Income + Chargeable Gains - Charitable Donations) x Applicable Corporation Tax Rate % (25%)

Trade profits calculated by: Trade Income - (Cost of Sales + Capital Allowances i.e. salaries).

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16
Q

What is business asset rollover relief (tax)?

A

A tax relief when a company disposes of an asset and buys a replacement asset. The gain is deferred to when the replacement asset is sold.

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17
Q

Things to consider in board meeting:

A
  1. Notice.
  2. Quorum.
  3. Interest.
  4. Resolutions.
  5. Filing requirements.

NQIRF

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18
Q

What decisions need shareholder approval?

A

Changes to model articles. SR
Allot new shares.

Forgoing pre-emptive rights (i.e. allotting shares for cash without first offering them to shareholders). SR

Removal of directors.

Approval of dividends (directors recommend but shareholders must approve).

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19
Q

How many days notice for a shareholder meeting? (Voting on ordinary or special res)

A

14 clear days.

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20
Q

What happens if you have too many directors personally interested in a transaction and thus not able to count twds the quorum?

A

The model articles allow the shareholders to pass an ordinary resolution to suspend the personal interest provision, just for that transaction.

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21
Q

Do shareholders have to declare a personal interest in a transaction?

A

No.

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22
Q

What if shareholder died - can their PR count twds the quorum for that decision?

What about a proxy being appointed?

A

Only once the PR has been registered as a member.

Proxy doesn’t need to be registered. Can just show up on their behalf.

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23
Q

What if person has majority shareholdings but doesn’t show up?

A

Their vote doesn’t count twds the quorum.

24
Q

3 things to consider before board can allot shares:

A
  1. Are there any restrictions in the constitution of the company which prevents the directors from issuing shares?
  2. Do the directors have the authority to allot the shares?
  3. Are there any preemption rights?

If a problem with any of these: will need the shareholders to pass the resolution before the board can allot the shares.

25
Q

What do you do if there’s a restriction in the amount of share capital which can be allotted?

A

Needs to be removed by the members by ordinary resolution.

26
Q

Do the directors have the authority to allot the shares?

A

If that company only has ordinary shares, then the directors automatically have authority to allot. But if it wants to allot preference shares or vice versa (something new), then the members must by ordinary resolution give the directors the authority to allot.

27
Q

How are preemption rights applied to the shareholders?

i.e. those shares are first offered to the existing shareholders before anyone else.

A

They must get offered to the existing shareholders in the same proportion.

28
Q

How can someone investing in a company have more control as a shareholder? (what percentages as a shareholder - positive and negative control?)

A

Negative control:

  • More than 25% of shares can block decisions.
  • Exactly 50% of shares, can block ordinary resolutions.

Positive control:
- More than 50% of shares can pass ordinary resolutions.
- More than 75% of shares can pass special resolutions.

29
Q

How to protect your position as director on the board seeing that you only have one vote?

i.e. 3 directors and new person coming in.

A

Say the quorum has to be 4 so they can’t pass anything without you.

If lending money to the company and wanna be director - put clause that says if they wanna get rid of you they gotta pay all the lending back. Doesn’t stop them but might cause cash flow issues for them.

Long term fixed service contract.

30
Q

Do shareholders need to pass ordinary resolution to allot new shares?

A

Yes.

31
Q

What can a director do if they feel they have been removed unfairly?

A

Can claim unfair prejudice under the Company’s Act, if he believes he is being excluded from the management of the company in a way that is oppressive.

Must show the transaction is for the company’s benefit.

32
Q

How long must service contract be for director before it needs more formal approval?

A

If service contract is more than two years.

33
Q

What formalities are needed to approve of +2 year service contract for director?

A
  • Board meeting and resolution to approve service contract.
  • Shareholder meeting/written resolution and ordinary resolution to approve.
  • Board meeting to resolve to enter contract.
34
Q

How much is a substantial property transaction? (= Company acquires from or transfers to a director or connected person a non-cash asset)

A

More than 10% of the company’s worth or…
More than 100k.

35
Q

What formalities are needed to approve of a substantial property transaction?

A
  • Board meeting to resolve to approve contract.
  • Shareholder meeting/written resolution for ordinary resolution.
  • Board meeting to resolve to enter contract.
36
Q

How much can company loan to a director before it needs formal approval?

A

10k.

37
Q

What formalities are needed to loan more than 10k to a director?

A
  • Board meeting to resolve to approve of the contract.
  • Shareholder meeting/written resolution for ordinary resolution.
  • Board meeting to resolve to enter into contract.
38
Q

How many % of shares must a shareholder have to call a shareholder meeting?

(Bc usually board res needs to be passed to call one).

A

5% of the voting shares.

39
Q

What happens if a quorum of 3 is needed in a board meeting according to the amended model articles, but the third person refuses to attend? How can they pass resolutions?

A

They can use their power if more than 5% of voting shares, to call a shareholder meeting, and pass ordinary resolutions i.e. appointing a new director and removing the other difficult one.

But, cannot remove that lad as a shareholder. So, he might block special res.

40
Q

What is the exception to needing an ordinary resolution to disapply preemption rights?

A

If the allotting shares for non-cash consideration.

41
Q

What is one duty of a director?

A

To promote the success of the company. i.e. hiring independent advisors.

42
Q

How can a director be removed?

A

Shareholders can remove them - by ordinary res.

28 days’ notice.

43
Q

How can a director be appointed?

A
  • Shareholders ordinary res.
  • Directors through simple majority vote.
44
Q

In business drafting, if the person isn’t a director or shareholder already, where do you put them in?

A

'’In attendance’’

45
Q

What if in a general partnership, the partners want to remove the partner or reduce their salary?

A

They can’t.

46
Q

What are the elements of a general partnership?

A

Operating a business in common

With the intention to profit

47
Q

What should a partner in a general partnership do to leave the partnership without being liable for future business?

A

Give notice of leaving to existing creditors and London Gazette advertisement.

48
Q

Is a new partner liable for debts incurred before they became a partner?

A

No. Only stuff after they joined.

49
Q

Upon dissolution of a partnership, what happens if the assets aren’t enough to pay creditors?

A

The partners will be personally liable.

50
Q

What tests are used when deciding if a partner’s act binds the firm?

A

Objective test (Was it within the reasonable course of business and would a reasonable person dealing with the partner believe he had authority to do this type of transaction?)

Subjective test (Did the third party actually know he didn’t have authority? If yes, partnership not bound)

51
Q

Director’s service agreement needs to be of what length to be approved by board?

A

2 years. Otherwise, it can be done by the board.

52
Q

How much loan to director before it needs to be approved by shareholders by ordinary res?

A

10k. Otherwise, it can be done by the board (without the director who is getting it).

53
Q

What things to change immediately in the partnership agreement because the Partnership Act is shit at it?

A
  • The Act says any partner can terminate the partnership by giving notice to the other partners that they want it to end. Bad bc if they fight they’ll just threaten to dissolve it.
  • If anyone dies or becomes bankrupt, the partnership is terminated. Put in a thing sating the partnership will continue as long as it has two partners.
  • Add provisions about leaving the partnership or expulsion if one is doing smth wrong.
54
Q

What are the things that the Partnership Act requires unanimity on?

A
  • Change in nature of business.
  • Change in the terms of the agreement.
  • Bringing in a new partner.

Otherwise, simple majority decision.

55
Q

What happens to the $$ when partnership is dissolved?

A

First, debts paid.
Then, any loans by partners returned to them. If not enough, calculate the % of their contributions.
If surplus after that, it gets split equally.

56
Q
A

Business (3 decks)

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