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Legal Knowledge MCQ > Business Law > Flashcards

Business Law Flashcards

1
Q

What are the 2 main types of business organisations?

A
  • Unincorporated - No separate legal identity, debts and liabilities belong to individuals who own and run the business
  • Incorporated - Created by legal process and is a legal entity in its own right. The organization itself has responsibility for its obligations and liabilities not individual members, shareholders or directors.
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2
Q

What are the 3 main types of businesses?

A
  • Sole traders
  • Partnerships & LLPs
  • Companies
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3
Q

Difference between public and private companies?

A

Public parties are limited with share capital

Private companies can be either limited companies or unlimited companies

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4
Q

What is a sole trader

A
  • Simplest and most flexible business organization
  • Minimum legal requirements such as health & safety and employment laws
  • Self-employed
  • Unlimited liability so responsible for all debts and liabilities of the business
  • Taxed as an individual so pays income tax to HMRC. May also be liable for capital gains tax
  • Retains all profits of business
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5
Q

What are the 3 types of partnership?

A

There are three types of partnership: a general partnership, a limited partnership (LP), and a Limited Liability Partnership (LLP).

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6
Q

Give some features of a general partnership

A
  • not a separate legal entity
    -unlimited liability and dissolves when a partner leaves
    -manages partnership affairs
    -interests cannot be transferred to others
    -pay income tax
    -assets belong to partners jointly
    -no floating charge
    -no formalities needed
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7
Q

Give some features of a limited liability partnership

A

-legal entity separate from members
-limited liability for members
-partners manage affairs
-interests cannot be transferred
-income tax paid
-floating charges can be made
-assets belong to LLP
-requires document registration

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8
Q

Give some features of a registered limited company

A
  • legal entity separate from members
    -liability is limited
    -directors manage the company
    -interests can be transferred
    -corp tax payable
    -assets belong to partners jointly
    -floating charges can be made
    -registration of docs required
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9
Q

What are some general partnership features

A
  • Partners personally liable for any debts or liabilities. Each one for the whole(jointly & severally liable)
  • Each partner agent of the firm’s business when dealing with third parties the rules of agency apply
  • Share profits if equity partner or can be a salaried partner or sleeping partner if takes no role in running the business but see M Young Legal Associates Ltd v Zahid(2006)
  • Dissolution by agreement, automatically under Partnership Act 1890 or by a court order
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10
Q

Give some key clauses in the Partnership Act 1980

A

s.1 - 4 - deal with creation of partnerships

s.5 - 18 - deal with relationships between partnership and outsiders

s.19 - 31 -deal with relations of partners between themselves ‘subject to agreement to the contrary’

s.32 - 44 -deal with dissolution of partnerships

s.45 - 50 -Miscellaneous

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11
Q

How are limited partnership corporations generally structured

A
  • Must have one limited and one unlimited partner
  • Partners own part of the company
  • Receive a share of the profits
  • Legislation - The Limited Partnership Act 1907 together with relevant legislation and common law
  • Two or more persons carrying on a lawful business with a view to profit
  • Must have subscribed their names to an incorporation document
  • In essence a partnership with limited liability for its members
  • The LLP can enter into contracts and own property however partners pay tax on his/her income
  • Legislation – Limited Liability Partnerships Act 2000 and Limited Liability Partnerships Regulations 2001
  • Liability limited of each member to the amount of capital introduced into the partnership
  • Must register annual audited accounts with the Companies Registrar and these are public documents
  • Taxed as partnership on their share of the profits and do not pay corporation tax like a company
  • No shareholders but managers

Limited partners also have limited liability for the debts ONLY IF they are not involved with the day to day management of the company.

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12
Q

What is the fundamental principle of a company

A

Separate legal personality and its application

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13
Q

How can the fundamental principle of separate legal personality be overlooked

A

By lifting or piercing the veil

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14
Q

What can an incorporated limited liability company do?

A
  • Legally distinct from members
  • Enter into legal relationships
  • Sue and be sued
  • Own land and other property
  • Borrow money
  • Perpetual succession
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15
Q

How can a company be incorporated

A
  • CA 2006
  • The Crown – Grant of Royal Charter
  • Parliament – specific Act
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16
Q

How can a company be formed

A
  • Must be incorporated at the Companies House (CH)
  • By post or online or by sending the required docs to the CH
  • S.7 of Ca 06 can be formed by one or more persons
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17
Q

What does s7 of the Companies Act say about forming a company

A

(1) A company is formed under this Act by one or more persons—

(a)subscribing their names to a memorandum of association (see section 8), and
(b)complying with the requirements of this Act as to registration (see sections 9 to 13).

(2) A company may not be so formed for an unlawful purpose.

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18
Q

What does s8 of the Companies Act say about Memorandum of association

A

S8- Memorandum of association

(1)A memorandum of association is a memorandum stating that the subscribers—

(a)wish to form a company under this Act, and
(b)agree to become members of the company and, in the case of a company that is to have a share capital, to take at least one share each.

(2)The memorandum must be in the prescribed form and must be authenticated by each subscriber.

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19
Q

What form is used when forming a private company under CA 2006

A

Form IN01- Application for registration

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20
Q

What are the requirements for registering a company

A

-Application for Registration Form (S 9)
-Memorandum of Association (S 8)
-Statement of Capital and Initial Shareholdings (Must comply section 10)
-Proposed officers (Section 12)
— Directors
— Secretaries
-Articles of Association (Section 17…)
-Statement of Compliance (section 13)
-Fee
-Registration (Section 14)

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21
Q

What is issued to a company on registration/

A

Commencement (Section 15)
Certification of Incorporation: Upon registration there will be issued a certificate of incorporation

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22
Q

What doe public companies need to also obtain when commencing business

A

further certificate –’trading certificate certifying that the amount of its allotted share capital is not less than the required minimum) [s.761]

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23
Q

What does the registration certificate contain according to s16 CA 2006

A

Certificate will contain:
* name and number of company (the name of co can change but not the number)
* Only incorporation certificate is proof that the company has been formed

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24
Q

What does s17 CA 2006 say about a company constitution

A

“Unless the context otherwise requires, references in the Companies Acts to a company’s constitution include –
(a) the company’s articles, and
(b) any resolutions and agreements to which Chapter 3 applies …”

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25
Q

What are articles of association

A

In constitution of a company-

  • Articles of association- Internal rules on procedures - Govern the internal affairs of the company
  • Previously memorandum and articles were required. Memorandum sets out - name, address, share capital, objects clause.
  • This exists for companies set up under the CA 1985
  • S. 31(1): “Unless a company’s articles specifically restrict the objects of the company, its objects are unrestricted.”
  • Position of companies with restricted objects
26
Q

What did the Companies Act 06 reform about a company constitution

A
  • Memorandum – reduced to just an agreement that the subscribers intend to form a company (s.8)
  • no object clause – what is the purpose of the company
  • if there are shares – a statement that subscribers to take at least one share each
27
Q

What is the content in an article of association

A
  • Articles are a contract between the company and members and members with each other
28
Q

How can AoA be adopted and altered?

A

Free to adopt model articles, all or any (s.19(3))
* Must register these (s.18(2)) – if not model articles will automatically apply (s.20(1))

Power to alter the articles
* Special resolution (s,21) unless entrenched (s.22)
* Entrenched provisions – old style memorandum will be considered part of the articles. (s28(2))

Filing
* send a copy to registrar with application (s.9 (5)(b))
* Must notify the registrar about any entrenchment provisions

29
Q

What is the content in model articles for private companies

A

Part 1 Interpretation and Limitation of Liability

Part 2 Directors (directors’ powers and responsibilities; decision-making by directors; appointment of directors)

Part 3 Shares and Distributions (shares; dividends and other distributions; capitalisation of profits)

Part 4 Decision-making by Shareholders (organisation of general meetings; voting at general meetings)

Part 5 Administrative Arrangements (directors’ Indemnity and insurance)

30
Q

What does s 171 of the CA 2006 say a director must do

A

“A director must –
(a) act in accordance with the company’s constitution, and
(b) only exercise powers for the purposes for which they are conferred.”

31
Q

How are the legal and contractual effects of the AoA enforced

A
  • Differences from a normal contract
  • Enforceability:
  • Members to members
  • Company to members
  • Members to Company
32
Q

What is a shareholder agreement

A
  • Shareholder agreement (SHA) is defined as contract entered into by the shareholders either before or after the company has been formed
  • To be effective as constitutional document all the members for the time being should be made party to it
  • Usually beneficial only if a company has a few shareholders (e.g. family business) as all shareholders must subscribe to it
  • Most important role;
  • Acts as an extension of the articles in terms of how the company is to be run and contains provisions which are not permitted in the articles.
  • In other countries like Canada and USA has been recognized by legislation.
33
Q

Requirements to be a director

A
  • No formal qualifications
  • Need for at least one natural person
  • Minimum age of 16
  • Disqualification possible under CDDA 1986
34
Q

What does s250 of the CA 2006 define as a director

A

“Any person occupying the position of director, by whatever name called.”

35
Q

What are the types of directors

A
  • de jure, de facto and shadow directors
  • de facto directors: Factors to consider along …e.g.,: was in a position? Key knowledge? Equal power? Part of the governing structure? Real influence?-Re Hydrodam (Corby) Ltd (1994) S. 251(1) CA 2006.
  • Shadow directors: “ … a person in accordance with whose instructions the directors of the company are accustomed to act …”

Others
* Alternate Directors
* Nominee Directors
* Executive Directors

36
Q

How are company decisions made

A

§ Division of duties between board of director and shareholders/members determined by articles

§ Law sets out formal requirements to call meetings to ensure company functions as micro –democracy and directors are accountable.

  • Art.3 of Model articles – directors responsible for management
  • Art.4 of Model Articles – shareholders can dictate by special resolution what directors can do, but cannot do so with regards to previous decisions that they have made
37
Q

Do members have the power to overrule already made directors decisions?

A

No -; Automatic Self-cleansing Filter Syndicate v Cunnighame

38
Q

How do directors make decisions

A
  • Directors call board meeting (BM)
  • Directors meet to take management decisions
  • At board meeting also pass resolution to call general meeting (GM)

-After GM - Board meeting 2; report on GM, board resolutions to instruct secretary to deal with filing

-Minutes of the BM and the GM to be drawn up and entered in the Minute Book (s.248(1)).

-File copies of Special and ordinary resolution to the Companies house within 15 days.

  • Process laid down at Model Articles 2008, Schedule 1 – articles 7-16

-Notice
* any director may call a board meeting and send notice to include info re time date venue, and if not is the same place where the meeting will be held. (art.9)
* The court will not intervene if the same decision would have been reached had the correct procedure been followed (Browne v. La Trinidad (1887) 37 Ch D 1)

  • Quorum - must be two otherwise no decisions can be made except appoint other directors (art 11) unless;
  • If company has one director and articles do not require more than one – one directors satisfies requirement (art 7)
  • Decisions can be made by majority (art.7)1)) or unanimous (art.8)
  • Written procedure can be used to save time
  • The decision must be unanimous (art 8(1)) and
  • All the directors must sign the resolution (art.8(2)).
  • Quorum should be the same as if there had been an actual meeting taking place – otherwise the decision is invalid (art 8(4)).
  • Eligible directors are defined in the same manner as if the meeting had taken place
39
Q

What are the types of resolution

A

Ordinary resolutions
* is one passed by simple majority (s282 (1))

Special resolution
* a resolution passed by majority of 75% (s.283 (1))
* Use of special resolutions – anything that can be done by special resolution can be done by ordinary resolution
* Quorum – if one shareholder is 1 (s,318 (1)) otherwise at least two (s.318 (2))

40
Q

How do company votes take place

A
  • Articles to specify at will (s.287)
  • Usually each member having a vote per share unless articles specify
  • Voting can be done by show of hands or on a poll, whether in person or by proxy (s.322 A)

Members have the same number of votes whether resolution done on a poll or as written resolution (different from voting on show

41
Q

Who can call a company meeting

A

-Directors (s.302) and

-Members who hold 5% of voting capital or voting rights can require directors to do so (s.303) or can do so themselves (s.305)

-The court if the above impracticable (s.306)

42
Q

What does ss 171-177 of the CA 2006 list as directors duties broadly

A
  • To act within powers (171)

-To promote the success of the company (172)

-To exercise independent judgement (173)

-To exercise reasonable care, skill and diligence (174)

-To avoid conflicts of interest (175)

-Not to accept benefits from third parties (176)

-To declare interest in proposed transaction or arrangement (177)

43
Q

What does section 2 of CA 2006 say about why/how directors obtain approval of members before a transaction is made

A

-To avoid conflicts of interest (175)

-Not to accept benefits from third parties (176)

-To declare interest in proposed transaction or arrangement (177)

44
Q

What are examples of a substantial property transaction

A
  • Acquisition of substantial non-cash asset by director from company (s. 190(1)(a) CA 2006)
  • Acquisition of non-cash asset by company from director (s. 190(1)(b) CA 2006)
  • “substantial non-cash asset”
  • Exceeds 10% of the company’s asset value AND more than £5,000; OR exceeds £100,000
  • Asset value net assets by ref to most recent statutory accounts; OR if no statutory accounts, amount of paid-up share capital
45
Q

What is a loan

A

S.s 197 & 200 CA 06 – involves straightforward lending of money

S.197 – a company cannot give a loan or give a guarantee to a director without members approval
 
S.197(3) – a resolution to approve the loan must state the nature of the transaction,  the amount of the loan and the purpose and the extent of the companies liability
46
Q

What is a quasi loan

A

An arrangement in which a creditor agrees to meet some of the financial obligations of a borrower, on condition that the borrower reimburses the creditor.

apply to public companies or companies associated with public companies
S. 198 – 200 CA 06

47
Q

What is a credit transaction

A

apply to public companies or companies associated with public companies

Ss. 201 & 202 of CA 06 – the company provides goods or services on a credit basis to the director which he will pay at a later date.

48
Q

What are some non compliance sanctions

A
  • .213 CA 06 loans - civil remedies availableS.214 CA 06 - affirmation via an ordinary resolution within a reasonable period.
    If it is affirmed it may no longer be avoided under s.213.
  • Breach of general duties –s.171- s.178 of CA 06
  • Criminal offence under s.183 CA 06
  • Service contract term may be void or terminable upon reasonable notice
    S.188 CA 06 - Transactions with directors requiring members approvals
    S. 189 CA 06 - Consequence of non – compliance
  • S.195 (3) &(4) CA 06 - have to account for any gain made
  • S. 215 CA 06 – payment for loss of office but S.217

*Otherwise S.222 CA 06 – any payment made for loss of office are held on trust for the company

49
Q

How can a company avoid liability

A
  • Provisions protecting directors from liability
  • Consent, approval or authorisation
  • Ratification
  • Articles of Association
  • Relief by Court
50
Q

What are some remedies to the acts of a director

A
  • S. 175 (5) CA 06 - Authorisation of the directors regarding the arrangement
  • S.177 CA 06 – declaration of the directors interest in the transaction
  • S. 180 CA 06 – provided consent, approval or authorisation obtained, then the transaction or arrangement is not liable to be set aside
  • Ratification - S.239 – the company can ratify the acts of the director but ratification must be made by a resolution of the members of the company (s.239 (1&2) CA 06)
51
Q

Can the court allow substitution of a deceased parties personal reps or successor?

A

Yes

52
Q

When a claim is brought against a deceased persons company, what is the key consideration when bringing forth a claim?

A

Whether the limitation period had not expired at the time of death of the deceased party

53
Q

Can a company be bound to a contract before the company exists/is incorporated?

A

No

54
Q

How is the priority of floating charges determined

A

By the date of registration

55
Q

How is Capital Gains tax shared between partners

A

By the percentage of capital they put in

56
Q

Can someone recover damages to their injuries cause by a product if the product is defective

A

Yes under the Consumer Protection Act 1987

57
Q

What must employers do to ensure disabled employees are not placed at a SIGNIFICANT DISADVANTAGE under the Equality Act 2010

A

Make reasonable adjustments

58
Q

If a company has acid in a drum bought from a woman that leaks and destroys a floor, but the company does not move the drums when it finds out, and bills the woman for damages, what is the company under a duty to do?

A

Minimise losses by moving the drums

59
Q

Which section in the Companies act 2006 gives the directors a general authority to manage the company’s business

A

section 190

60
Q

True or false - if a transaction exceeds 10% of the companies asset value, it would fall under the category of substantial property transaction and would require shareholder approval

A

True

61
Q
A

Legal Knowledge MCQ (5 decks)

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