Business Law!! Flashcards by Taryn Walker

Personal liability for debts:
- Sole trader
- General Partner
- LLP Partner
- Shareholder

Sole trader: unlimited
General Partner: unlimited
LLP Partner: limited to investment
Shareholder: limited to investment

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Formation:
- Sole trader
- General Partner
- LLP Partner
- Shareholder

Sole trader: no filing
General Partner: no filing
LLP Partner: file with Companies House
Shareholder: file with Companies House

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Taxation
- Sole trader
- General Partner
- LLP Partner
- Shareholder

Sole trader: income tax
General Partner: income tax
LLP Partner: income tax
Shareholder: corporation tax, dividend tax, income tax

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Borrowing:
- Sole trader
- General Partner
- LLP Partner
- Shareholder

Sole trader: harder to borrow
General Partner: harder to borrow
LLP Partner: floating charges
Shareholder: floating charges

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Running the business:
- Sole trader
- General Partner
- LLP Partner
- Shareholder

Sole trader: anyhow
General Partner: equal unless agreed
LLP Partner: equal unless agreed
Shareholder: ran by directors not shareholders

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What are some key features of a general partnership?

(1) 2 or more legal ‘persons’
(2) carry on business in common
(3) with the intention to make a profit
- Parties don’t need to agree to make a partnership, the above points = a partnership
- If unclear, sharing of profits is prima facie a partnership.

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Authority of partners in a partnership

Actual authority via partnership agreement, vote of partners, and failure to object to past actions.
Apparent authority: carry on business in the usual way carried out by the partnership (unless they have no authority and the third party knew) Q is would a reasonable 3rd party think a business of this kind would usually do this act?
If no authority, partner bound, not partnership.

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Liability of partners in a partnership

Each partner has unlimited liability
New partner is liable from the moment they joined (not before)
Old partner is liable for anything that happened before they left AND after unless they; give notice of their retirement to existing creditors and publish it in London Gazette for others.

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Explain partnership property

Any property used by the partnership will become partnership property unless they intend for it to remain separate property.
Anything bought pre-partnership belongs to the partner separately unless agreed otherwise.
BUT
Any property belonging to the partnership cannot be used for anything else.

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How are profits shared in a partnership?

Equally unless agreed otherwise - regardless of capital contributed or work done.
If a partner wants to they can assign their share of the profits to someone else, this doesn’t make the new person a partner.

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As a partner, when do you pay income tax?

On your proportion of the income of the partnership annually, regardless of whether the profits have been distributed.

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Is a partner entitled to be paid for work done?

No - only if agreed by the partners.

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In a partnership, what are the voting rights?

Majority vote except for the following 3 which need a unanimous vote:
(1) Admission of a new partner
(2) Change in nature of business
(3) Alteration of the partnership agreement

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As fiduciaries to each other, what duties to partners to a partnership have?

Disclose info relevant to the firm
Cannot complete with the firms business
Account to the firm for any benefit/profit from any transaction concerning the partnership

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What will cause a dissolution of a partnership?

(1) Completion of goal
(2) Expiry of term
(3) A partner gives notice to leave
(4) Death/bankruptcy of any partner
(5) Business becomes unlawful
(6) Court order

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If the partnership dissolves, in what order is the partnership property distributed?

(1) Repay debts owed to outside creditors
(2) Repay loans made by partners
(3) Return the partners contributions
Any additional money will be shared between the partners. If there is a loss, partners are personally liable.

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How do you register an LLP at Companies House?

The name of the firm must end with ‘LLP’
Registered office
Names and addresses of partners
Details of people with significant control

If it doesn’t register correctly it is just a general partnership.

What happens if some partners of the LLP leave, leaving only 1 behind?

The remaining partner has 6 months to run it on their own. If no one else joins, the they are joint and severally liable with the LLP for its debts incurred after the 6 month mark (the limited liability fails)

If someone leaves or joins an LLP, what do you need to do?

Update Companies House within 14 days

Who is a person of significant control in an LLP?

Anyone holding 25% or more assets of the partnership.
Anyone with more than 25% voting share.
The right to appoint or remove those entitled to take part in management decisions.

3 main types of companies

Unlimited - members are personally responsible for debts
Companies limited by guarantee - shareholders liability is limited to investment - usually charities.
Public limited companies- shares listed on the stock exchange, minimum nominal share capital £50k.

What are company promoters?

The people who are responsible for the formation of a company.
They may start to do business but if it is before the date of the certification of incorporation, they will be personally liable and contracts will need to be novated to the company otherwise they cannot bind it.

What is a shelf company?

A registered company with generic articles etc. that you buy ‘off the shelf’. It is ready to go and allows you to get started quickly.

What needs to be included in an application to register a company at Companies House?

Memorandum of Association
proposed name of company
registered office
details of business
limited by shares or guarantee?
statement of capital and shareholding (amount, classes, nominal value, amount paid up)
proposed officers/directors
details of persons of significant control
statement of compliance with CA 2006
relevant fee

Articles of association not required as the model articles can be used instead.

What are the articles of a company?

The Articles of Association are the companies constitution. They prescribe the internal workings of the company. The Model Articles are very vague - to pursue any objective and carry on business of any kind. Usually, they will be amended to restrict this. - They act as a contract between the company and the shareholders, and the shareholders with each other.

Consequences of director breaching articles

- Injunction to prohibit potential breaches - Damages sought by other directors for anything caused by beach

What can a shareholder enforce in the Articles?

Any article provisions that relate to their personal membership rights. They tend to have Shareholder Agreements instead

How to amend articles of a company and the grounds for potential challenges?

Special resolution If no reasonable person would consider it to be for the benefit of the company, a shareholder who did not vote for it can challenge the amendment in court. If the amendment only adversely affects minority shareholders, this is not sufficient grounds for challenge if the alteration is in good faith for the company itself.

How can a company make a certain article harder to amend?

Shareholders can vote to entrench the specific article. This means they can specify a percentage over 75% for voting to amend that article. You cannot create a provision that prevents any amendment of the company articles - this will be ineffective.

Who can appoint new directors under the model articles (unamended) & how many days do they have to register this?

directors or shareholders co must register this with the Registrar of Companies within 14 days of appointment

Minimum number of directions

Private co: 1 Public co: 2

Difference between a de facto director and shadow director?

De facto = acts as a director and claims to be a director but has never been appointed. Shadow = influences directors decisions but does not claim to be a director and is not appointed.

What's the difference between non-exec/exec directors?

Exec = day to day running of company - they are employees Non-exec = are not employees. more of a consultative, supervisory role.

What is a nominee director?

Director appointed to the board to represent a stakeholder (usually a shareholder). They must act in the best interest of the company though.

What powers are given to the directors under the Model Articles

- to exercise all day to day powers under the company - collectively as a board - but defer to shareholders approval to change certain aspects of the company. - some decisions e.g. changing the articles can only be done by shareholders.

As agents of the company, what responsibility do directors have in terms of day-to-day contracting / tortious liability

- They are agents of the company - They individually have 'actual authority' by board resolution - Can only bind the company when they act as a board - Apparent authority only really arises through past dealings - Companies can bind themselves by adding signature of 2 directors, a director and a secretary, or a single director & witness. **??

A director has to act in good faith and in the best interest of the company as a whole. What can the company do to protect directors?

You cannot amend the articles or create a contract saying that a director is not liable, this is void. But the company can: - take out insurance or - indemnify directors against liability (except for criminality)

What level of care, skill, and diligence must a director exercise?

Objective test: general knowledge and skill that may be expected of a director Subjective test: general knowledge and skill of director in question.

Who do directors have a duty to?

Shareholders unless insolvent, in which case, creditors.

What can prevent a directors 'conflict of interest' from breaching their duty?

- Board knows of the interest - Situation is unlikely to give rise to a conflict - Matter has been authorised following full disclosure - Director with interest cannot form part of the quorum for voting on the matter. - No loans to director unless approved by the board - No personal benefits for director e.g. bribes

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