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SQE - FLK1 > Business Law > Flashcards

Business Law Flashcards

1
Q

Two ways for LLP to validly execute document?

A
  1. Signed by 2 members
  2. Signed by one member with a witness
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2
Q

Two registers that an LLP must maintain?

A
  1. Register of members
  2. Register of charge and debenture-holders
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3
Q

What is the default position on appointing new members in an LLP?

A

A majority of members can appoint a new member if no contrary provision in the agreement.

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4
Q

How many designated members must an LLP have?

A

2 minimum

If none specified, all members are designated members

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5
Q

2 additional obligations of designated members?

A
  1. Responsibility to ensure LLP complies with LLP 2000 Act and regulations
  2. Legally accountable if they fail to carry out duties and statutory requirements properly
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6
Q

What is the easiest way for an LLP member to cease membership?

A

Give reasonable notice to the other members

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7
Q

What are 2 important default provisions in an LLP about profits and liabilities?

A
  1. All members entitled to share equally in capital and profits
  2. LLP must indemnify each member for payments and liabilities incurred in the conduct of the LLP’s business
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8
Q

Under default provisions, what are two things that require unanimous consent of all members in the LLP?

A
  1. Changes in the nature of the business
  2. Assigning an interest in the LLP
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9
Q

When will members of an LLP owe the LLP fiduciary duties?

A

When acting as an agent on its behalf

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10
Q

What LLC statutory remedy is also open to members of an LLP?

A

Unfair prejudice

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11
Q

How are members of an LLP taxed?

A

Each member’s share of the LLP’s income (income tax) or gains (CGT), same as partnership

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12
Q

4 ways to wind up an LLP?

A
  1. Creditors’ voluntary arrangement
  2. Appoint an administrator
  3. Enter compulsory or voluntary liquidation
  4. Court’s winding up order
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13
Q

2 requirements for LLP to clawback any amount withdrawn by a member?

A
  1. Withdrawn in the TWO YEARS prior to the start of winding-up
  2. Member OUGHT TO HAVE KNOWN that after the withdrawal (and any others then in comtemplation), there was NO REASONABLE PROSPECT of being able to avoid an INSOLVENT LIQUIDATION
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14
Q

What are the two key thresholds for a creditor to present a bankruptcy petition to the court in respect of an individual debtor?

A
  1. Threshold is a debt for a liquidated sum of 5,000 GBP
  2. Debtor appears to have no reasonable prospect of paying the debt
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15
Q

2 consequences of a bankruptcy petition?

A
  1. Debtor may not DISPOSE of any assets
  2. Any disposition post-petition is VOID unless court gives PRIOR CONSENT or SUBSEQUENT RATIFICATION
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16
Q

What is the duty of the Official Receiver?

A

Investigate the bankrupt’s conduct and financial affairs before and during the bankruptcy

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17
Q

What is the duty of the TiB? Important example?

A

Carry out administration of the bankrupt’s estate for the benefit of the bankrupt’s creditors

E.g. CHALLENGE ANTECEDENT TRANSACTIONS

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18
Q

What is the main relevance of the bankrupt’s home to the bankruptcy proceedings?

A

The trustee must take steps to deal with the bankrupt’s home within 3 YEARS of the bankruptcy order, or else it will revert back to the bankrupt

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19
Q

Two alternative time limitations to unwind a bankrupt’s antecedent undervalue transaction?

A
  1. 2 years before presentation of the petition - regardless of his solvency
    OR
  2. 5 years before presentation of the petition - if he was insolvent at the time or became insolvent as a result
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20
Q

Two alternative time limitations to unwind a bankrupt’s antecedent preference transaction?

A
  1. 6 months before presentation of the petition
    OR
  2. 2 years before presentation of the petition
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21
Q

Two alternative time limitations to unwind a bankrupt’s antecedent defrauding transaction?

A
  1. 6 years from the date of the transaction if it involved a sum of money
  2. 12 years for all other assets
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22
Q

What is the possible duration of a bankruptcy restrictions order? Requirement?

A

2-15 years. Only if the bankrupt’s conduct is deemed to have been irresponsible of reckless.

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23
Q

When does an individual voluntary arrangement become binding on all creditors

A

If passed by at least 75% of creditors

Irrelevant how or whether each creditor voted

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24
Q

3 requirements to qualify as a “small company” with reduced accounting requirements?

A
  1. No more than 50 employees
  2. Up to 10.2 million GBP turnover
  3. Balance sheet of up to 5.1 million GBP

Only 2 requirements need to be satisfied

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25
Q

3 requirements to qualify as a “small company” with reduced accounting requirements?

A
  1. No more than 250 employees
  2. Up to 36 million GBP turnover
  3. Balance sheet of up to 18 million GBP

Only 2 requirements need to be satisfied

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26
Q

What is the purpose of a balance sheet?

A

To reflect a company’s financial position on the FINAL DAY of an ACCOUNTING PERIOD and summarise its ASSETS AND LIABILITIES

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27
Q

4 formalities for a company’s annual accounts?

A
  1. Board approval
  2. Signed by a D on board’s behalf
  3. File with Registrar
  4. Send to anyone entitled to receive notice of general meetings
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28
Q

Deadline for private limited company to file accounts with Registrar?

A

9 months after end of the relevant accounting period

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29
Q

Deadline to register a charge with the Registrar?

A

21 days beginning with the day AFTER CREATION of the charge

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30
Q

If a debenture is executed as a deed, when will the lender have the implied power to appoint a receiver?

A
  1. Borrower fails to pay INTEREST for TWO MONTHS
  2. PRINCIPAL DEBT not repaid within THREE MONTHS of falling due
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30
Q

What happens if a charge is not registered in time?

A
  1. Debt will become IMMEDIATELY REPAYABLE when the prescribed period expires
  2. Charge will be VOID against any liquidator, administrator or creditor of the company
  3. Charge will remain ENFORCEABLE AGAINST THE COMPANY
31
Q

What 3 formalities are required for a company to reduce its share capital?

A
  1. Special resolution
  2. Solvency statement no more than 15 days before resolution passed
  3. Must submit copies of above and a STATEMENT OF CAPITAL to the Registrar
32
Q

What is the difference between share ALLOTMENT and ISSUE?

A

Allotment - allocating RIGHTS in certain shares to particular applicants for the shares
Issue - offering OWNERSHIP of the shares

33
Q

When is a share allotted to a person (2 pts)?

A

UNCONDITIONAL RIGHT to:

  1. Be included in the REGISTER OF MEMBERS
    OR
  2. Have his NAME AND PARTICULARS delivered to and registered by the REGISTRAR in relation to that share
34
Q

When is a share issued to a person?

A

When the allotment has been REGISTERED in the company’s register of members (or the Registrar)

35
Q

When can directors allot shares in a private company with one class of shares?

A

Generally free to do so subject to AoA

36
Q

When can directors allot shares in a limited company with multiple classes of shares?

A

Must have AUTHORISATION provided in the articles or by shareholders’ resolution

37
Q

2 implications of the right to pre-emption?

A
  1. Must be offered FIRST to existing shareholders on at least EQUALLY FAVOURABLE terms
  2. Must have 14 DAYS to accept or reject offer
38
Q

Easiest way to disapply statutory pre-emption right?

A

Pass special resolution - open to any company

39
Q

3 formalities company must follow after allotting shares?

A
  1. Register within TWO MONTHS
  2. File return including a statement of capital within ONE MONTH
  3. Issue share certificates within TWO MONTHS
40
Q

4 differences between buyback and redemption?

A

Redemption only for:
1. REDEEMABLE shares
2. On terms agreed at TIME OF ALLOTMENT
3. On a FIXED DATE
4. Member has NO CHOICE

41
Q

2 payment requirements for share buybacks?

A
  1. Must be FULLY paid
  2. Payment must be made on PURCHASE
42
Q

When can a company buy back shares out of capital with no further formalities?

A

De minimis exemption: requirements do not apply if the AGGREGATE purchase price does not exceed 15,000 GBP OR 5% of the company’s fully paid up share capital at the beginning of the corresponding financial year

43
Q

Besides paying out of capital, 2 other finance options for share buyback?

A
  1. Out of DISTRIBUTABLE PROFITS
  2. Out of proceeds of FRESH SHARE ISSUE made for purpose of financing the purchase
44
Q

Main requirement for a private company to validly make off-market purchase of its own shares?

A

The contract must be approved by an ORDINARY RESOLUTION of the members

45
Q

Additional requirement if written resolution is used to approve contract where a private company makes an off-market purchase of its own shares?

A

Any member whose shares are subject to the buyback is not eligible to vote

So if such a member’s vote is counted and was decisive, resolution void

46
Q

What happens to the shares purchased through buybacks (2 points)?

A
  1. Usually cancelled
  2. May be held as treasury shares if purchased using DISTRIBUTABLE PROFITS
47
Q

2 steps involved when paying stamp duty on a share transfer form?

A
  1. Send stock transfer form to HMRC with stamp duty (usually paid by purchaser)
  2. If HMRC is satisfied that the consideration station is correct, it will stamp the stock transfer form and return to purchase
48
Q

Deadline for company to refuse to register stock transfer form?

A

Two months after the date the stock transfer form is lodged

49
Q

When does a share purchaser become entitled to dividends?

A

Once the contract for sale is validly executed (purchaser then acquires the equitable interest in the shares)

50
Q

3 possible taxes payable on a share transfer?

A
  1. Stamp duty (purchaser)
  2. Corporation tax (corporate seller)
  3. CGT (individual seller)
51
Q

Threshold where stamp duty becomes payable? Rate?

A

Consideration is over 1000 GBP

Rate is 0.5% rounded up to the nearest 5 GBP

52
Q

3 share transfers separate from stamp duty?

A
  1. Gifts
  2. Divorce, nullity of marriage of judicial separation
  3. Appropriated by a PR towards satisfaction of a general money legacy
53
Q

When will employee contracts automatically transfer to the new owner in a business sale?

A

When the transfer takes place by way of an asset sale

54
Q

Why does an asset sale usually carry greater tax liability compared to a share sale?

A

Taxed twice: corporate seller incurs **corporation tax **on proceeds of asset sale, and members may incur **income tax **if proceeds are distributed.

Also exposes to VAT and SDLT.

Share sale - only MEMBERS incur CGT on chargeable gains

55
Q

4 tests for corporate insolvency?

A
  1. Statutory demand for a debt over 750 GBP
  2. Enforcement of a judgment debt
  3. Cash flow test
  4. Balance sheet test
56
Q

What statutory mechanism is open to directors seeking to avoid formal corporate insolvency?

A

Apply to court for statutory moratorium (initial period 20 business days)

57
Q

3 effects of a statutory moratorium?

A
  1. Cannot commence legal proceedings against company
  2. Landlords cannot forfeit leases
  3. Company not required to pay any debts that fall due during the moratorium
58
Q

Which creditors are not subject to a CVA?

A

Preferential or secured creditors

59
Q

2 requirements to approve a CVA?

A
  1. 75% by value of voting creditors agree
  2. Dissenting unconnected creditors do not represent more than 50% by value of all unconnected creditors
60
Q

Deadline to contest CVA in court?

A

Within 28 days of creditor approval being reported to the court OR from the date the creditor becomes aware of the CVA procedure

61
Q

2 categories of people who can appoint administrator without a court order?

A
  1. Qualifying floating charge holder whose charge has become enforceable
  2. Company or directors if company is or is likely to become unable to pay its debts
62
Q

Two objectives of the administrator? Which is the main purpose?

A
  1. Main purpose - survival of the company as a going concern
  2. Achieve a better result for the creditors as a whole than if the company were wound up without administration
63
Q

Who is entitled to appoint an administrative receiver?

A

Holder of a floating charge over all (or substantially all) of the company’s assets

64
Q

What is a shared disadvantage of the administration and administrative receivership procedures?

A

Often leads to the eventual liquidation of the company

65
Q

What is the 2-stage approval requirement for a scheme of arrangement?

A
  1. Majority in number constituting 75% in value of EACH RELEVANT CLASS of creditors vote in favor
  2. Court approval
66
Q

What is the 2-stage restructuring plan for a scheme of arrangement?

A
  1. 75% in value of ONE OR MORE CLASSES of creditors vote in favor
  2. Court approval
67
Q

How often is the liquidator required to provide a progress report?

A

Within 12 months of appointment and annually thereafter

68
Q

What is the time limit for voidable undervalue transactions in corporate insolvency?

A

Within 2 years of winding up.

69
Q

What are the 2 time limits for voidable unfair preference transactions in corporate insolvency?

A

6 months prior to winding up

Within 2 years for connected persons

70
Q

What are the 2 time limits for avoidable floating charge transactions in corporate insolvency?

A
  1. 12 months before onset of insolvency if created for no consideration
  2. Up to 2 years if chargeholder is connected to the company
71
Q
A
72
Q

When may directors be liable for redeeming or purchasing company shares (3 points)?

A
  1. Within 12 months of commencing winding up
  2. Company paid out of capital to redeem or buyback its own shares
  3. Amounts paid by way of contribution to its assets INSUFFICIENT to settle its liabilities and expenses of winding-up
73
Q

What constitutes a “substantial asset” which would require shareholder approval if sold to a director of the company?

A

Value of the asset exceeds:

(1) 100,000 OR
(2) 10% of the company’s asset value (provided this is more than 5,000 GBP)

74
Q
A

SQE - FLK1 (21 decks)

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