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UNI > !!!!!! business law > Flashcards

!!!!!! business law Flashcards

1
Q

what are the 2 available business structures?

A
  • unincorporated entities
  • incorporated entities
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2
Q

examples of unincorporated entities

A
  • sole trader
  • partnership
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3
Q

examples of incorporated entities

A
  • private limited companies
  • unlisted public limited companies
  • LLPs
  • INCORPORATED ENTITIES HAVE A SEPERATE LEGAL PERSONALITY
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4
Q

sole traders - key info

A
  • individual owns the business and makes all decisions
  • few registration formalities
  • unincorporated entity- no seperation between individual and business
  • unlimited liability- personal assets at risk
  • business ceases upon death or retirement
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5
Q

general partnerships key info

A
  • partnership act 1890 provides default rules
  • 2 or more people carrying on a business in common with a view to a profit
    individual partners own and manage the business (self-employed)
  • unincorporated entity (no separation between individual and business)
  • unlimited liability - personal assets at risk
  • needs to be trust- if one leaves, the other will be left with the debt
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6
Q

definition of general partnership

A

2 or more people carrying on a business in common with a view to a profit

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7
Q

limited partnerships- key info

A
  • limited partnership act 1907
  • not widely used
  • must have at least one general partner with unlimited liability for partnership debts
  • other partner’s liability is limited and conditional on not being in control (ie managing the partnership)
  • must register with companies house
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8
Q

what is the veil of incorporation?

A

company and its members are separate from each other
they are separate legal entities

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9
Q

private companies limited by shares

A
  • companies act 2006
  • widely used to benefit from limited liability
  • incorporation formalities and ongoing (public) filing requirements at companies house
  • mandatory constitutional documents
  • directors manage the business, shareholders own the business
  • debt or equity finance
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10
Q

unlisted public companies limited by shares- key info

A
  • similar to private limited companies but shares can be issued to the public if SHARE CAPITAL REQUIREMENTS are met:
    – the aggregate nominal value of all shares issued is at least £50k and
    – each share is at least one quarter paid up
  • may apply to list shares on public exchange such as London stock exchange
  • more heavily regulated, so less attractive
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11
Q

limited liability companies- key info

A

LLP act 2000 default rules- express LLP agreement advisable
- hybrid between partnership and limited companies
- incorporation formalities and ongoing public filing requirements at companies house
- partners manage and own the business
- finances by capital injection/loan from partners or bank loans

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12
Q

professional conduct and ethical issues - duty to avoid conflicts of interest

A
  • who is your client? - the business or the individual?
  • you can act if there is a substantially common interest AND
    – clients give informed consent
    – safeguards to protect confidential info are put in place and
    – you are satisfied its reasonable to act
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13
Q

prof conduct and ethics- duty of confidentiality

A
  • duty extends to current and former clients
  • cant disclose unless permitted by law or client consents
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14
Q

prof conduct and ethics- money laundering

A
  • what checks do you need to do on clients?
  • what transactions might indicate money laundering activity?- geographic inconsistencies and cash structuring, use of third parties, secrecy
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15
Q

default rules for general partnerships (gp)

A
  • ordinary matters decided by majority, but unanimity needed to change nature of partnership
  • loans from partners carry interest at 5%
  • partners have joint liability for debts incurred while partner- profits and losses shared equally
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16
Q

partner duties (gp)

A
  • duty to provide true accounts and full info
  • duty to account for secret profits
  • duty not to compete
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17
Q

finances- money in (gp)

A

partners inject capital to cover initial operating costs
- capital can be cash or other assets
- partnership agreement should set out capital contributions made and any obligations to contribute capital in future
- partnership agt may also offer interest on capital contributions

  • partners can lend money to the partnership and will receive 5% interest
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18
Q

Finances- money out (gp)

A

partnership agreement can modify the partnership act 1890 that says
- partners share capital and income equally
- partners receive “drawings”- partnership art should specify amount

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19
Q

dealings with third parties (gp) - 3 types of authority

A
  • express actual authority- express permission or instruction to do something
  • implied actual authority- implied by regular course of dealing to which partners haven’t objected
  • apparent authority- partner appears to third party to have authority, but dont have it
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20
Q

apparent authority (gp) - when is a partnership liable to a third party

A
  • transaction relates to the business of the kind carried out by the partnership
  • transaction if one for which a partner in such a firm would usually be expected to have authority
  • other party didn’t know partner didn’t have authority subjective
  • other party deals with a person they know or believe is a partner subjective
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21
Q

dissolving a general partnership- how?

A
  • by notice from any partner in a partnership at will
  • automatically on expiry of fixed term/purpose, death, bankruptcy, or charging order
  • automatically on business becoming illegal (can’t be disapplied)
  • by the court in certain circs
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22
Q

dissolution by notice/agreement (gp)

A
  • default position in a partnership at will- dissolution by any partner at any time
  • this is impractical and makes partnership at the whim of a disgruntled partner
  • recommendations for partnership agreement
    – specify notice period
    – notice must be given in writing
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23
Q

automatic dissolution- expiry of fixed term/purpose

A

Default position: a partnership will dissolve automatically
on the expiry of a fixed term or conclusion of a fixed
purpose (s.32)
- if business continues after expiry it is a partnership at will

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24
Q

expulsion of a partner

A

default position is no majority can expel a partner unless the PA permits it
- would have to be dissolved and start again

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25
Q

dissolution by the court- when?

A
  • Partners can apply to the court for dissolution in certain
    circumstances (s.35):
  • Partner permanently incapable of performing duties
  • Partner’s conduct is prejudicial to business
  • Persistent breach of Partnership Agreement
  • Business can only be carried on at a loss
  • When it’s just and equitable
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26
Q

consequences of dissolution

A

realise partnership assets
- sell assets or
- sell business as a going concern
distribute proceeds
- creditors paid in full
- partners loans repaid plus interest
- partners capital entitlements
- surplus shares in accordance with PA

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27
Q

ownership of partnership assets

A
  • PA should specify which belong to partnership and which belong to partners personally
  • ownership depends on intention of partners
  • property owned by a partner but used by the partnership doesnt automatically become partnership property
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28
Q

the process of incorporating a private limited company

A

2+ members

file documents
- memorandum
- form IN01
- articles
- fee (£50)

certificate of incorporation issued
- registrar of companies issues certificate and placed notice in The Gazette
- LIMITED LIABILITY EXISTS FROM THIS DATE

-post incorporation formations
- directors meeting to sort operating formalities
- disclosure requirements (name, number, office etc)

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29
Q

What is a memorandum of association?

A

MOA states
- intention of subscribers to form a company and
- subscribers will become members and own at least one share each

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30
Q

what is included in form IN01

A
  • name
  • registered office location
  • limited liability
  • public or private
  • statement of share capital and initial shareholdings
  • details of PSC (own over 25% shares)
  • officers
  • statement of compliance by subscribers
31
Q

when one partner wants to leave the partnership without agreement of other partners- what do they need to do?

A
  • apply to court for an order dissolving the partnership under s35 PA 1890
32
Q

Members’ duties towards LLP

A

All members have a core fiduciary obligation to the LLP as its agents

  • duty of good faith
  • duty to account for money made on behalf of the LLP
  • duty to render true accounts and full info to other members
  • designated members also owe a duty of reasonable care and skill to the LLP
33
Q

Change of members of an LLP

A

New members- file LL AP01/LL AP02 within 14 days of appointment

Departing members- file LL TM01/LL TM02 within 14 days of leaving

  • Members will need to verify their identity at Companies House
  • Registrar has power to query information
  • Restrictions on names (e.g. no computer code)
  • Provision of email address
  • Annual Confirmation Statement confirming intended future activities are lawful
34
Q

advantages and disadvantages of LLPs

A

Advantages
- LLPs can grant fixed and floating charges
- Flexible management structure
- Can appoint an administrator

Disadvantages
- Administrative and accounting requirements
- Must file accounts and notices for change of members
- Publicly available information
- Subject to potential clawback provision on insolvency

35
Q

What happens on insolvency of LLP?

A
  • Company liquidation regime under Insolvency Act 1986 applies
    to both the LLP and its members
  • Members may be liable for misfeasance, fraudulent trading or
    wrongful trading
  • Members may be required to contribute to assets of the LLP
  • Company Directors Disqualification Act 1986 applies
36
Q

Shareholders in a company- info

A
  • buy shares and receive dividends
  • liability limited to the unpaid or partly paid shares they own
  • can be individuals or companies
  • make important decisions
  • shareholders agreement is a private document
  • are an owner of the company
37
Q

directors of a company- info

A
  • Make decisions
  • Owe duties
  • Likely receive salaries
  • Can also be shareholders
38
Q

Company secretaries

A
  • register of secretaries
  • appointment recorded on AP03/4 within 14 days
  • can resign or be removed by board resolution
    – notify registrar within 14 days on form TM02
    – update register of secretaries
39
Q

Auditors

A
  • confirm whether accounts have been prepared properly and give true and fair view of company
  • can be appointed by directors or shareholders
  • can be removed by shareholders via ordinary resolution but only on special notice (giving 28 days notice)
  • don’t owe a duty of care to shareholders
  • can be sued for negligence by the company
40
Q

Directors

A
  • make decisions on behalf of the company subject to limited exceptions when they need authorisation from shareholders
  • currently at least one director must be a ‘natural person’ (ie person not business)
41
Q

Articles of Association- options

A
  • model articles (basic template)
  • amended model articles
  • bespoke articles (written yourself)
  • table A 1985 (articles automatically applied to companies registered without them before 1985)
42
Q

Amending the Articles of association

A

Shareholders can amend the AoA by special resolution
This may be necessary or relevant when a new investor comes on board
Filing requirements: send special resolution and AoA to Companies House within 15 days- failure to do so is an offence

43
Q

Directors filing requirements

A
  • register of directors
  • register of directors’ residential address
  • CH01 change of particulars
  • AP01 appointment
  • TM01 Termination
44
Q

3 types of authority (Directors)

A

Express actual authority- permission or instruction to do something (eg in service contract)
Implied actual authority- implied by regular course of dealing to which directors haven’t objected
Apparent authority- director acts without consent but still binds the company if there is a representation that the director is acting with authority

44
Q

Consequences of breach of duties by director

A
  • civil consequences
  • ratification (agree to or confirm the action being taken)
  • shareholder derivative actions (minority shareholder is able to initiate legal proceedings on behalf of the company)
44
Q

Directors’ Service Contracts

A
  • set out the role, terms, remuneration
  • long term service contracts (over 2 years) must be approved by shareholders by ordinary resolution
  • other service contracts can be approved by the board but not where the Model Articles are adopted and there are only 2 directors
    – options
    – change the AoA (via SH special resolution) allowing director to vote; or
    – temporarily suspend MA14 (via ordinary res)
  • must be available for inspection by shareholders at the company’s registered office until 1 year after termination
44
Q

What is a substantial property transaction?

A
  • a director or someone connected with them
  • buys from, or sells to, the company
  • a non-cash asset
  • of substantial value

YOU ARE NOT ALLOWED TO DO THIS WITHOUT SHAREHOLDER APPROVAL

44
Q

Exceptions to the rule that you are not allowed to enter into substantial property transactions without shareholders approval

A
  • Where the company in question is a wholly owned subsidiary of the other company
  • A transaction between a company and a person in his character as a member of the
    company
  • A transaction between a holding company and wholly owned subsidiary
  • A transaction between two wholly owned subsidiaries of the same holding company
44
Q

effect of breach of substantial property transactions

A
  • transaction is voidable
  • people may be ordered to account for any gain/indemnify the company
44
Q

Loans to directors

A
  • a company can’t make a loan to a director of the company or its holding company unless the transaction is approved by an ORDINARY RESOLUTION of shareholders
44
Q

consequences of breach of loans to directors

A
  • loan is voidable at the instance of the company and director must account for any gain
  • transaction can be affirmed within a reasonable time by shareholder ordinary resolution
44
Q

exceptions to the requirement for ordinary resolution to allow loans to directors

A
  • expenditure on company business below £50k
  • expenditure on defending civil or criminal proceedings in relation to the company
  • expenditure on defending regulatory proceedings or a regulatory investigation
  • minor and business transactions under £10k
44
Q

3 types of claims against directors of insolvent companies

A
  • wrongful trading- Brought by liquidator or administrator- defence if the director took every step to minimise potential loss to creditors
  • fraudulent trading- brought by liquidator or administrator- criminal conviction
  • misfeasance- breach of fiduciary or other duty
44
Q

ending the directorship

A
  • can do it by resignation, removal, or automatically (eg on bankruptcy)
  • removal by SH ordinary resolution requires special notice (28 days)
    – director can make representations/defend the proposal
    – check AoA or shareholders agreement for any restrictions on shareholders votes
44
Q

two types of shares

A
  • ordinary shares
    – attend/vote in general meetings
    – dividends
  • preference shares
    – enhanced rights
    – non cumulative
45
Q

shareholder voting rights

A
  • receive notice of general meeting
  • appoint a proxy
  • poll vote
  • requisition a general meeting
45
Q

minority shareholder rights

A
  • bring unfair prejudice petition
  • instigate derivative action
  • winding up on just and equitable ground
45
Q

bushell v faith clauses

A

a provision in a company’s Articles of Association that gives a director enhanced voting rights if they are also a shareholder. This can prevent the director from being removed by ordinary resolution.

45
Q

decision making

A
  • subject (and format)
  • notice (length, recipient, form)
  • quorum (min amount of people needed to be at a meeting to make it valid- 2 directors/shareholders)
  • voting
  • admin/filing
46
Q

2 types of shareholder decisions

A
  • decisions shareholders alone make (eg changing AoA or company name)
  • decisions which give the directors permission (eg to enter a risky transaction)
47
Q

shareholders decision making

A

decisions are made either:
- at general meetings or
- via written resolutions

  • there are 2 types of shareholder resolutions
  • ordinary resolution- requiring over half of votes cast
  • special resolution- requiring 75% votes cast
48
Q

calling shareholder’s (general) meetings

A
  • a minimum of 14 clear days notice must be given
  • “clear” days are those excluding the day the notice was received and the day of the general meeting
  • notice sent by post or email is “received” 48 hours after sending – so notice given on 1st July, deemed to be received on 3rd July, then need to leave 14 days
  • check AoA for any additional requirements
49
Q

show of hands vs poll vote

A

show of hands is one shareholder, one vote
poll vote is one vote per share

50
Q

shareholders written resolutions

A

all eligible members get sent out the text of the resolutions the board is proposing and have to agree

require approval by a majority of eligible members - ie all members, not members who are actually voting
- ordinary resolutions- need consent of over 50% of all shareholders
- special resolution need consent of over 75%

51
Q

debt finance- 3 borrowing options

A
  • overdraft
  • term loan (secured or unsecured)
  • revolving credit facility
52
Q

common contractual terms

A
  • payment to borrower
  • repayment and pre-payment
  • interest rate
  • representations and warranties
  • covenants
  • events of default
53
Q

types of security for loans

A
  • mortgage (transfer of legal title)
  • charge (no transfer of legal title)- can be fixed or floating
  • personal guarantees
  • pledge
  • lien
  • retention of title
54
Q

can the business borrow money/give security?

A
  • companies inc after 1st October 2009 with unamended AoA– no restrictions- directors may approve by board resolution
  • companies incorporated after 1st Oct 2009 - check the AoA and amend by special res if necessary
  • companies inc before 1st Oct 2009- check the MoA and amend by special resolution
55
Q

procedural matters: authorisation- for borrowing money/giving security

A
  • board resolution is usually sufficient to authorise borrowing and security
56
Q

procedural matters: execution- for borrowing money/security

A

contracts
- entered by a company using the company seal, or
- by a person acting under its authority

deeds
- if using the seal, document must also be signed by an authorised person in the presence of a witness

57
Q

go from cards 52-62 on BUSINESS LAW 1 for more cards

A
58
Q

calculation of trading profits

A
  • happens every 12 months to work out if they made a profit or loss

basic formula-

CHARGEABLE RECIEPTS (eg income from the sale of goods or services)
minus
DEDUCTABLE EXPENSES
minus
CAPITAL ALLOWANCES (can deduct some of the cost of plant and machinery from chargeable receipts to reduce tax liability
equals
TRADING PROFIT OR LOSS

to be a deductible expense, the sum must :
- not be prohibited by statute
- be of an income nature (not capital)
- be incurred wholly and exclusively for the purposes of the trade

59
Q

2 types of capital allowance that may be claimed

A
  • writing down allowance (allows 18% of the total value of plant and machinery in each financial year to be deducted from chargeable value. The 18% is then deducted from the total value of the plant and machinery to give the written down value.
  • annual investment allowance (a business can deduct the entire cost of newly purchased plant and machinery in that accounting period from chargeable receipts (subject to a cap of £1m each year)
60
Q
A

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