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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

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
A

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