Business Law

Question 1

When is a partnership formed?

Answer 1

When two or more people carry on a business in common with a view of profit.

Question 2

What must a partner do if they carry on a competing business without consent?

Answer 2

They must account to the partnership for all profits made, but profits are held on trust only if the Partnership Act 1890 is breached.

Question 3

Can a partner keep profits from competing business activities?

Answer 3

Yes, if they fully disclose and receive consent from the other partners.

Question 4

How are losses shared on dissolution if profits are shared unequally?

Answer 4

Losses are paid in proportion to the partners’ entitlement to share profits.

Question 5

What decisions require unanimity in a partnership unless otherwise stated?

Answer 5

The introduction of a new partner, changes to the partnership business, altering the partnership agreement, or expelling a partner.

Question 6

What types of authority can partners have to act?

Answer 6

Express actual authority, implied actual authority, or apparent authority.

Question 7

Who can demand a poll in a company?

Answer 7

Five shareholders or shareholders with at least 10% of voting rights or paid-up capital.

Question 8

How is a dividend declared under the model articles of association?

Answer 8

The board must recommend it, and shareholders must declare it by ordinary resolution.

Question 9

When can a board meeting notice period be shortened?

Answer 9

If 90% of the shareholders by number agree.

Question 10

What does ‘non-cumulative preference shares’ mean?

Answer 10

They provide a fixed sum before ordinary shareholders but do not accumulate unpaid dividends.

Question 11

When is special notice required?

Answer 11

To remove a director or auditor from office (28 days).

Question 12

How can directors be appointed in a company with Model Articles?

Answer 12

Either by the board or by an ordinary resolution of the members.

Question 13

What is the rule for service contracts exceeding two years?

Answer 13

They must be approved by an ordinary resolution of the members.

Question 14

What is the statutory notice period for an annual general meeting?

Answer 14

21 clear days, regardless of whether resolutions are ordinary or special.

Question 15

Can the burden of a contract be assigned?

Answer 15

No, only the benefit can be assigned, not the obligation to pay.

Question 16

Who is bound by an IVA?

Answer 16

Ordinary unsecured creditors, but not secured creditors unless they agree.

Question 17

What is pre-emption in share allotment?

Answer 17

Existing shareholders have a right to purchase shares to maintain proportional ownership if issued for cash.

Question 18

What is the order of fund distribution in bankruptcy?

Answer 18

(1) Bankruptcy costs, (2) Preferential debts, (3) Ordinary unsecured creditors, (4) Postponed creditors.

Question 19

How can a creditor prove insolvency for a winding-up petition?

Answer 19

By serving an unpaid statutory demand of £750+ for 21 days or obtaining an unsatisfied judgment.

Question 20

When is a floating charge invalid?

Answer 20

If it was granted within 12 months of insolvency without fresh consideration.

Question 21

What is the relevant time for a preference during insolvency?

Answer 21

Six months before insolvency or two years if made to a connected person.

Question 22

What happens when a company allots ordinary shares?

Answer 22

Existing ordinary shareholders have pre-emption rights to maintain proportional ownership if shares are issued for cash.

Question 23

How do fixed charges rank compared to floating charges?

Answer 23

Fixed charges rank ahead of floating charges, provided they are validly registered within 21 days.

Question 24

What is a transaction at undervalue?

Answer 24

Selling property for less than market value when insolvent.

Question 25

Do partners have an automatic right to expel another partner?

Answer 25

No, expulsion requires an agreement in the partnership terms.

Question 26

What is the effect of an indemnity agreement between partners?

Answer 26

It does not affect the retiring partner’s liability to third parties unless agreed by the third party.

Question 27

What decisions require unanimity in partnerships?

Answer 27

Introducing a new partner, changing the business nature, altering the agreement, or expelling a partner.

Question 28

How is personal allowance reduced for incomes above £100,000?

Answer 28

£1 is lost for every £2 above £100,000.

Question 29

What is the personal savings allowance?

Answer 29

£1,000 for basic rate taxpayers and £500 for higher rate taxpayers.

Question 30

Who must register for income tax self-assessment?

Answer 30

Sole traders, partners, directors, and those with income exceeding tax-free thresholds.

Question 31

How are payments on account calculated?

Answer 31

50% of the prior year’s income tax payable.

Question 32

What is the tax point for payments made before goods are supplied?

Answer 32

The earlier of payment or invoice date.

Question 33

What is the standard VAT rate?

Answer 33

20%.

Question 34

When must businesses register for VAT?

Answer 34

If turnover exceeds £85,000, based on historic or future tests.

Question 35

How are corporation tax payments scheduled?

Answer 35

For small companies, due nine months and one day after the end of the accounting period.

Question 36

What happens with unpaid dividends for cumulative preference shares?

Answer 36

They accumulate and must be paid in a profitable year before ordinary dividends are declared.

Question 37

Do preference shares have voting rights?

Answer 37

No, preference shares generally do not have voting rights.

Question 38

When can directors allot shares?

Answer 38

If the company has only one class of shares, directors can allot shares without shareholder approval.

Question 39

Are amounts in the share capital or premium accounts available for dividends?

Answer 39

No, they are non-distributable reserves and cannot be returned to shareholders.

Question 40

When is a floating charge invalid during insolvency?

Answer 40

If granted within 12 months without fresh consideration and the company was insolvent at the time or became insolvent as a result.

Question 41

What notice is required to remove a director or auditor under the Companies Act 2006?

Answer 41

28 days’ special notice is required, and the director/auditor must be allowed to attend the meeting.

Question 42

How can a general meeting be held on short notice?

Answer 42

If agreed by 90% of shareholders by number.

Question 43

When are tax payments required in the first year of trading?

Answer 43

No payments are required. Tax and returns are due by 31 January following the end of the tax year.

Question 44

How are capital gains or losses calculated?

Answer 44

Gains minus losses, subtracting the £12,300 annual exemption and then losses carried forward if the result is negative.

Question 45

What are exempt assets for capital gains tax?

Answer 45

Wasting chattels, government stock, and cars.

Question 46

Are companies taxed on dividend income?

Answer 46

No, dividend income is usually exempt from corporation tax.

Question 47

When must corporation tax returns be submitted?

Answer 47

Within 12 months after the end of the accounting period.

Question 48

Can VAT be recovered on business entertainment expenses?

Answer 48

No, VAT on business entertainment cannot be recovered.

Question 49

What happens if a close company makes a loan to a participator?

Answer 49

It must pay 32.5% of the loan to HMRC within nine months and one day after the accounting period ends.