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SQE 1 - FLK 1 > Business Law and Practice > Flashcards

Business Law and Practice Flashcards

1
Q

What is a sole trader? List a few advantages and disadvantages of this type of business structure.

A

Single person owns and runs the company

Advantages:
- Formation
- Regulation and formalities

Disadvantages:
- Liability: personally liable for debts of the business; enter into personal contracts with clients => personally liable for any mistakes or breaches
- Raising finance: fund their businesses from their own money/borrowings in their own name

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2
Q

Define a general partnership

A

When at least 2 people are carrying on a business in common with a view of profit

It is NOT a separate legal entity

Partners are jointly and severally liable

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3
Q

Define a limited partnership

A

Essentially general partnerships, but make a distinction between general partners and limited partners
- There must always be at least one general and one limited partner

General partners = manage the firm and are liable for all its debts and obligations

Limited partners =required to contribute a set amount of capital upon becoming partners and their liability is limited to the amount contributed; they cannot bind the firm or take part in the management of the firm

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4
Q

Define a limited liability partnership (LLP)

A

Has a separate legal identity

Liability falls on the LLP itself rather than jointly and severally on its members

Essentially owned and taxed in the same way as a general partnership and run in the same way as a company

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5
Q

What is the method of creating an LLP?

A
  1. Filing form LL IN01 with Registrar of Companies (at CH) and paying applicable fees
    - No need to file partnership agreement
  2. Registrar will issue a certificate of incorporation
  3. LLP legally comes into existence the date of incorporation on the certificate
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6
Q

Define a private limited company

A

Has a separate legal identity

Liability of members is limited
- Limited by shares = limited to the amount that is unpaid on their shares
- Limited by guarantee = limited by an amount set in a statement of guarantee

Corporate veil can only be pierced if one deliberately evades legal restriction that they advantage from because of separate legal identity

Directors make the day-to-day management decisions

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7
Q

What are the 3 requirements to form a public limited company?

A
  1. Constitution
  2. Plc at the end of the name
  3. Company’s owners must invest a specified minimum for use by company (£50,000)
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8
Q

What are the steps to form a company?

A
  1. Complete IN01 form
  2. Submit it at Companies House
  3. With memorandum of association/company’s articles
  4. Applicable fee
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9
Q

A company comes into existence when the certificate of incorporation has been issued. What must the certificate state?

A
  1. Name and registered number of the company
  2. Date of incorporation
  3. Whether it is a limited or unlimited company (if limited, is it limited by shares or guarantee)
  4. Whether it is a private or public company
  5. Where the company’s registered office is situated (England etc.)
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10
Q

How does a company change their registered office?

A

A board resolution is required

Company must file an AD01 form at Companies House

Change of address happens when the registrar changes it

Documents can still be sent to the old address for 14 days after the change

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11
Q

What formalities are required when incorporating a company in relation to:
1. Directors
2. Shareholders
3. Company secretary
4. Statement of capital

A
  1. Director’s service address (where official documents should be sent) and residential address must be inserted on the IN01 form
  2. Name, addresses and details of the first shareholders (subscribers) shareholding needs to be entered on the IN01 form
  3. If the company chooses to have a secretary, their name and address needs to be inserted on the IN01 form
  4. Number of shares of each type the company has and their nominal value must be included on the IN01 form
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12
Q

How can a company amend its articles of association?

A

Shareholders can amend the articles by a special resolution

Special resolution = must be passed by a majority of at least 75% of the shareholders

Amended articles must be filed within 15 days of them taking effect

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13
Q

Define people with significant control

A

Control is deemed significant if the person:

  1. Holds more than 25% of the shares in the company
  2. Holds more than 25% of the voting rights in the company
  3. Holds the right to appoint/remove a majority of the board of directors of the company
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14
Q

How can a company convert to a public company and what formalities are required?

A

Must pass a special resolution

Applicant must file at Companies House:
1. The special resolution
2. An application for re-registration on Form RR01, which includes a statement of compliance
3. The fee for re-registration
4. The revised articles
5. Balance sheet and a written statement from company’s auditors and a valuation report on any shares which have been allotted for non-cash consideration between the date of the balance sheet and the passing of the special resolution

CH will then issue a certificate of incorporation
- The change in the name and the revised articles will take effect on the issue of the certificate

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15
Q

Define memorandum of association

A

A legal formality required to start a company that has no impact on the running of the company

Only states that the parties wish to form a company and that they have agreed to subscribe for shares

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16
Q

Define articles of association

A

Effectively the company’s constitutional document or internal rulebook

It specifies the regulations for a company’s operations and defines the company’s purpose

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17
Q

Describe the tax implications of the following business mediums:
1. Sole trader
2. Partnership
3. Limited company

A
  1. Owner pays tax on the business’s profits as an individual (ie: income tax and capital gains tax)
  2. Each partner is taxed separately on any profit they receive as an individual
  3. Company pays corporation tax on both trading and capital profits
    - Shareholders are taxed on any dividend income and employees are taxed on salaries
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18
Q

When can individual members of an LLP be held liable?

A

May be liable for:
1. Misfeasance
2. Fraudulent trading
3. Wrongful trading

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19
Q

What is the default position for the management and decision-making in an LLP?

A

Every member must take part in management

Unanimous consent is needed for:
1. Changing the nature of the business
2. Terms of the contract between members

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20
Q

What constitutes chargeable receipts?

A

Money received for the sale of goods and services

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21
Q

What constitutes deductible expenditure?

A

Income nature and incurred ‘wholly and exclusively’ for trade

Deduction must not be prohibited by statute (eg: client entertainment, leasing cars with emissions below a certain level)

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22
Q

What constitutes capital allowances?

A

Plant and machinery (apparatus to carry on business)

Each business is entitled to a writing down value (WDA) of 18% of the value of plant and machinery, which is deducted from the chargeable receipts

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23
Q

What constitutes allowable reliefs in relation to income tax?

A

Interest paid when the taxpayer has borrowed:
1. A loan to buy a share in a partnership/to contribute capital/make a loan to a partnership
2. Loan to invest in a close trading company
3. Loan to PRs to pay inheritance tax

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24
Q

What is an unfair prejudice petition? What is the test for a minority shareholder to have grounds for this remedy?

A

Any member who feels that the actions of the company have caused unfair prejudice to that member

  1. Conduct of company’s affairs
    - Acts must be done by the company and not the individual shareholder
  2. Interest of members
    - The unfair prejudice must relate to a class of members generally or to the specific minority members bringing the action
  3. Unfairly prejudicial (objective test - would a hypothetical bystander consider the act/omission to be unfair)
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25
Q

What is a derivative claim and when can this remedy be brought?

A

It is where shareholders can sue on behalf of the company for an act/omission of a director, where the board is refusing to bring the claim itself

Can only be brought if the cause of action is/proposed to be:
a) Negligence
b) Default
c) Breach of duty
d) Breach of trust by the director

Must have permission of the court to bring a claim

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26
Q

What is needed for a transaction to be a SPT?

A
  1. A director in their personal capacity OR someone connected with a director
    - Connected to director:
    a) Family member (not siblings); or
    b) Company where director or someone connected to director has at least 20% of corporate shares OR is entitled to exercise/control more than 20% of the voting power at GMs of the company
  2. Buys from/sells to company
  3. A non-cash asset
  4. Of substantial value
    - Over £100,000 OR if between £5,000-100,000 and worth more than 10% of company’s net asset value

If a company proceeds with a SPT without obtaining the necessary approval, the transaction is voidable
- Directors in question may be required to account to company any gain they made on the transaction

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27
Q

What is the general rule if a director has an interest in a proposed transaction? What are the exceptions?

A

General rule = must declare the nature and extent of this interest to the board

If MA 14 is applied, director will not be able to vote/count in the quorum
- If they voted despite MA 14 applying, then the decision reached could be held to be invalid

Exceptions to declaring interest to the board:
a) If it cannot reasonably be regarded as likely to give rise to a conflict of interest
b) If the other directors are already aware of it
c) If it concerns the terms of a service contract that have been or are to be considered by a meeting of the directors

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28
Q

When is service of notice of a meeting deemed when sent by post or email

A

48 hours
=> 48 hours need to be added onto the 14 clear days to allow for posting on receipt

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29
Q

Who can demand a poll vote?

A
  1. Chair of the meeting
  2. Directors
  3. 2 or more persons having the right to vote on the resolution
  4. A person(s) representing at least 10% of the total voting rights of all the shareholders having the right to vote on the resolution

If a poll vote is called, it means that each shareholder has one vote per share

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30
Q

How can a GM be validly held on short notice?

A

If a majority in the number of the company’s shareholders who between them hold 90% (95% for public companies) or more of the company’s voting shares consent

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31
Q

What are the requirements for valid notice of a general meeting?

A

14 clear days (day notice is sent and day of the meeting are not counted)

Must include:
a) Time, date and place of meeting
b) General nature of the business to be dealt with at the meeting
c) If special resolution is proposed, exacting wording of the special resolution
d) Each shareholders’ right to appoint a proxy to attend on their behalf

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32
Q

What is a written resolution and how can it be used?

A

Alternative to a GM

Can be called by a shareholder who has 5% of voting rights

Must be circulated to every eligible member

Each member has one vote per share

Lapse date is 28 days after circulation

Takes effect as soon as requisite votes are met
- Depends on whether resolution at GM would have been ordinary or special

CANNOT be used to remove a director

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33
Q

How are shareholders’ votes counted at a GM?

A

Show of hands; each shareholder has one vote

They are not prevented from voting if they have an interest, even if they are also a director
- This is because they are now acting as a shareholder

Exceptions: will not count if their vote makes a difference as to whether the resolution passes if the resolution:
a) Is to buy back some/all of a shareholders’ shares
b) To ratify the director’s breach of duty where the director in question is also the shareholder voting and/or those connected to the director

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34
Q

What is the notice requirement of a board meeting?

A

There is no minimum notice requirement, but it must be reasonable and state the:
a) Time
b) Date
c) Place of the meeting

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35
Q

Are companies required to have directors?

A

All companies must have at least 1 director who is a natural person

Public companies must have at least 2 directors

Directors must be over the age of 16

Exception to quorum: MA 7(2) allows companies with a sole director to validly take company decisions without calling a board meeting

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36
Q

What are the administrative requirements of appointing a director?

A

Notify CH within 14 days of appointment by filing a notice of appointment of the director (corporate director if the director is a corporate body)

Company must enter director on register of directors and register directors’ residential addresses

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37
Q

What are the administrative requirements of a director’s service contract?

A

If the service contract is for a guaranteed term of more than 2 years, it must be approved by the shareholders by ordinary resolution

Must keep a copy of the memorandum setting out the terms of the proposed service contract at the registered office 15 days prior to the GM and at GM itself

Must be available for inspection by shareholders during their term and a year after termination
- Have the right to inspect without charge and within 7 days

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38
Q

If a director resigns, what are the administrative requirements?

A

Inform CH within 14 days by filing form TM01 (TM02 if director is a company)

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39
Q

What are the 8 main duties a director has?

A
  1. To act within powers
  2. To promote the success of the company
  3. To exercise independent judgement
  4. To exercise reasonable care/skill/diligence
  5. To avoid conflict of interest
  6. Not to accept benefits from third parties
  7. To declare interest in a proposed transaction/arrangement
  8. To declare interest in an existing transaction
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40
Q

What are the potential remedies for breach of directors’ duties?

A
  1. Account of profits
  2. Equitable compensation for loss suffered by company
  3. Rescission of any contract entered into as a direct/indirect result of breach
  4. Injunction
  5. Restoration of property transferred as a result of breach

Not exercising reasonable care etc. is akin to negligence
=> Common law damages will be the correct remedy

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41
Q

When can a claim for wrongful trading be brought against a director? What is the defence for this claim?

A

The company has become insolvent and at some point the director knew/ought to have known that there was no reasonable prospect that the company would avoid going into liquidation

Defence: took every step they could with a view to minimising the potential loss to the company’s creditors as they ought to have taken
1. Objective knowledge/skill/experience reasonably expected of a person carrying out the same functions as the director
2. Subjective knowledge/skill/experience of that director

Court may order that they make a contribution to the company’s assets
=> Leaving more funds available for distribution to creditors

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42
Q

When can a claim of misfeasance be brought against a director?

A

Liquidator/administrator may bring a claim for restoration/repayment/contribution to company’s assets if director breached their fiduciary duties

Can be brought against a director who has not taken part in the running of the company

43
Q

How can authorised share capital (ASC) be removed to allow the allotment of shares above the limit the ASC sets?

A

Ordinary resolution - exception to the general rule that a special resolution is needed to change the company’s articles

44
Q

What authority do directors have to allot shares in:
1. A private company with one class of share
2. Companies with more than one class of share?

A
  1. Can allot shares without permission of shareholders, if incorporated under CA 2006
    - If they are not incorporated under CA 2006, shareholders may have to pass an ordinary resolution to give directors authority to allot shares without their permission
  2. Must obtain shareholders’ permission by ordinary resolution
    - Resolution must state:
    a) Max number of shares directors can allot
    b) Date on which authority will expire (max 5 years)
45
Q

Pre-emption rights apply if equity securities are being offered. Define equity securities

A
  1. Ordinary shares in a company; or
  2. Rights to subscribe for or to convert securities into ordinary shares in the company
46
Q

What do pre-emption rights not apply to?

A
  1. Allotment of bonus shares
  2. Consideration for allotment is wholly/partly non-cash
  3. Shares are held under/allotted/transferred pursuant to an employee share scheme
47
Q

How can:

  1. Private companies with one class of share
  2. Companies with more than one class of shares

Disapply pre-emption rights?

A
  1. Special resolution

2.a) If the resolution giving authority to allot is general, can remove by special resolution
b) Authority to allot is specific, can disapply but directors must make written statement setting out
i) Reasons for making recommendations
ii) Amount purchaser will pay; and
iii) Directors’ justification of that amount

48
Q

Allotment of shares: what resolutions must be sent to CH within 15 days

A
  1. All special resolutions
  2. Any ordinary resolution removing the authorised share capital in a pre-CA 2006 company
  3. Any ordinary resolution to activate s 550 in a pre-CA 2006 company
  4. Any s 551 ordinary resolution granting directors’ authority to allot
49
Q

Allotment of shares: what company forms must be sent to CH?

A
  1. Form SH01 (return of allotment and statement of capital) within 1 month
  2. Forms for new persons with significant control/a change of which percentage band a person is in/a person ceasing to be a person with significant control
50
Q

How can shares be transferred?

A

Completing and signing stock transfer form and giving it to transferee along with share certificate relating to shares

Over £1,000, must pay stamp duty (0.5%, rounded to nearest £5)

Company should:
1. Send new shareholder a share certificate in their name within 2 months
2. Enter name on register of members within 2 months; and
3. Notify Registrar of Companies of change in ownership of shares when company files it annual confirmation statement

51
Q

Define fixed charges

A

Lender controls the asset

If the company goes into liquidation, fixed charge holder will have the right to sell the asset and be paid out of the proceeds of sale before any other claimants

Can create more than one fixed charge over the same asset

52
Q

Define floating charges

A

Secures a group of assets that are constantly changing

Company retains freedom to deal with the assets in ordinary course of business until the charge crystallises

53
Q

Under what circumstances can a floating charge crystallise?

A
  1. Chargor goes into receivership
  2. Chargor goes into liquidation
  3. Chargor ceases to trade
  4. Any event which occurs which is specified in charge document
54
Q

What is the priority of charges?

A
  1. Fixed charge/mortgage takes priority over floating charge over the same asset, regardless of when they were created
  2. If there is more than one registered fixed charge/mortgage, take priority in order of creation NOT registration
  3. If there is more than one registered floating charge, take priority in order of creation NOT registration

If the charge is not registered within 21 days, security will be void against liquidator/administrator/creditor

55
Q

What are the steps for calculating CGT?

A
  1. Calculation of gain:
    a) Proceeds of disposal LESS
    b) Incidental costs of disposal LESS
    c) Initial expenditure LESS
    d) Subsequent expenditure LESS
  2. Apply reliefs
    a) Rollover (replacement business asset or incorporation of business)
    b) Hold-over relief
    c) BADR
    d) Private residence relief
  3. Aggregate gains/losses; deduct annual exemption
  4. Apply correct rate of tax
56
Q

What are the CGT tax rates (including the rates of reliefs that may apply)?

A

Capital gains and income does not exceed £37,700 = 10%

Over £37,700 = 20%

BADR = 10%

Residential property = surcharge 8%

57
Q

CGT: Define:
a) Proceeds of disposal
b) Incidental costs of disposal
c) Initial expenditure
d) Subsequent expenditure

A

a) What the asset cost to sell/its market value

b) Legal fees for sale, estate agent’s fees/commissions etc.

c) Purchase price of asset, incidental costs of acquisitions

d) Incurred to enhance the value of asset or preserve/defend title to asset

58
Q

Explain the effect of rollover relief and when it will apply:
a) On replacement of business assets
b) On incorporation of business

A

CGT is postponed until the seller disposes of the new assets

On replacement of business assets:
- Must be a qualifying business asset (must be in trade of business)
- Time limit: must acquire replacement within 1 year before OR 3 years after disposal of original asset
- Must claim relief within 4 years of the end of the tax year which they acquire the replacement asset

On incorporation of business:
1. Business must be transferred as a going concern
2. Consideration must all be in shares issued by company
3. Business must be transferred with all its assets
- HMRC applies this automatically

59
Q

Define hold-over relief

A

Applies when one gifts certain types of business assets/sells them at an undervalue

A business asset is either:
a) Assets used in donor’s trade
b) Shares in trading company not listed
c) Share in personal trading company, even if listed (own at least 5% of voting rights)

Donor and donee must elect to apply for relief within 4 years from end of tax year of disposal

60
Q

Define BADR and when it can apply for:
a) Sole trader/partnership
b) Company shares

A

Available on the disposal of specific business assets
- Flat rate of 10% subject to cap of £1 million

Sole trader/partnership:
- Interest must be owned throughout:
a) 2 years, ending with date of disposal OR
b) 2 years ending with cessation of business, provided that disposal is within 3 years after cessation of business

Company shares:
a) Trading company
b) Company is disponer’s personal company (5% of profits/proceeds of sale if company was wound up); and
c) Disponer is an employee/officer of the company
- As well as the requirements for sole traders/partnerships

61
Q

Define private residence relief

A

Exempt from CGT provided the seller occupied the dwelling house as their main/only residence throughout the period of ownership

Last 9 months are ignored

62
Q

CGT: how does disposal work between spouses?

A

Can dispose without paying CGT, but it becomes chargeable when the recipient disposes of the asset

Receiving spouse acquires asset for amount gifting spouse paid for it/its market value

63
Q

What are the corporation tax rates?

A

Based on taxable profits:
a) Up to £50,000 = 19%
b) £50,001 - £250,000 = 25% less marginal rate
c) Over £250,000 = 25%

64
Q

Define a close company

A
  1. Controlled by 5 or fewer participators; or
  2. Controlled by participators who are (shadow) directors

Participator = person who owns shares in company/has a right to acquire shares

65
Q

What needs to be done when a loan is made to a participator by a close company?

A

Must pay HMRC 33.75% of the loan

Exceptions:
1. Loan is made in ordinary course of money-lending business; OR
2. Loan is:
a) No more than £15,000
b) Borrower works full-time for the company; AND
c) Owns no more than 5% of company’s ordinary shares

66
Q

What are the tests for insolvency?

A
  1. Creditor served statutory demand for an outstanding sum £750+ and company does not pay/come to an agreement within 21 days
  2. Creditor has obtained a judgement against the company and has tried to enforce judgement, but it has not been paid in full
  3. Cash flow test: can be proved to the court that the company is unable to pay its debts as they fall due
  4. Balance sheet test: can be proved to the court that the company’s liabilities exceed its assets
67
Q

Define liquidation along with:
a) Compulsory liquidation
b) Creditors’ voluntary liquidation
c) Members voluntary liquidation

A

Business stops trading; assets are sold; company ceases to exist; liquidator runs company and pays creditors

a) Third party commences winding up proceedings by presenting a winding up petition at the court

b) Commenced by shareholders, but controlled by creditors

c) Commenced by solvent company because it wishes to cease trading/is dormant and wants to bring affairs to an end

68
Q

What is the order for distributing a company’s assets during liquidation?

A
  1. Valid fixed charges
  2. Expenses of winding up
  3. Preferential debts (rank and abate equally)
    - Wages for employees
    - HMRC in relation to PAYE and VAT on wages (eg: NOT preferential for corporation tax)
  4. Floating charges
  5. Unsecured creditors (rank and abate equally)
69
Q

Define administration. How can this process be commenced?

A

Administrator is appointed to run the company and make whatever changes are necessary to improve its financial performance

  1. Court route: by court order
  2. Out-of-court route: company/director/holder of qualifying floating charge/unsecured creditor files certain documents at court
70
Q

How does administration end?

A

Automatically after one year from date administration took effect

Can be earlier by application of court if:
1. Its objective has been achieved
2. Administrator believes its objectives cannot be achieved
3. By application to the court by a creditor

71
Q

What requisite percentages are needed for a Creditors Voluntary Arrangement?

A
  1. 75% or more in value of company’s creditors; and
  2. 50% or more of those votes are from non-connected creditors
72
Q

Define transaction at undervalue and what is required to for this to be voidable

A

Gift/sale for significantly less than that provided by the company

Time limit: took place within 2 years before insolvency
- Within 5 years for bankruptcy

Demonstrate that company was insolvent at the time/became insolvent because of transaction (this is presumed if transaction was made with a ‘connected person’)
- Do not need to prove this for bankruptcy where the transaction is more than 2 years before bankruptcy

Defence: Company entered into transaction in good faith, for purpose of carrying on the business and there are reasonable grounds for believing that it would benefit the company

73
Q

Define ‘preferences’ and what is required to make this transaction voidable

A

Putting creditor in better position in event of company going insolvent than they otherwise would have been

Time limits:
1. Connected person = within 2 years before insolvency
2. Any person = within 6 months prior to insolvency

Demonstrate:
1. Company was insolvent at the time/became insolvent; and
2. Company was influenced by a desire to prefer the creditor (presumed if connected person)

74
Q

Define ‘avoidance of floating charge’ and what is required to make this transaction voidable

A

Unsecured creditor obtained a floating charge to secure an existing charge for no new consideration
- Debt becomes unsecured

Time limits:
1. Connected person = within 2 years of insolvency
2. Any person = within 1 year before insolvency

If granted to an unconnected person, liquidator will have to prove that the company was insolvent at the time/became insolvent
- Do not need to prove this if charge was made to a connected person

75
Q

In a partnership, what decisions must be taken unanimously?

A
  1. Changing the nature of the business
  2. Introducing a new partner
  3. Changing the terms of the partnership agreement
76
Q

Under what circumstances can a partnership be dissolved?

A
  1. When a partner retires
  2. On expiry of a fixed term
  3. Death/bankruptcy of any of the partners
77
Q

What is the liability of a partner for partnership debts?

A

Before leaving = jointly and severally liable

After leaving = partner remains liable for debt they incurred while they were a partner
a) Existing clients must have actual notice of the partner leaving
b) Non-clients must be notified by notice in (London) Gazette

78
Q

Define de facto and shadow directors

A

De facto = not formally appointed but act as directors
- There is no requirement for them to act in accordance with their instructions

Shadow = not formally appointed but someone whose instructions the directors of the company are accustomed to follow

79
Q

What is the quorum for board and general meetings?

A

Board = 2 directors
- Exception: allows companies with a sole director to validly take company decisions without calling a board meeting

General = 2 shareholders, subject to the company’s articles

80
Q

Under what circumstances can a company make a loan to one of their directors?

A

It cannot unless it has been approved by the shareholders by ordinary resolution

Exceptions to this approval are expenditure on:
a) Company’s business (max £50,000)
b) Defending civil/criminal proceedings in relation to company/any associated company
c) Defending regulatory proceedings
d) Minor and business transactions that do not exceed £10,000

If approval is not sought/one of the exceptions does not apply, the transaction is voidable
- May be affirmed by an ordinary resolution

81
Q

What is the annual investment allowance? When is it available in comparison to the full expensing allowance?

A

AIA = deduct 100% cost of plant/machinery from chargeable receipts

AIA is available for:
a) Companies and unincorporated businesses
b) 100% allowance, capped at £1 million
c) New, second-hand and refurbished

Full expensing allowance:
a) Companies only
b) 100% uncapped
c) Brand new only

82
Q

Define start-up loss relief

A

Claim back income tax in first 3 years prior to loss
- Must be set against earlier years before later years

Cap = £50,000 or 25% of taxpayer’s income

Available if loss occurs in first 4 years of new business

83
Q

Define carry-across relief and one-year-back relief

A

Set loss against income from same and/or previous tax year

4 options:

  1. Set against total income of current tax year
  2. Set against total income of previous tax year
  3. Set against total income of current tax year until this is reduced to 0 and then set the balance against previous tax year
  4. Vice versa of (3)

Cap = £50,000 or 25% of income

84
Q

When is is possible to set a loss against chargeable gains?

A

Applies where carry-across relief is applied but not all of the loss has been absorbed

85
Q

Define carry-forward relief

A

Carry forward loss for a tax year and set it against subsequent profits

Possible to carry it forward indefinitely, but must notify HMRC if intending to claim this relief for more than 4 years

Advantage = retain the benefit of personal allowance

Disadvantage = if one does not make a profit, it will not give much financial help

86
Q

Define carry-back terminal trading loss

A

Losses incurred in the final 12 months can be set against trading profit of that year and 3 years preceding that loss

87
Q

What are the exempt supplies for VAT purposes?

A
  1. Residential land
  2. Postal services
  3. Education
  4. Health services
88
Q

What is the calculation for income tax?

A
  1. Calculate total income (to determine personal allowances)
  2. Deduct any allowable reliefs
    - This gives the net income
  3. Deduct personal allowances
    - Gives taxable income
  4. Separate each type of income and calculate the tax at the applicable rate
  5. Add amounts together
89
Q

What are the personal allowances for:
1. NSNDI
2. Savings
3. Dividend

A
  1. £12,570
  2. a) Less than £37,700 = £1,000
    b) £37,700 - £125,140 = £500
    c) £125,140+ = no allowance
  3. £1,000, regardless of income band
90
Q

What are the rates for each tax band for:
1. NSNDI
2. Savings
3. Dividend

A
  1. a) Basic (<£37,700) = 20%
    b) Higher (<£125,140) = 40%
    c) Additional rate (£125,140+) = 45%
  2. a) Starting rate (<£5,000) = 0%
    b) Basic (<£37,700) = 20%
    c) Higher (<£125,140) = 40%
    d) Additional (£125,140+) = 45%
  3. a) Ordinary (<£37,700) = 8.75%
    b) Upper (<£125,140) = 33.75%
    c) Additional (£125,140+) = 39.35%
91
Q

What is a CVA?

A

Creditors’ Voluntary Arrangement

Insolvency process with minimal court involvement

Directors remain in control of the company (albeit overseen by a liquidator supervisor) and they are able to negotiate with the unsecured creditors to achieve liquidity while still operating the business as a going concern

92
Q

What is an IVA?

A

Individual Voluntary Arrangement

This is a way for partners and sole traders to reach a settlement with their creditors in an attempt to avoid having to declare bankruptcy

Usually last for around 5 years and are essentially a plan for the individual to repay their debts over the agreed timeframe

93
Q

What is bankruptcy and how can this be commenced?

A

Effectively the equivalent to winding up a company but for sole traders and partners

Can be commenced by:

  1. A petition brought by a creditor = a creditor owed a liquidated sum of more than £5,000
    - Must show they are unable to pay their debts
    - Will need to engage services of an agent to hand petition to debtor and creditor will need to confirm in a witness statement that they have done so
  2. Individual debtor’s application: done online to an adjudicator rather than to the court
    - Must show they are unable to pay their debts
    - Pay fee for application and deposit for Official Receiver’s admin fee
    - Adjudicator has 28 days to make a decision (can extend to 42 days if they need more information - usually granted within 48 hours)
94
Q

What is the calculation for how much a creditor will receive?

A
  1. Divide total assets by total liabilities to give the amount every creditor should receive for each £ they are owed
  2. Multiply answer from (1) by the amount the creditor is owed
95
Q

What are the calculations for:
a) Net Current Assets
b) Net Assets

A

a) Current assets - current liabilities

b) Fixed and current assets - current and long-term liabilities

96
Q

How can shareholders remove a director?

A

By ordinary resolution

Must give special notice = Company must be informed 28 days before GM

Once this notice has been received, it must inform the director and give the shareholders notice of the resolution

97
Q

Explain the general anti-avoidance rule

A

Allows HMRC to make adjustments to a tax payer’s liability to counteract abusive tax arrangements

Burden is on HMRC to show that the arrangement is abusive

Adjustments must be just and reasonable

98
Q

How can a director’s breach of duty be ratified?

A

By ordinary resolution of the shareholders

Ratify = it will be as if breach never occurred

Votes of the director concerned and those connected with the director will not count
- Connected = spouse, children, parents and step-children
- Not connected = siblings, grandparents, aunts and uncles

99
Q

What are the ways in which a director may be appointed?

A
  1. Board resolution
    - More than 50% of the board to agree in appointing the director
    - Quickest option
  2. Ordinary resolution of shareholders
    - Can do this if already holding a GM, and board wish to give shareholders the opportunity to have their say in the matter
100
Q

What are the ways in which a director can be removed?

A
  1. Resignation
    - Must inform CH within 14 days of resignation by filing form TM01
  2. Ordinary resolution of shareholders
    - Must give special notice of removal of director (28 days before GM)
  3. If the board in uncooperative with members in effort to remove a director, shareholders may requisition a GM
101
Q

How can shareholders requisition a general meeting?

A
  1. Shareholders who together own 5% of the paid-up capital of company
  2. Send a request to directors to hold GM
    - Also detail the general nature of business to be conducted at the GM
  3. Directors must call the GM within 21 days
  4. Usual notice requirements apply (eg: 14 clear days)
    - Notice cannot be more than 28 days to prevent directors from frustrating shareholders’ request
    => No more than 7 weeks from requisitioning meeting and holding GM
102
Q

What is the difference between ordinary and preference shares?

A

Ordinary = typically give shareholders the right to attend and vote at GMs
- Most common type of shares

Preference = gives shareholders enhanced rights over ordinary shareholders
- Ideal for those who want to invest in the company, but are willing to forgo voting rights
- eg: guaranteed right to a dividend, that may be cumulative or non-cumulative

103
Q

What company decisions require a special resolution?

A
  1. Changing a company’s name
  2. Changing any of the articles of association
  3. Converting from a private to a public company
  4. Private company, one class of share: disapplying pre-emption rights
  5. Company with more than one class of share: if resolution giving authority to allot is general, can remove pre-emption rights by special resolution
  6. To authorise the buyback of shares out of capital
    - Will also need an ordinary resolution to authorise buyback alone
104
Q

What is a shareholder agreement? What is a Bushell v Faith clause?

A

A shareholder agreement binds all those who enter into it and provides a remedy for breach of any of its terms

Bushell v Faith clause = shareholders will have weighted voting rights when the resolution being considered is to remove that shareholder from their office as a director

Cannot place a restriction on how a shareholder will vote at a board meeting as this would mean they would be in breach of their duties as a director

SQE 1 - FLK 1 (8 decks)

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