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SQE 1 > Business Law and Practice > Flashcards

Business Law and Practice Flashcards

1
Q

What are the key features of an incorporated business?

A
  • exists as a separate legal entity from owners / managers
  • has to comply with various legal requirements
  • owners are liable for business debts
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2
Q

What are the key features of a private company limited by shares?

A
  • company decisions are usually made by directors / shareholders
  • directors will collectively make decisions at board meetings or in writing
  • shareholders will make decisions at general meetings (or in writing)
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3
Q

What are the key features of an unincorporated business?

A
  • not set up as a separate legal entity
  • owners have full personal liability for debts
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4
Q

What are the key features of limited partnerships?

A
  • must be at least one general partner who has unlimited liability for partnership debts
  • can have a limited partner whose liability is limited to the amount invested in the business
  • limited partner must not:
    • control / manage the LP
    • take binding decisions on behalf of the LP
    • remove contribution to the LP for as long as it is in the business

*if limited partner breaks any of these rules they will be treated as a general partner with unlimited liability

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5
Q

What are they key features of a public company?

A
  • constitution must state that it is a public company
  • public limited company must be included at the end of the company’s name
  • owners must invest a specified minimum amount of money for use by the company (£50,000)
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6
Q

Why operate as a public limited company?

A
  • can raise money by offering shares to the public
  • can apply to join the UK stock market
  • private companies are subject to loss regulation as they do not offer shares to the public
  • can only offer shares to someone already connected to the company or certain targeted individuals
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7
Q

What are the key features of a limited liability partnership?

A
  • cross between a partnership and limited company
  • have a separate legal personality / offers owners protection from LLP debts
  • run with informality of a partnership
  • LLP Regs 1970 - provides default contract for partners who have not agreed all / any of partnership terms
  • individual members of partnership must register with HMRC as self-employed
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8
Q

What other types of business medium are there?

A

companies limited by guarantee
- not seeking to make a profit
- shareholders guarantee company’s debts up to a specified amount

unlimited companies
- have unlimited liability for debts

community interest companies
- like an LLP but business uses profits / losses for public good not profit

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9
Q

Key considerations in choosing the type of business medium

A
  • liability
  • tax
  • formalities
  • publicity of information
  • cost
  • status
  • finance
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10
Q

Formalities in choosing a type of business medium

A

Unincorporated businesses
* no formal requirements need to be complied with once set up

Companies
* will need to complete minutes of meetings
* will need to maintain certain statutory registers
* will need to file certain documents with Companies House

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11
Q

Publicity of information

A
  • sole traders / partnerships only need to disclose identity of sole trader and address for service of documents
  • companies / LLPs must reveal certain information to public at large including certain financial information
  • companies / LLPs must make public information regarding directors, shareholders and significant decisions it has made
  • must keep various company registers open for inspection
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12
Q

Cost considerations in choosing a type of business medium

A
  • sole traders / partnerships can be set up without legal / administrative costs
  • to set up a company / LLP there is a charge
  • individuals may also need legal advice
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13
Q

Finance considerations in choosing a type of business medium

A
  • companies are more desirable to lenders
  • companies / LLPs can offer additional form of security for loans (floating charges)
  • companies / LLPS can offer floating charges over business’s assets
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14
Q

What steps are needed to form a new company?

A

Applicant must complete:
* form IN01

Must file to Companies House:
* memorandum of association
* articles of association
* applicable fee

  • company comes into existence upon certificate of incorporation being issued
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15
Q

What is included on certificate of incorporation?

A

Certificate of incorporation must state:

  • name / registered number of company
  • date of incorporation
  • whether limited / unlimied
  • if company is limited whether it is limited by shares
  • whether company is private / public
  • ## whether company is in England / Wales or in Scotland or Northern Ireland
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16
Q

What decisions need to be made on incorporation of a company?

A
  • what company name will be used?
  • where will the registered office be?
  • who will the first directors be?
  • what will be the** directors’ service address** for documents?
  • who will be the company secretary?
  • who will be the first shareholders?
17
Q

What are the key considerations for the company name?

A
  • company cannot use a name which constitutes a criminal offence
  • approval of Secretary of State is needed to register a company which suggests a government or geographical connection (ie. Mike’s British Eggs Ltd.)
  • company name cannot exceed 100 characters
  • words which denote professions must be approved by relevant body
17
Q

Key considerations for the company’s registered office

A
  • registered office must be on IN01
  • board resolution required to change company’s registered office
  • if registered office changes company must file form A101 at Companies House
  • change of registered office** takes place when registrar changes it**
18
Q

Key considerations for first directors

A
  • names / dates of birth must be included on IN01
  • every company must have at least one director
  • director must be a human being
  • must be at least 16 or over
19
Q

Key considerastions for first shareholders

A
  • names / addresses / details of shareholdings need to be entered on IN01
  • normal for companies to be incorporated with two shareholders who own one £1 ordinary share each
20
Q

What is the statement of capital?

A

must provide information about shares on IN01 which will include:
* number of shares of each type that the company has
* total nominal value of the shares
* names / addresses of all shareholders

21
Q

What is nominal and par value?

A

nominal value: the amount originally paid for the shares

par value: if share is sold for nominal value then it is sold at par value

22
Q

What is the company’s constitution made up of?

A

Company constitution is made up of:
* articles of association / memorandum of association
* certificate of incorporation
* current statement of capital
* copies of any court orders
* legislation affecting company’s constitution
* shareholder resolutions

23
Q

What is the importance of the Companies Act and Table A?

A
  • Companies Act came into force on 1 October 2009
  • companies incoporated before October 2009 will have Table A articles

new companies can:
* adopt model articles in entirety
* adopt model articles with some amendments
* apply bespoke articles

23
Q

What is the memorandum of association?

A

consists of a statement that:
* subscribers wish to form a company and agree to become a shareholder
* subscribers take at least one share each
* must be signed by subscribers

23
Q

Who is a person with significant control?

A

Control is significant if person:

  • holds more than 25% of shares in the company
  • holds more than 25% of voting rights
  • holds the right to appoint / remove a majority of the board of directors of the company
  • must state whether there will be a PSC on IN01
24
Q

What is a shareholder special resolution?

A
  • decision of shareholders which must be passed by majoirty of at least 75% of shareholders
24
Q

When does a partnership come into existence?

A

When a partnership comes into existence is dictated by s1 Partnership Act 1890

  • partnership comes into existence when one or more persons carrying on a business in common with a view of profit
  • must be carrying on a business in common

What are the key considerations?
* do individuals all take part in decision making
* which names are on the title deeds of any property?
* how are profits shared?

24
Q

Why operate as a partnership?

A

partners do not:

  • enjoy limited liability for the partnership debts
  • have to adhere to extensive administrative / accounting requirements
  • have to make much informatin public
  • have to enter into a written agreement if they do not want to
25
Q

What is included in the partnership agreement?

A
  • name of the partnership
  • place / nature of business
  • commencement and duration
  • work input
  • roles
  • decision-making
  • financial input
  • shares in income / capital profit and losses
  • drawings and salaries
26
Q

How is a partnership dissolved under the Partnership Act 1980?

A

partnership is dissolved when:
* partner retires (s 26)
* on expiry of a fixed term (s 32)
* by death / bankruptcy of any of the partners (s 33)
* something happens which makes it unlawful for the business of the firm to carry on (s 34)

26
Q

What is the effect of dissolution?

A
  • automatic dissolution means that partnership must end and all assets must be sold
  • outgoing partner will receive their share
  • partnership agreement should state what shold happen in the event a partner leaves and whether the remaining partners will continue in partnership
27
Q
A

SQE 1 (2 decks)

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