Business Law and Practise Flashcards
Who has liability for debts in a sole proprietorship or general partnership?
the sole proprietor or general partner has unlimited personal liability
Who has liability in a LLP or company?
companies and LLPs are legal entities in their own right and liable
How are the different business models formed? (company, llp, Sole Partnership, General Partnership)
Sole Proprietor, General Partnership - no filing requirements
LLP, Company - filing needed at Companies House
How is a General Partnership formed?
1) if two or more persons
2) carry on a business in common
3) with intention to make profit
What is considered prima facie evidence of a partnership?
Sharing of profits unless the reciept is:
-repayment
-employment
-annuity
- agreement to share losses not prima facie
-joint owned property
-financial contribution or sharing gross returns
When does a partner have Actual Authority
1) Expressly granted in partnership agreement
2) Expressly, from vote
3) Impliedly, from failure to object to previous action
= can bind partnership in contract
When does a partner have Apparent Authority
1) To carry on the usual way of business of the kind carried by the business unless:
- partner has no actual authority to act
- third party knew partner lacked authority
- third party did not know they were a partner
objective test - reasonable third party think a business of this kind would usually do this act?
If a Partner does not have Actual or Apparent Authority, who is bound by the contract?
the Partnership will not be bound but the partner will be
Liability for Incoming and Outgoing Partners
New Partner - not liable for obligatiosn incurred before they were admitted
Outgoing Partner - Remains liable on all obligations incurred before they left. Will also be liable for obligations after the leave unless: 1) gave actual notice to creditors and 2) gave publication notice on London Gazette
What happens if someone who is not a partner holds themselves out to be a partner
They may be held liable as if they were a partner to any third party who gave credit to partnership on strength of their holding out
What is considered Partnership property
Money or property contributed to the firm and earned by the firm, bought by firm
No right to use this for personal use
Property owned by partner used by firm will still be partner property unless parties agree otherwise
How do Partners share losses and profits
Equally
Partner can assign their right to receive distributions to another but that person does not become a partner unless all parties agree
If partner lends money to partnership, entitled to interest at 5% per annum
What are the Rights of a Partner?
1) Inspect partnership books and records
2) Not entitled to be paid for work done but is entitled to be indemnified for payments made on behalf of business
3) Have an equal vote in decision making
What decisions require unanimous consent by the partners?
1) Admission of New Partner
2) Change in Nature of Business
3) Alteration in Partnership Agreement
What are the Duties of a Partner?
1) To disclose information relevant to the firm
2) To not compete with the firm’s business
3) Account to firm for any benefit or profit from transaction concerning partnership, its business or use of partnership property
How can a Partnership be dissolved?
1) Expiration of term or acccoomplishment of goal
2)Partnership gives notice to withdraw partnership at will
3) Death or Bankruptcy
4) Court order
When a Partnership is dissolved, in which order is its assets distributed?
1) Repay debts owed to outside creditors
2) Repay loans made by partner to the firm
3) Return partners contributions
What is an LLP?
What must registration of an LLP include?
1) Name of LLP - must end in LLP
2) Location and address of LLP’s registered office
3) The names and addresses of the LLP’s members who will serve as designated members
4) Details of people with significant control
When can an LLP change its name
At any time by giving notice of change to the Registrar of Companies, who will then issue a certificate of the name change
What happens if an LLP carries on business without having two members
If it carries on for more than six months, person who carried on business is jointly and severally liable with the LLP for its debts incurred after initial six months.
How can new members be added to an LLP and how can a person cease to be a member
Added:
1) Through unanimous consent of existing members
2) Registrar of Companies at CH must be notified within 14 days
Leave:
1) Give reasonable notice to other members and to Registrar at CH within 14 days
How many members of an LLP must have the duty to submit filings at Companies House
2 Designated members
LLPs are required to hold a registrar of people with significant control, who is considered a person with significant control?
1) Holds 25% of surplus assets on winding up
2) 25% voting rights
3) Hold right to appoint or remove majority of management
4) Who can exercise significant influence/control over a trust or the members but is not a legal person
What are the difference kinds of companies?
Private Limited Company: private shares and shareholders personal liability limited to what they agreed to pay for their shares
Companies limited by guarantee: shareholders liability limited by amounts they guarantee
Public Limited Companies (PLC): required to have minimum nominal share capital of £50,000.
Unlimited Companies: members personally liable for all debts of company
Who is a promotor and what are their liability on a pre-incorporation contract?
Promoters are those who go about arranging to bring company into existence
They are personally liable for contracts they enter on behalf of company being formed
They remain liable on these contracts even after incorporation unless there is an novation agreement:
- agreement among company, third party. promotor to substitute company for promotor
What is a shelf company?
Company already registered but never traded, often made by solicitors.
Allows corporation to be set up quickly by promotor.
For a company to be incorporated what must a promotor file with the Registrar of Companies?
Memorandum of Association: authenticated/signed agreement of person wishing to become members of a company on formation
Application of Registration
What must an Application of Registration for a company include?
Memorise using abbreviation: DISCLOCFIN: (dis-cloc-fin):
1) Directors (proposed directors or officers)
2) Initial shareholding statement (total number shares, aggregate nominal value, class, amount unpaid))
3) Significant Control (persons of SC)
4) Capital statement
5) Limited (shares or guarantee)
6) Office (Location of registered office)
7) Compliance with Companies Act 2006
Fee
8) INc. (Name of company, interpreted as “Inc.”) must end in Ltd, Limited, Plc etc
When does a company come into existence
When the registration finds the documents are in order, they issue a Certificate of Incorporation, and the date stated on it is the date it comes into existence.
What are the Articles of Association and what happens if a company doesn’t file any?
The company’s constitution.
If a company doesn’t file Articles of Association, the Model Articles will apply unamended.
Allows companies to pursue any object and carry on any business
can be amended to restrict its objects
Serves as contract between company and shareholders and shareholders with each other
- shareholders can only enforce articles relating to their membership rights
How can a company amends its articles?
By Special Resolution, 75% approval
Shareholders can vote to entrench articles which require additional conditions
- can be included in original articles with notice given on filing
- provision preventing amendment is ineffective
Shareholders can also enter into agreements apart from articles which are binding on all who sign them
How can an amendment be challenged?
If a shareholder makes an amendment that no reasonable person would consider for the benefit of the company, shareholder who did not vote in favour can challenge it in court
What is the rule on the Veil of Incorporation?
The veil of incorporation protects members against personal liability from obligations of the company.
This will not be lifted to reach the assets of the members unless the company form is being used for fraud or to avoid existing obligations e.g. transfer assets to a company to keep them off creditors
How many directors must public and private companies have?
Public: 2
Private: 1
What are de facto and shadow directors?
Directors are natural persons at least 16 years of age who run the day to day management of a company.
1) De jure director
2) De facto director: acts as a director, claims to be a director, but never been appointed
3) Shadow director: influences other directors but does not claim to be a director
How can new directors be appointed under the Model Articles?
By directors or shareholders through an ordinary resolution. Registrar of Companies must be notified within 14 days
Difference between executive and non-executive directors
Executive: responsible for day to day running of the company and are employees of company
Non-Executive: consultants, supervisory role, oversee activities of executive directors
What is a nominee director
Director appointed the board to represent interests of a particular stakeholder, usually a shareholder
Must still act in the best interests of the company
What powers do directors have under the model articles?
To exercise all the powers of the company except where article provides otherwise
Power to:
- appoint or remove a director or auditor
- exercise power collectively as a board
- day-to-day decisions can be made by directors alone
- power to decide how much money to borrow on behalf of company
Limitations:
- fundamental decisions about the company require shareholder approval
- Certain decisions, such as changing articles, reserved for shareholders only
When can actual authority and apparent authority arise for directors?
Directors are agents of the company and can bind in contract or tort
Individual director has ACTUAL AUTHORITY granted by board resolution
Apparent authority could arise through past dealings - rare
How may a company execute documents?
1) Affixing their seal
2) Signature of 2 directors; director and secretary; single director in the presence of a witness
