Business Law & Practice Flashcards
1
Q
When will a partnership be liable to a third party?
A
if a partner acting within the scope of their actual or apparent authority, then this will bind the partnership as a whole
2
Q
How are partners liable for debts and obligations of the partnership?
A
Partners are jointly and severally liable without limit
3
Q
Is a new partner liable for debts incurred by the partnership before they became a partner?
A
No they are not
4
Q
Is a retiring partner released from debts incurred by the partnership whilst they were partner?
A
No they are not
5
Q
How can a retired partner protect themselves for being liable for future debts of the partnership?
A
The partner must give notice to third parties that they are leaving the partnership.
The partner must also not hold out as being partner (doing something which suggests he still holds position of partner, relied upon by someone who gives credit to the firm as the result)
6
Q
What are two way in which a company is incorporated?
A
Incorporating a new company (tailor made)
Acquiring a company that has already been incorporated but which has not traded (shelf company)
7
Q
For a new company to be incorporated, what documents must be sent to Companies House?
A
- Application to register the company (IN010
- memorandum of association
- Articles of Association (if they are not the model articles)
- the requisite fee
8
Q
What resolution is required to change a company’s registered office?
A
Board Resolution
9
Q
What type of resolution is needed to amend the articles of association and when must the amended articles be filed at Companies House?
A
Special Resolution and the amended articles must be filed at Companies House within 15 days
10
Q
how many directors must a private or pulbic company have?
A
Private company: 1 director
Public Company: 2 director
11
Q
What is hthe minimum quorum for a board resolution?
A
2
12
Q
What majority is needed to pass a board resolution?
A
Simple majority (more than 50%)
13
Q
How many days notice is needed to call a general meeting?
A
14 clear days (16 total)
14
Q
When can short notice be called?
A
Majority in number of members
holiding at least 90% of the companys voting shares
15
Q
When can shareholders call a general meeting?
A
Directors must call a GM when members holding at LEAST 5 % of the company paid up share capital
15
Q
When can shareholders call a general meeting?
A
Directors must call a GM when members holding at LEAST 5 % of the company paid up share capital
16
Q
How long do the directors have to call a GM once the shareholders ask them to?
A
They have 21 days to call a GM which then must be held within 28 days
17
Q
What resolution is usually needed for the appointment of a non-executive director?
A
BR or OR
18
Q
What resolution is need for the appointment of an executive director (with a service contract)?
A
BR
19
Q
When will a director be held personally liable?
A
Personal guarantee, wrongful trading, fraudulent trading, misfeasance
20
Q
What is the definition of wrongful trading?
A
Director of an insolvent company may be liable to contribute to assets of a company where the company continued to trade and they knew or ought to have concluded that there was no reaosnable prospect of avoiding insolvency proceedings
21
Q
What is the definition for fraudulent trading?
A
Director of an insolvent company may be liable to contribute to the assets of a company where the company carried on business with intent to defraud creditors or for any fraudulent purposes
22
Q
How long must a director service contract be for it to require shareholder approval?
A
MORE than two years for the guaranteed term and it requires an ordinary resolution
23
Q
What type of resolution is needed for a substantial property transaction?
A
Ordinary resolution
24
What are the elements of a substantial property transaction?
- Acquisition/disposal of a non-cash asset where
- parties involved are the company and a director or person connected to the director
- asset is substantial
25
When is an asset considered substantial (in terms of substantial property transactions)
If value is £5k or less than it is never substantial
If value is over £100,000 it is always substantial
If value is between £100,000 and £5000 and is more than 10% of the companys net asset value, then it is substantial
26
Who is considered a person connected to a director?
Family (spouse and children etc)
- does not include siblings or grandparents
Body corporate: director and persons connected with the director who own at least 20% of the companys voting shares
27
What happens to the transaction if there is a breach of not attaining approval for a substantial property transaction?
The transaction is voidable
28
When does a loan to a director require shareholder approval?
When the loan is more than £10k and this requires an ordinary resolution
29
What notice is required to remove a director under s168 CA (by shareholders)?
Special notice of the ordinary resolution is required to be given to the company of the proposed resolution
Special notice means at least 28 days notice
30
What rights does a director who is being removed have?
Right to be informed and to make representations to argue against their removal (through written representations and the meeting itself)
W
31
What must the company do following the resignation or removal of a director?
updateTM01 as appropriate with companies house within 14 days
32
What is the role of the company secretary?
- keeping various records on the company
- filing documents at Companies House
- general administration of the company
33
What is a majority shareholder?
Those who individually hold more than 50% of the companies voting shares
34
What is a minority shareholder?
An individual who holds 50% or less of the companies voting shares
35
What are the three remedies for minority shareholders?
Petition for unfairly prejudicial conduct
Derivative action
Winding up on the just and equitable ground
36
When can shareholder petition for unfair prejudicial conduct?
Shareholder can bring a claim on their own behalf against the company if they believe the company has been prejudicial or unfair to them.
Eg refusing to pay dividends, exclusion from management, excessive pay)
37
What is a derivative action?
It is an action taken by a shareholder where the company is the proper claimant. It is brought for an act or omission of a direction (usually breach of directors duties)
38
If the company has unamended Model Articles and will have one class of shares before and after issue, what reoslution is needed?
A board resolution
39
If the company is issuing a new class of share, what authority is needed?
Special resolution
40
What are pre-emption rights?
Generally, on issue of new shares, they must first be offered to the existing members on the same or more favourable terms in proportion to their existing shareholdings. they have the right of refusal for a period of at least 14 days
41
How to disapply preemption rights?
Special resolution to disapply the preemption rights
42
What is the process for a company to buyback shares from a shareholder from profit and from capital?
If there are profits available, the buyback must be from profits.
Must enter into a contract with the shareholder, approved by the shareholders by ordinary resolution so must be available no fewer than 15 days before any general meeting
43
What resolution is needed for a company with unamended articles to borrow or grant security?
Board Resolution
44
What is the registration process for a charge?
The charge should be registered within 21 days of the creation of the charge and must include
- form Mr01
- certified copy of the charge document
- the relevant fee
45
What happens to a charge which is not registered in time?
The charge is void against a liquidator , administrator or any creditor of the company. the debt will be payable immediately but will be unsecured
46
What is the order of priority of security of charges of the same type?
Charge which has the earlier date of creation has priority
47
What is the order of priority of charges?
- Mortgage
- Fixed Charge
- Floating Charge
48
What does the top half of the balance sheet show?
Shows the value of the business at a particular point in time
Assets - Liabilities = Net Current Assets
49
What does the bottom half of the balance sheet show?
Shows what is owed to the owner at a particular point in time
Capital + Net Profit - Drawings
50
What is a current liability?
Debt owed within one year
51
What is a prepayment?
Payments a business has MADE in advance, on account of a service or something that will not be used until the next financial year
52
How does a prepayment affect the balance sheet and profit & loss account?
It is deducted as an expense in the profit and loss account and included as a current asset in the balance sheet
53
What is an accrual?
These are payments the company will make in arrears for services used in the financial year
54
How does an accrual affect the balance sheet and profit and loss account?
Included as an expense in the profit and loss account and a current liability in the balance sheet
55
What document is depreciation included in?
Included as an expense in the profit and loss account.
Accumulated depreciation is included in the asset value in the balance sheet
56
Where is a bad debt noted?
Included as an expense in the profit and loss account and deducted from the debtors figure in the balance sheet
57
What additional account does a partnership have which a company does not?
An Appropriation Account
58
What does an appropriation account show?
It shows the division of profits between the partners
- Profit is divided into salaries which are paid first
- then interest on capital
- anything left is shared accordingly
59
What are the three ways to show individual insolvency?
- A statutory demand has been served for a liquidated and unsecured sum of at least £5k or more, payable immediately and it remains unsatisfied
- Statutory demand for a liquidated and unsecured FUTURE liability of at least 5k
- Attempt has been made to enforce a judgement debt of at least 5k
60
How does the bankruptcy process usually start?
A creditors petition
61
What happens once a bankruptcy order has been made?
Official receiver takes control of most of the bankrupts assets and acts as trustee in bankruptcy
62
What is the main alternative to bankruptcy for an individual?
An individual voluntary arrangement (IVA)
63
What is an individual voluntary arrangement?
A binding agreement to settle between the debtor and unsecured creditors
64
What is the process for an individual voluntary arrangement?
- Debtor appoints a nominee to become supervisor of the IVA
- Debtor produces statement of affairs and applies to court to obtain a moratorium (stay further proceedings)
65
How many creditors need to agree to the proposal for the IVA to be approved?
75% or more of the creditors and which at least 50% are not associates (relatives or friends of relatives) of the debtor
If it is approved then it is binding on ever ordinary unsecured creditor
66
What are the four ways to show inability of a company to pay its debts?
- A statutory demand has been served for a liquidated sum of £750 or more and has been unsatisfied after 21 days
- Attempt has been made to enforce a judgement debt
- Company is unable to pay its debts as they fall due
- Company's liabilities are more than their assets
67
What is the definition of liquidation?
Involves the company to cease trading and a liquidator taking control to review past transactions, sell its assets and distribute the proceeds to the creditors. Company is then dissolved
68
What are the three types of liquidation for corporate insolvency?
- Compulsory Liquidation
- Creditors voluntary liquidation
- Members voluntary liquidation
69
What is compulsory liquidation?
Liquidation commences by a creditor presenting a winding up petition when a company is insolvent
70
What happens to a floating charge if it is granted at the 'relevant time' before insolvency? (and what is the relevant time)
- The floating charge will automatically be void.
- Relevant time is two years if the charge was in favour of a connected person or 12 months if it is not in favour of a connected person (insolvency must be proved if its an unconnected person)
- A connected person includes a directors and his associates or an associate of the company
71
What are the requirements for a transaction at an undervalue?
- Insolvency needs to be proved
- Insolvency presumed if in favour of a connected person
72
What is the defence for a transaction at an undervalue?
- Transaction was entered into in good faith for the purpose of carrying on business and there were reasonable grounds for believing it would benefit the company
73
What are the requirements for a preference by a company?
- preference is given to a creditor
- company was insolvent or became so as a result
- Given in the relevant time (6 months for unconnected persons and 2 years for connected persons)
74
What is the order of distribution of insolvent company's assets?
- Fixed Charge Holders
- Expenses of the Winding up
- Preferential creditors
- Floating Charge holders
- Unsecured creditors
75
What is a transaction defrauding creditors?
An undervalue transaction where there is an intention to put assets beyond the reach of someone or prejudice their interests in relation to a potential claim
76
What is the definition of administration?
Involves and administrator running the company to rescue it or enable it to be sold as a going concern. Must act in the best interests of the creditors
77
What is a moratorium?
It stays the proceedings during administration where creditors cannot bring a claim against the company
78
How long does the moratorium last?
20 business days but can be extended by another 20 business days (max it can be extended to is one year)
79
How do you calculate trading profits?
Income Receipts - Income Expenditure - Capital Allowances = Trading Profits
80
What are capital allowances?
Allows businesses to deduct some of the cost of plant and machinery from chargeable receipts to reduce tax liability
81
What are the two types of capital allowance?
Writing Down Allowance
Annual Investment Allowance
82
What is Writing Down Allowance?
Allows 18% of the total value of plant and machinery in each financial year to be deducted from income receipts. (the following years, the 18% is of the new value after the previous years reduction)
83
What is the annual investment allowance?
A business can deduct the entire cost of newly purchased plant and machinery in that accounting period from income receipts (subject to a £1 million cap each year)
84
What is VAT?
Charged on any supply of goods or services made in the UK, where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him
85
What is a taxable supply?
A supply is taxable unless it is exempt, main exemptions are education, health services, residential land and insurance
86
What is the current normal rate of VAT?
20%
87
How must a VAT return be returned?
Must usually be submitted to HMRC and VAT paid within one month from the end of each quarter
- A rebate will be paid if input tax exceeds output tax
88
Who is a taxable person for VAT?
Someone who makes taxable supplies. They must register for VAT with HMRC if the value of their taxable supplies exceeded 85k the previous year
89
Is a price deemed to be inclusive or exclusive of VAT?
Inclusive unless specified otherwise
90
Who are chargeable persons for income tax?
- Individuals
- Individual Partners
- Trustees
- Personal Representatives
91
What is included in income for income tax purposes?
Salary
Dividends
Interest received on savings
Trading Profit
Profit off rent received
92
What is taxable income?
The income after the deduction of allowable reliefs and personal allowances
93
What are the rates for basic rate taxpayer, higher rate taxpayer, additional rate taxpayer?
Basic rate: Taxable income does not exceed £37,700 (20%)
High rate: above basic rate but lower than £150,000 (40%)
Additional high rate: exceeds the additional rate threshold of £150,000 (45%)
94
What are the tax rates for savings income?
up to £5000 (0%)
£5000- £37,700 (20%)
£37,500- £150,000 (40%)
Above £150,000 (45%)
95
What are the tax rates for dividend income?
Up to £37,700 (7.5%)
£37,700- £150,000 (32.5%)
Above £150,000 (38.1%)
96
What is the personal allowance for income tax?
£12, 570 and after net income of £100,000 it is reduced by 50% (ie by £1 for every £2)
97
What happens if an individual is found to breach the general anti-avoidance rule (GAAR)?
The individual will be notified if an ATAA is uncovered and a request for tax adjustments will be made
The GAAR advisory panel deals with any representations made by the taxpayer
The person who enabled the scheme as part of their business may be fined and have a right to appeal
98
What is the basis for a capital gains tax?
Charged on a chargeable gain made by a chargeable person on disposal of a chargeable asset
99
How do you calculate the capital gain for CGT purposes?
Disposal value - (acquisition cost and allowable expenditure) = Basic Gain
100
If property is sold not at market rate, what is the disposal value?
if it is knowingly undersold, then the value will be market rate.
If it is unknowingly undersold, then it will be the price at which it was sold at
101
What may be considered allowable expenditure for the purpose of CGT?
Incidental costs of acquisition
Subsequent expenditure (cost of capital improvements which increase the size of the property)
Incidental costs of disposal
102
What is the rate of corporation tax?
19%
103
What must you combine to attain the total taxable profits for corporation tax?
Income Profits and Chargeable Gains
104
How do you calculate income profits (for corporation tax) ?
Income Receipts and then deduct the deductible expenditure, captial allowances (plant and machinery at 18%) and trading losses
105
How do you calculate chargeable gains?
Sale Proceeds and deduct allowable expenditure, indexation allowance and capital/trading losses
106
What are the reliefs for chargeable gains?
Roll-over relief of qualifying business assets
107
What can capital losses be set off against?
Capital gains but cannot be set off against the previous year
108
When is a company a close company?
When there are five or fewer participants OR
There are any number of participants but they are all also directors
participants: individuals having a share or interest in capital or income
109
When does a company with a tax liability of £1.5 million or less need to pay HMRC?
WIthin 9 months and one day end
110
When does a company with a tax liability of more than £1.5 million need to pay the HMRC?
Pay tax bills in four instalments over the course of the relevant period
111
If a close company makes a loan to a participator or their associate, what must the company do in terms of their tax?
The company must pay HMRC the equivalent of 32.5% of the loan.
If the loan is repaid then no tax consequences for the recipient
112
What are the two main exceptions which apply to close companies loans?
- where the company is in the business of money lending and loan is part of the business
- where the loan does not exceed 15k, borrower works fulltime for the company and owns 5% or less of the company's shares
113
Does a partnership have to pay tax on their profits?
No, the partnership does not, but the individual partners will need to pay income tax individually
114
Is interest on a loan or dividends tax deductible?
Interest on a loan is tax deductible, on dividends it is not
115
When is it unlawful to assist in the purchase of shares for a public or private company?
It is not lawful for a company or their subsidiary to give financial assistance when acquiring shares in a PUBLIC COMPANY or the subsidiary of the target company is public
It is lawful for any company to give financial assistance when acquiring shares in a PRIVATE company
116
What are the requirements for a valid board meeting to be called?
Notice must include date, time and location of the meeting (no time limit)
117
What are the filing requirements for a special resolution to disapply exemption rights and return of allotment of shares form (SH01)?
Special resolution must be filed within 15 days and allotment of shares form within one month
118
If a partner in a partnership dies, what happens to the partnership?
The partnership will automatically come to an end
119
Who may appoint an administrator out of court?
Company, director or qualifying floating charge holder (if appointed by the company, and they have a qualifying floating charge holder, they have to give 5 business days notice to consent)
They must give notice of the appointment to the court
120
Who is a qualifying floating charge holder?
Owns whole or substantially whole of the companies property
121
When must a business make a tax return if its taxable turnover if more than £1,350,000?
every three months
122
What are the reliefs for trading losses?
Start up loss relief (losses made during the first four years of trade may be set off against any other income in the three tax years before loss)
Carry across relief (loss may be deducted from any other income in that tax year or preceding tax year. Can only be used for chargeable gain in the same tax year)
Terminal Loss relief (loss during the last year of trade may be set off against trading profits in the final year and three years prior)
123
How much of savings income is tax free?
The first 1k is tax free if within the basic rate of income tax
If in the higher rate tax bracket, then £500 is tax free
124
How much of dividends income is free from tax?
The first 2k will be free from tax
125
How are partners considered to share the CGT?
in proportion to their fractional share of the chargeable assets of the firm
126
What is business asset disposal relief?
Where there is a qualifying business disposal which includes
- sale or gift of the whole or part of a business carried on as a sole trader or partnership provided the business has been owned for at least two years prior to disposal
- sale or gift of shares provided the company is a trading company, shareholding represents 5% of ordinary voting shares, individual is employee and these conditions have been satisfied for two years prior to disposal
Business asset relief is 10%
