Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

SQE2 > Business Law & Practice > Flashcards

Business Law & Practice Flashcards

1
Q

What Act governs general partnerships?

A

The Partnership Act 1890

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is ostensible authority?

A

A partner has ostensible authority when they are engaging in contracts that are carrying out business in the usual way of the firm UNLESS the other party did not know they were a partner, or knew that the partner didn’t have the necessary authority.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

How can a new partner be added to a general partnership without a partnership agreement?

A

By agreement of all partners.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What three things require unanimous agreement under the Partnership Act 1890?

A

1) Adding a new partner;
2) Changing the partnership agreement; and
3) Changing the kind of business carried out by the firm.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are the 2 major benefits of equity finance for companies?

A

1) Dividends are only payable if profit is available; and
2) Share capital is generally not redistributed until the company is wound up.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are the 2 major benefits of equity finance for the investor?

A

1) Many shares come with voting rights so they can assert control over the company; and
2) Potential for both income and capital growth.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are the 3 major disadvantages of equity finance for the company?

A

1) Dilution of control;
2) Dividend payments are not tax deductible; and
3) There is an expectation by shareholders that they will receive dividends.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are the 2 major disadvantages of equity finance for the investor?

A

1) There is no sure return on investment; and
2) It’s hard to transfer private shares as buyers are not easy to find.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are the 3 major benefits of debt finance for a company?

A

1) No dilution of control;
2) Interest payments are tax deductible; and
3) Interest is not affected by the success of the company.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are the 3 major benefits of debt finance for the investor?

A

1) Repayment is not dependent on success of the company;
2) Can rank as creditor in insolvency and take security; and
3) Loan agreements are usually freely assignable.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are the 2 major disadvantages of debt finance for the company?

A

1) Required to pay back regardless of success; and
2) If the company is already highly geared, it may be more difficult to obtain a loan.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the major disadvantage of debt finance for the investor?

A

No possibility of capital growth.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What form is required to appoint a director?

A

AP01.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What form is required to terminate a director’s appointment?

A

TM01.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What forms are required for a transfer of shares?

A

a) A duly stamped and executed transfer of shares form; and
b) A Certificate of Shares.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What form is required to change the company name?

A

NM01.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What form is required to change the company’s registered office?

A

AD01.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What percentage of shareholding must members who want to agree to a meeting on short notice hold?

A

A majority of the shareholders who together hold at least 90% of the voting rights.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What percentage of shares must the member(s) who want to force the directors to call a general meeting hold?

A

More than 5%.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

How long is the standard notice period required for the directors to call a general meeting under the model articles?

A

14 clear days (with 2 extra for deemed service if not by hand).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

How long do the directors have to act and call a meeting if the shareholders request it?

A

21 days to call the meeting and 28 days to hold the meeting.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Who can demand a poll vote at a general meeting?

A

Shareholders with 10% of paid-up shares or voting rights or more.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

How long is normally given to respond to a written resolution?

A

28 days.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What value does a transaction need to be to automatically count as an SPT?

A

More than £100,000.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

At what value must a loan from a company to a director be reported to HMRC?

A

More than £10,000.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

If a company makes a loan under the official interest rate to a director, what must they do?

A

They must pay 32.5% of the loan amount to HMRC, which is reclaimable when the loan is paid back or written off.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What form is required when shares are allotted/issued?

A

SH01.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

What form is required and what is the time limit for registering the creation of a charge at Companies House?

A

Form MR01 and 21 days.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What section of the Companies Act 2006 gives members the power to change the company’s name?

A

Section 77.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What section of the Companies Act 2006 dictates that substantial property transactions need to be agreed by members via ordinary resolution?

A

Section 190.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

What section of the Companies Act 2006 dictates that service contracts with a term of service longer than 2 years need to be agreed by members via ordinary resolution?

A

Section 197.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

What are the two ways under the Model Articles a director can be appointed?

A

a) By an ordinary resolution of the shareholders; or
b) By a resolution of the board.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

How soon must a company notify the Registrar of Companies of a change in directors?

A

Within 14 days.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

What resolution is required by the shareholders to direct the directors to act in a certain way?

A

A special resolution.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

What are the two main ways a company can execute a contract?

A

a) With their seal; or
b) Signature of two directors.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

What kind of resolution is required to ratify a director’s breach of their duty?

A

Ordinary resolution.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

What happens to a clause in articles or a contract that purports to restrict or remove liability for a director’s breach of duty?

A

It is void.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

How can a company protect a director from any liability for breach of duty?

A

By purchasing insurance, or indemnifying them.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

What must the directors do to promote the success of the company?

A

Act in the way that would be most likely to promote the success of the company as a whole.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

What two tests are considered when deciding whether a director has fulfilled their duty to act with reasonable care, skill and diligence?

A

a) The general skill that may reasonably be expected of a director (objective); and
b) The skill the director in question actually has (subjective).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

In what 3 scenarios will a director not have breached their duty to avoid conflicts of interest?

A

a) A transaction with the company itself and the board knows the director has an interest;
b) The situation cannot reasonably be regarded as likely to give rise to a conflict; or
c) The matter has been authorised by the directors.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

To whom must disclosure of an interest in a proposed transaction be made?

A

The board, NOT the members.

43
Q

What is the consequence of a director disclosing an interest in a proposed transaction?

A

They cannot form part of the quorum and they cannot vote on the matter.

44
Q

What is required to grant a loan to a director?

A

Permission of the shareholders.

45
Q

What are some of the directors’ duties?

A

a) Basic fiduciary duty;
b) Duty to act within powers;
c) Duty to promote the success of the company;
d) Duty to exercise reasonable care, skill and diligence;
e) Duty to exercise independent judgment;
f) Duty to avoid conflicts of interest;
g) Duty not to accept benefits from third parties; and
h) Duty to declare interest in proposed transaction.

46
Q

What are the 4 different PSCs?

A

a) Directly or indirectly holds more than 25% of the shares in a company;
b) Directly or indirectly holds more than 25% of the voting rights in the company;
c) Directly or indirectly holds the right to appoint or remote a majority of the board; or
d) Has the right to exercise significant influence or control of the company.

47
Q

What are the two stages of a derivative claim?

A

a) The court must dismiss the application if it does not show a prima facie case; and
b) Must dismiss if it that it is satisfied that a person seeking to promote best interests of the company would act this way OR the action was authorised by the company.

48
Q

When can a shareholder bring a derivative claim?

A

When they believe the director has or is about to breach a duty owed to the company and the board will not assert the company’s rights.

49
Q

What are the two disadvantages of negotiating with creditors in an insolvency scenario?

A

a) They can reinstate their rights with notice because no consideration; and
b) Another creditor might enforce.

50
Q

What is an Individual Voluntary Agreement?

A

A negotiated credit agreement between debtor and all their creditors.

51
Q

What are the advantages of an IVA to a creditor?

A

a) They might get more money than in insolvency; and
b) Quicker than insolvency.

52
Q

What must a debtor do to agree to an IVA with a creditor?

A

Get professional advice from an insolvency practitioner.

53
Q

How many of the creditors must agree to an IVA for it to be enforceable?

A

At least 75%.

54
Q

What happens if 75% of the creditors agree to an IVA?

A

All ordinary unsecured creditors are bound.

55
Q

What are the 3 ways bankruptcy can be applied for?

A

a) Debtor can apply online themselves;
b) One or more unsecured creditors owed at least £5,000 can petition; or
c) The supervisor of an IVA can apply.

56
Q

What are the two ways a creditor can petition insolvency?

A

a) Showing the debtor cannot pay their debt immediately; or
b) Showing the debt is payable in the future and the debtor has no reasonable prospect of being able to pay.

57
Q

What three methods can a creditor use to prove a debtor cannot pay their debts?

A

a) A statutory demand for payment and wait 3 weeks;
b) A statutory demand for proof of ability to pay; or
c) A judgment debt that cannot be enforced.

58
Q

What can an individual going through bankruptcy proceedings keep?

A

Some assets needed for day-to-day living and their salary (if more than reasonable needs might get taken).

59
Q

What are the 5 options for a company/LLP to enter insolvency?

A

a) Receivership;
b) Restructuring plan;
c) Moratorium;
d) Administration & CVAs; and
e) Liquidation.

60
Q

What is fixed asset receivership?

A

When the receiver takes possession of the charged asset and sells it to pay the secured lender.

61
Q

What is a restructuring plan?

A

An agreement with 75% or more of the unsecured creditors of a company to reorganise debt.

62
Q

What is required for a restructuring plan to bind any dissenting creditors?

A

Court approval.

63
Q

What does a moratorium do?

A

It prevents creditors from taking action to enforce rights and gives the directors time to rescue the company as a going concern.

64
Q

What is administration?

A

A procedure which enables the administrator to run, reorganise and/or sell the company as a going concern.

65
Q

For whom does an administrator act?

A

For the creditors as a whole.

66
Q

How can a company go into administration?

A

a) By court hearing; or
b) By the company or a holder of a qualifying floating charge filing documents with the court.

67
Q

What is a qualifying floating charge in the context of administration?

A

A floating charge over the whole or substantially the whole of the company’s assets.

68
Q

What does administration automatically impose?

A

A moratorium.

69
Q

What is one advantage and one disadvantage of a CVA?

A

It is cheap but it only binds unsecured creditors.

70
Q

What are the two kinds of liquidation?

A

a) Members’ voluntary liquidation; and
b) Creditors’ voluntary liquidation.

71
Q

How can a creditor commence liquidation of a company?

A

By showing it is unable to pay its debts.

72
Q

What is the order of priority for distribution to creditors in liquidation?

A

a) Expenses of winding up;
b) Preferential debts;
c) Floating charge debts;
d) Unsecured debts; and
e) Shareholders.

73
Q

What is a preference?

A

When a debtor does something that puts the creditor in a better position than they would have been otherwise.

74
Q

When must a preference have occurred?

A

Within 6 months of onset of insolvency, or two years if to a connected person.

75
Q

What is the consequence of a preference?

A

It is voidable at the discretion of the court.

76
Q

What is a transaction at an undervalue?

A

When property that would have otherwise been included in the bankruptcy estate was given as a gift or sold for less than market value.

77
Q

When must a transaction have occurred to count as a transaction at an undervalue?

A

Within 2 years of a company’s insolvency or 5 of an individual.

78
Q

What must a company have been at the time of a transaction at an undervalue?

A

Insolvent, but there is a presumption of insolvency if to a connected individual.

79
Q

What is a company’s defence to a transaction at an undervalue?

A

That it was entered into in good faith, for the purpose of carrying on the business, and there were reasonable grounds for believing it would benefit the company.

80
Q

What kind of transaction is never a transaction at an undervalue?

A

Granting security.

81
Q

What is fraudulent trading?

A

When a director carries on business of the company with intent to defraud creditors.

82
Q

What is wrongful trading?

A

At some time before the company went insolvent, the directors knew or ought to have known it would become insolvent and there was no reasonable prospect to avoid it. They failed to take reasonable steps to minimise losses to the company’s creditors.

83
Q

When is a floating charge automatically void?

A

a) When granted for no consideration within 12 months ending with onset of insolvency; and
b) If given to person unconnected to the company, that the company became insolvent as a result. If to connected person, no requirement to show insolvency.

84
Q

What is ring fencing?

A

A liquidator is required to set aside part of the assets subject to a floating lien for the benefit of unsecured creditors.

85
Q

What are the 3 ways you can show a company is insolvent?

A

a) Statutory demand of £750 or more and not paid for 21 days;
b) Judgment has been handed down but cannot be enforced;
c) Cash flow test / balance sheet test.

86
Q

What is the cash flow test?

A

The company is unable to pay its debts when they fall due.

87
Q

What is the balance sheet test?

A

Whether the company has more debt than assets.

88
Q

What is required in a notice of a shareholders’ meeting?

A

a) Date, time and place;
b) Name of the company;
c) Exact wording of any special resolution; and
d) General nature of any ordinary resolution.

89
Q

When is corporation tax due?

A

9 months and 1 day after the end of its financial accounting period.

90
Q

When are corporation tax returns due?

A

12 months after the end of its financial accounting period.

91
Q

What is the corporation tax rate?

A

19%.

92
Q

What can be deducted to set off companies’ profits for tax purposes?

A

Salaries.

93
Q

What cannot be deducted to set off companies’ profits for tax purposes?

A

Dividends.

94
Q

What are the two major tax reliefs available to companies?

A

a) Rollover relief; and
b) Trading loss relief.

95
Q

What does rollover relief do?

A

It allows a company to defer a gain on the disposal of a qualifying asset if they reinvest the gain one year before or within three years after the disposal.

96
Q

What are a company’s 3 options when considering trading loss relief?

A

a) Setting it off against total profits in the current period;
b) Carrying it back for the preceding 12 months after a current period offset; or
c) Carry it forward for future gains.

97
Q

In what 2 scenarios can a company be classed as a close company?

A

When a company is controlled (more than 50% of shares/voting power) by either:
a) five or fewer participants; or
b) any number of directors who are also shareholders.

98
Q

How much is a business required to make in turnover before they are required to register for VAT?

A

£85,000.

99
Q

What are the two tests when considering whether VAT registration is mandatory?

A

a) The historic test (previous 12 months rolling); or
b) The future test (30 days).

100
Q

What are the three consequences of opting to VAT for owners of interests in commercial land?

A

a) Standard VAT must be charged on sale or lease of property;
b) Input tax suffered on the purchase of new commercial buildings can be recovered ; and
c) Any inputs relating to heating, cleaning and repairs may be recovered.

101
Q

When are contracts to supply commercial buildings taxable for VAT?

A

When the building is new or less than 3 years old.

102
Q

When can a company revoke its option to tax (after 6 months have passed)?

A

20 years later.

103
Q

How often must a business file a VAT return?

A

Every quarter.

SQE2 (8 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions