Business Law & Practice

Question 1

Limited liability

Answer 1

Shareholders of validly incorporated companies liable for debts of business up to amount they have agreed to invest in the company.

Question 2

Limited partnerships

Answer 2

1 general partner.
1 limited partner - cannot -
Control or manage;
Have power binding decisions on behalf;
Remove their contribution as long as in business.
Breaches - loses protection of limited liability.

Question 3

Private companies limited by shares

Answer 3

1 director.
Need not have company secretary.
Salomon v A Salomon and Co Ltd [1987]
Prest v Petrodel Resources Limited and others [2013] - pierce corporate veil in fraud/sham.

Question 4

Public companies limited by shares

Answer 4

2 directors
Constitution states it is a public company.
Name - plc.
Authorised minimum - £50,000. Each share paid at least 1/4 of nominal value plus whole of premium.

Question 5

LLP

Answer 5

Taxed as partners.
Register with HMRC as self-employed.
Separate legal personality.

Question 6

IN01

Answer 6

Identity, date of birth and address of proposed company’s first shareholders and directors, address of registered office, name of company, how many shares first shareholder has.

Question 7

Memorandum of association

Answer 7

State parties wish to form company and have agreed to subscribe for shares.

Question 8

Company’s constitution

Answer 8

Memorandum of information, articles of association, certificate of incorporation, current statement of capital, shareholder resolutions and agreement, court orders, legislation which affect constitution.

Question 9

People with significant control

Answer 9

Holds more than 25% of shares;
More than 25% of voting rights.
Right to appoint or remove majority of board of directors.
Tick - more than 25% but not more than 50%;
More than 50% but less than 75%l
75% or more

Question 10

Converting to a public company

Answer 10

Special resolution to approve re-registration - altering name, article.
File at Companies House -
Special resolution
Application for registration - RR01 - statement of compliance
Fee
Revised articles
Balance sheet, written statement from auditors, valuation report on shares allotted for non-cash consideration between date of balance sheet and passing of resolution

Question 11

Dissolution of partnership

Answer 11

Retires.
Expiry of fixed term.
Death or bankruptcy.
Notice to partner with charge on their share of property for debt owed by them alone.
Automatically.
Apply to court -
Permanently incapable.
Conduct prejudicial to business.
Wilfully breaches agreement.
Only carried out at loss.
Court thinks just and equitable.
Outgoing partner insist on being sold.
Goodwill.
Distribution of proceeds.

Question 12

Actual authority

Answer 12

Firm bound by contract or deed.
Partners acted jointly.
Express actual authority.
Implied actual authority.

Question 13

Apparent authority

Answer 13

Objective -
Transaction of business of kind carried out.
Transaction which partner expected to have authority.
Subjective -
Other party did not know.
Other party believes them to be partner.

Question 14

Leaving partnership

Answer 14

Jointly and severally liable for debts incurred while partner.
Novation agreement -
Released from existing debt - contract with creditor and partners. Binding - contract consideration or deed.
S.36 -
Actual notice - informed directly.
Notice in London Gazette.
Holding out.
Indemnity.

Question 15

Directors’ personal interests

Answer 15

s.177 - declare nature and extent.
Exceptions -
Cannot reasonably be regarded to have conflict of interest.
Other directors already aware.
Terms of service has been or to be considered.
s.182 - existing.
Obligation cannot be disapplied.
Can disapply - MA 14 - quorum and vote.

Question 16

General meetings

Answer 16

Notice -
Every shareholder and director etc.
Hard copy etc.
Time, date, place.
General nature of business.
Special resolution - exact wording.
Right to appoint proxy.
14 clear days.
Email - plus 48 hours.

Question 17

Poll votes

Answer 17

Demanded by -
Chair.
Directors.
2 or more with right to vote on resolution.
Person not less than 1/10 voting rights.

Question 18

Short notice

Answer 18

Majority of shareholders who hold 90% or more of voting shares.
Public - 95%.

Question 19

Written resolutions

Answer 19

To every eligible member.
Lapse date - 28 days.
Shareholders with 5% or more.

Question 20

Unfair prejudice petitions

Answer 20

Affairs conducted - unfairly prejudicial to interests of members generally or part.
Actual or proposed act or omission prejudicial.
Objective - hypothetical bystander.

Question 21

Derivative claims

Answer 21

By shareholder for wrong done to company from act or omission of director.
Negligence, default, breach of duty, breach of trust.
2 part.
Refuse -
Individual not promoting success of company.
Not yet occurred, already authorised by company.
Take into account -
Acting in good faith to continue.
Duty to promote success of company to continue.
Authorised or ratified.
Whether company not pursuing.
Pursue in own right.

Question 22

Substantial property transactions

Answer 22

Director or someone connected
Buys from or sells to company
Non-cash asset
Of substantial value
Ordinary resolution.
At least 20% - owns or voting power.
Spouse/civil partner.
Child or stepchild.
Parents.
Any person in enduring relationship with director as partner.
Any children of them.
Over £100,000.
More than £5,000 and more than 10% of net asset value.
Voidable.

Question 23

De facto director

Answer 23

Acts as director but never appointed.

Question 24

Shadow director

Answer 24

Person in accordance directions directors are accustomed to act.
Not formally appointed.

Question 25

Directors’ service contracts

Answer 25

More than 2 years - ordinary resolution.

Question 26

Ending directorship

Answer 26

Resignation - TM01 or TM02 - 14 days. Notify Companies House or attorneys.
Removal - ordinary resolution.
Special notice - not effective unless notice of intention to pass it given to company at least 28 days before general meeting.

Question 27

Directors’ duties

Answer 27

To act within powers - s.171.
Promote the success of the company - s.172.
Exercise independent judgement - s.173.
Exercise reasonable care, skill and diligence - s.174 (objective and subjective).
Avoid conflicts of interest - s.175.
Not to accept benefits from third parties - s.176.
Declare interest in proposed transaction or arrangement - s.177. Failure - civiil.
Declaration of interest in existing transaction - s.182. Failure - criminal.

Question 28

Ratification of breach

Answer 28

Ordinary resolution.
Vote and of connected person not counted.

Question 29

Wrongful trading

Answer 29

Court may order to contribute to assets -
Before commencement of winding up - knew or ought to of no reasonable prospect to avoid insolvency.
Person director at the time.
Defence - every step to minimise potential loss to creditors.
Test -
General knowledge, skill and experience that may reasonably be expected of person carry out same functions - objective.
General knowledge, skill, experience of director - subjective.
Seek professional advice at first sign.
Limit spending.
Check accounts regularly.
Keep records of action.
Claim by liquidator or administrator.

Question 30

Fraudulent trading

Answer 30

In course of winding up - carried on with intent to defraud company or creditors for fraudulent purpose.
Only if insolvent.

Question 31

Misfeasance

Answer 31

Breach of fiduciary duty or other.
Contribute by compensation.

Question 32

Loans to directors

Answer 32

Ordinary resolution.
Exceptions -
Expenditure on company business - up to £50,000.
Expenditure on defending civil or criminal proceedings in relation to company.
Expenditure on defending regulatory proceedings or defending themselves.
Minor business transaction - up to £10,000.

Question 33

Disqualification of directors

Answer 33

2-15 years.
Cannot without leave of court be director or concerned in promotions, formation, management of company.
Criminal offence.

Question 34

Allotment of shares

Answer 34

Private companies with one class of shares - board resolution.
If restriction - special resolution.
Public companies or private with more than one class of share - ordinary resolution.
Pre-emption tights - offer existing holders of ordinary shares same or more favourable terms. Preserve percentage hold - equal proportion. Offer - 14 days. Exception - if non-cash or share scheme.
Disapply pre-emption rights - special resolution.

Question 35

Share buyback

Answer 35

Ordinary resolution.
From distributable costs.
Private companies - from capital by special resolution - must first exhaust distributable profits.

Question 36

Overdraft facility

Answer 36

Contract.
Temporary loan - everyday expenses.
Payable on demand. Without notice.
Flexible income, few formalities.
Expensive

Question 37

Term loans

Answer 37

Fixed amount. Interest at regular intervals.
Greater certainty and control.
Time and expense negotiating. Cannot be re-borrowed.

Question 38

Revolving credit facilities

Answer 38

Bank makes available maximum amount of money through agreed period. Regular interest.
Reborrow.
Flexible. Possible to reduce total amount of interest payable by reducing borrowings.
Time and expense negotiating. High fees.

Question 39

Control terms

Answer 39

Amount of loan.
Currency.
Type of loan.
Availability period.
Repayment - one go, equal or unequal instalments.
Interests - agreement.
Express covenants -
Limitation of dividends.
Minimum capital requirements.
No disposal of assets, or change of business.
No further security over assets.
Provision of information on the business.
Implied covenants - if obvious.
Breach - may terminate.

Question 40

Charges - registration process

Answer 40

21 days of creation.
MR01 file at Companies House.
Failure - void against liquidator/administrator and other creditors.
Still obliged to pay debt immediately.

Question 41

Priority of charges

Answer 41

Fixed charge of mortgage priority over floating charge even if created before.
More than one fixed/mortgage - order of creation.
If more than one floating - order of creation.

Question 42

Negative pledge

Answer 42

Floating charge maintains priority.
MR01 to Companies House.
Actual knowledge.

Question 43

Net current assets

Answer 43

Current assets - current liabilities

Question 44

Net assets

Answer 44

(Fixed + current assets) - (long + short time liabilities)

Question 45

Start-up loss relief

Answer 45

Suffers loss in first 4 years.
Loss carried back and set against total income in 3 tax years immediately prior to tax year of loss.

Question 46

Carry-across/one-year carry-back relief

Answer 46

Losses -
Set against total income from same tax year.
Set against total income from tax payer preceding.
Set against total income from same tax year until income reduced to 0 - balance of loss set against total income preceding.
Set against total income from tax year preceding until income reduced to 0 - balance of loss set against total income from tax year.

Question 47

Set-off capital gains

Answer 47

Taxpayer set trading losses against chargeable gains in same tax year

Question 48

Relief on replacement of business assets - rollover relief

Answer 48

Sells qualifying business assets - invested into another.
Claim within 4 years.
No annual exemption.

Question 49

Rollover relief on incorporation of a business

Answer 49

Sells interest in unincorporated business to company.
Transferred as ongoing concern.
Transferred with all assets.

Question 50

Hold-over relief on gifts

Answer 50

Gift of business asset or sell at undervalue.
In trade
Shares not listed
Shares in personal trading company if listed - owns at least 5%
4 years.

Question 51

Business asset disposal relief