Business Law & Practice Flashcards
Limited liability
Shareholders of validly incorporated companies liable for debts of business up to amount they have agreed to invest in the company.
Limited partnerships
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.
Private companies limited by shares
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.
Public companies limited by shares
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.
LLP
Taxed as partners.
Register with HMRC as self-employed.
Separate legal personality.
IN01
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.
Memorandum of association
State parties wish to form company and have agreed to subscribe for shares.
Company’s constitution
Memorandum of information, articles of association, certificate of incorporation, current statement of capital, shareholder resolutions and agreement, court orders, legislation which affect constitution.
People with significant control
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
Converting to a public company
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
Dissolution of partnership
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.
Actual authority
Firm bound by contract or deed.
Partners acted jointly.
Express actual authority.
Implied actual authority.
Apparent authority
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.
Leaving partnership
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.
Directors’ personal interests
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.
General meetings
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.
Poll votes
Demanded by -
Chair.
Directors.
2 or more with right to vote on resolution.
Person not less than 1/10 voting rights.
Short notice
Majority of shareholders who hold 90% or more of voting shares.
Public - 95%.
Written resolutions
To every eligible member.
Lapse date - 28 days.
Shareholders with 5% or more.
Unfair prejudice petitions
Affairs conducted - unfairly prejudicial to interests of members generally or part.
Actual or proposed act or omission prejudicial.
Objective - hypothetical bystander.
Derivative claims
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.
Substantial property transactions
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.
De facto director
Acts as director but never appointed.
Shadow director
Person in accordance directions directors are accustomed to act.
Not formally appointed.
Directors’ service contracts
More than 2 years - ordinary resolution.
Ending directorship
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.
Directors’ duties
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.
Ratification of breach
Ordinary resolution.
Vote and of connected person not counted.
Wrongful trading
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.
Fraudulent trading
In course of winding up - carried on with intent to defraud company or creditors for fraudulent purpose.
Only if insolvent.
Misfeasance
Breach of fiduciary duty or other.
Contribute by compensation.
Loans to directors
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.
Disqualification of directors
2-15 years.
Cannot without leave of court be director or concerned in promotions, formation, management of company.
Criminal offence.
Allotment of shares
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.
Share buyback
Ordinary resolution.
From distributable costs.
Private companies - from capital by special resolution - must first exhaust distributable profits.
Overdraft facility
Contract.
Temporary loan - everyday expenses.
Payable on demand. Without notice.
Flexible income, few formalities.
Expensive
Term loans
Fixed amount. Interest at regular intervals.
Greater certainty and control.
Time and expense negotiating. Cannot be re-borrowed.
Revolving credit facilities
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.
Control terms
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.
Charges - registration process
21 days of creation.
MR01 file at Companies House.
Failure - void against liquidator/administrator and other creditors.
Still obliged to pay debt immediately.
Priority of charges
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.
Negative pledge
Floating charge maintains priority.
MR01 to Companies House.
Actual knowledge.
Net current assets
Current assets - current liabilities
Net assets
(Fixed + current assets) - (long + short time liabilities)
Start-up loss relief
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.
Carry-across/one-year carry-back relief
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.
Set-off capital gains
Taxpayer set trading losses against chargeable gains in same tax year
Relief on replacement of business assets - rollover relief
Sells qualifying business assets - invested into another.
Claim within 4 years.
No annual exemption.
Rollover relief on incorporation of a business
Sells interest in unincorporated business to company.
Transferred as ongoing concern.
Transferred with all assets.
Hold-over relief on gifts
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.
Business asset disposal relief
