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SQE1: Business Law & Practice > Business Mediums > Flashcards

Business Mediums Flashcards

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1
Q

What are the 5 main types of business medium?

A

Sole traders

General Partnerships

Limited Liability Partnerships

Private companies limited by shares

Public companies limited by shares

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2
Q

If there is a conflict between a company’s articles of associations & the Companies Act 2006, which provisions will prevail?

A

If there is a direct conflict, the Companies Act supersedes any & all provisions in the company’s articles

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3
Q

What is the concept of separate legal personality?

A

Recognition by law of an entity having a separate legal existence from its owners & managers → as long as a company is legally incorporated, it must be treated like any other independent person with its own rights & liabilities

Applies to: LLPs, private companies, public companies

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4
Q

When can the corporate veil be pierced?

A

Piercing of corporate veil = looking behind company & imposing liability on the individual(s) who own or run it

Only in very limited circumstances when the owner is deliberately evading an existing legal obligation by interposing a company under their control

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5
Q

What is the concept of limited liability?

A

A person cannot lose more than the amount they invest, even if a business racks up large debts

The business must have separate legal personality (because then business liable for debts rather than owner)

Applies to: LLPs (limited to amount agreed); private companies & public companies (limited to amount unpaid on shares)

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6
Q

What is the difference between incorporated businesses & unincorporated businesses?

A

Incorporated businesses: separate legal personality - formed when individuals who wish to set it up comply with various legal requirements to incorporate the business

Unincorporated businesses: run by individuals who have not set up a separate legal entity & who have full personal liability for the debts of the business

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7
Q

Which business mediums can be formed without the owner(s) knowing they are forming it?

A

Sole traders & partnerships

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8
Q

What is the definition of a partnership?

A

2 or more people ‘carrying on a business in common with a view of profit’

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9
Q

Who can private limited companies offer shares to?

A

Only to a person already connected with the company (or certain other targeted individuals, eg. specialist investors)

They cannot offer shares to the public (& are generally subject to less regulation as a result)

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10
Q

Do sole traders have separate legal personality?

A

No

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11
Q

What is the liability of a sole trader?

A

Unlimited (sole trader is personally liable)

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12
Q

Who owns the property & other assets of a sole trader?

A

The sole trader personally

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13
Q

What are the accounting requirements for a sole trader?

A

No accounting requirements

Only name & address for service must be disclosed

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14
Q

Which types of business medium can offer fixed security & which can offer floating security?

A

All can offer fixed security

Sole traders & partnerships can offer fixed security only

LLPs, private companies & public companies can offer fixed & floating security

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15
Q

Which business mediums pay which type of tax?

A

Income Tax

  • Sole trader
  • Partnership
  • LLP

Corporation tax

  • Private companies
  • Public companies
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16
Q

What kind of client is a sole trader business medium most suitable for?

A

Lower net-worth business with few (if any) employees

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17
Q

Do partnerships have separate legal personality?

A

No

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18
Q

What is liability in a partnership?

A

Unlimited liability → the partners are jointly & severally liable

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19
Q

What is the minimum number of partners a partnership can have?

A

2

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20
Q

How are decisions made in a partnership?

A

By a majority vote of the partners (can be varied in the partnership agreement)

There are 3 votes which require unanimity:

  1. Changing nature of business
  2. Introducing a new partner
  3. Changing terms of partnership agreement
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21
Q

What are the 3 decisions in a partnership which require unanimity?

A
  1. Changing nature of business
  2. Introducing a new partner
  3. Changing terms of partnership agreement
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22
Q

Who owns the property & other assets of a partnership?

A

The members (not the partnership, because it does not have separate legal personality)

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23
Q

What are the accounting requirements for a partnership?

A

Accounts are produced but are not audited or published

Only name & address for service must be disclosed

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24
Q

When can a partnership be terminated?

A

With immediate effect by a partner giving notice to the other partners

By death, bankruptcy, charge or illegality

If the partnership has been entered into for a single undertaking, by the termination of that undertaking

Can be modified by the partnership agreement

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25
Q

What are the incorporation formalities for a partnership?

A

None if the definition of a partnership* has been met

*‘2 or more people carrying on a business in common with a view of profit’

26
Q

What kind of client is a partnership most suitable for?

A

Smaller groups who trust each other, view each other as equals in business & have less need of structure & regulation

27
Q

Do LLPs have separate legal personality?

A

Yes

28
Q

What is the liability in an LLP?

A

Limited to the amount agreed

(Members may be liable to contribute if eg. wrongful trading)

29
Q

What is the minimum number of members of an LLP?

A

2

At least 2 members must be designated members (who have additional administrative responsibilities)

30
Q

How are decisions made in an LLP?

A

By majority vote of the members

31
Q

Who owns the property & other assets of an LLP, private company or public company?

A

The business itself because it has separate legal personality

32
Q

What are the accounting requirements for an LLP?

A

Audited & published accounts

Records at Companies House are open to public inspection

33
Q

What are the account requirements for a private limited company?

A

Audited & published accounts

Records at Companies House are open to public inspection

34
Q

What are the accounting requirements for a public limited company?

A

Audited & published accounts

Records at Companies House are open to public inspection

35
Q

How is an LLP terminated?

A

By an application to the registrar for voluntary striking off (subject to various conditions, eg. majority of members signing the application)

35
Q

What are the incorporation formalities for an LLP?

A

Must file form LL IN01 at Companies House + small fee

35
Q

What are the 3 requirements of the CA 2006 for a company limited by shares to be registered as a public limited company?

A
  1. The constitution must state that it is a public company
  2. The words ‘public limited company’ or ‘plc’ must be included at the end of the company’s name
  3. The company’s owners must invest a specified minimum amount of money for use by the company (£50,000)
36
Q

What are some of the restrictions on the name of an LLP?

A

Must be registered at Companies House & **end with ‘llp’

37
Q

What kind of client is an LLP most suitable for?

A

Professional firms who want limited liability but don’t want separation between owners & managers

38
Q

Does a private company have separate legal personality?

A

Yes

39
Q

What is liability in a private limited company?

A

Limited to the amount the shareholders paid/agreed to pay for their shares

Nb. directors are protected by separate legal personality, but possible liability for breach of duties

40
Q

What is liability in a public limited company?

A

Limited to the amount the shareholders paid/agreed to pay for their shares

Nb. directors are protected by separate legal personality, but possible liability for breach of duties

41
Q

Who owns a private limited company?

A

The shareholders (at least 1)

42
Q

Who owns a public limited company?

A

The shareholders (at least 1)

43
Q

Who manages a private limited company?

A

The directors (at least 1)

Having a secretary is optional

44
Q

Who manages a public limited company?

A

The directors (at least 2) - a qualified secretary is required

45
Q

Who makes the decisions in a private limited company?

A

For day-to-day decisions: majority vote of the board

Certain decisions reserved for shareholders at general meeting

46
Q

Who makes the decisions in a public limited company?

A

For day-to-day decisions: majority vote of the board

Certain decisions reserved for shareholders at general meeting

47
Q

What are the accounting requirements of a private limited company?

A

Audited & published accounts

Records at Companies House are open to public inspection

48
Q

What are the accounting requirements of a public limited company?

A

Audited & published accounts

Records at Companies House are open to public inspection

49
Q

How is a private limited company terminated?

A

Application to the registrar to strike off the company if it has not carried on any activity for 3 months

Voluntary or compulsory liquidation

50
Q

How is a public limited company terminated?

A

Application to the registrar to strike off the company if it has not carried on any activity for 3 months

Voluntary or compulsory liquidation

51
Q

Are articles of association compulsory for private and public limited companies?

A

Yes, they are required

52
Q

What are the incorporation formalities for a private limited company?

A

File form IN01 at Companies House + small fee

Memorandum of association & articles required (unless using default articles)

53
Q

What are the incorporation formalities for a public limited company?

A

File form IN01 at Companies House + small fee

Memorandum of association & articles required (unless using default articles)

£50,000 minimum allotted share capital

54
Q

What are some of the restrictions on names for a private company?

A

Must be registered at Companies House & end with ltd

55
Q

What are some of the restrictions on names for a public limited company?

A

Must be registered at Companies House & end with plc

56
Q

What kind of client is a private limited company most suitable for?

A

Broad range who want limited liability & the split between ownership & management

57
Q

What kind of client is a public limited company most suitable for?

A

Very large, often international businesses who benefit from the ‘plc’ reputation boost, want to offer shares to the public & can comply with the extra regulations

58
Q

What is the nominal value of a share?

A

The original value

If a share is allotted for £1, the nominal value will be £1 - even if the market value of the shares (eg. investor paying £1.50 for them) increases

SQE1: Business Law & Practice (9 decks)

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