Business Mediums Flashcards by elena s

What are the 5 main types of business medium?

Sole traders

General Partnerships

Limited Liability Partnerships

Private companies limited by shares

Public companies limited by shares

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

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

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What is the concept of separate legal personality?

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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When can the corporate veil be pierced?

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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What is the concept of limited liability?

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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What is the difference between incorporated businesses & unincorporated businesses?

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

Sole traders & partnerships

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What is the definition of a partnership?

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

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Who can private limited companies offer shares to?

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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Do sole traders have separate legal personality?

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What is the liability of a sole trader?

Unlimited (sole trader is personally liable)

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

The sole trader personally

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What are the accounting requirements for a sole trader?

No accounting requirements

Only name & address for service must be disclosed

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

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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Which business mediums pay which type of tax?

Income Tax

Sole trader
Partnership
LLP

Corporation tax

Private companies
Public companies

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

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

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Do partnerships have separate legal personality?

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What is liability in a partnership?

Unlimited liability → the partners are jointly & severally liable

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

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How are decisions made in a partnership?

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

There are 3 votes which require unanimity:

Changing nature of business
Introducing a new partner
Changing terms of partnership agreement

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

Changing nature of business
Introducing a new partner
Changing terms of partnership agreement

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Who owns the property & other assets of a partnership?

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

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What are the accounting requirements for a partnership?

Accounts are produced but are not audited or published

Only name & address for service must be disclosed

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When can a partnership be terminated?

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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What are the incorporation formalities for a partnership?

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'

What kind of client is a partnership most suitable for?

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

Do LLPs have separate legal personality?

Yes

What is the liability in an LLP?

**Limited** to the amount _agreed_ (Members may be liable to contribute if eg. wrongful trading)

What is the minimum number of members of an LLP?

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

How are decisions made in an LLP?

By **majority vote** of the members

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

The **business itself** because it has **separate legal personality**

What are the accounting requirements for an LLP?

**Audited & published** accounts Records at Companies House are open to **public inspection**

What are the account requirements for a private limited company?

**Audited & published** accounts Records at Companies House are open to **public inspection**

What are the accounting requirements for a public limited company?

**Audited & published** accounts Records at Companies House are open to **public inspection**

How is an LLP terminated?

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

What are the incorporation formalities for an LLP?

Must file **form LL IN01** at Companies House + small fee

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

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**)

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

Must be **registered** at Companies House & **end with 'llp'

What kind of client is an LLP most suitable for?

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

Does a private company have separate legal personality?

Yes

What is liability in a private limited company?

**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

What is liability in a public limited company?

**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

Who owns a private limited company?

The **shareholders** (at least **1**)

Who owns a public limited company?

The **shareholders** (at least **1**)

Who manages a private limited company?

The **directors** (at least **1**) Having a secretary is _optional_

Who manages a public limited company?

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

Who makes the decisions in a private limited company?

For **day-to-day** decisions: **majority** vote of the **board** Certain decisions **reserved for shareholders** at **general** meeting

Who makes the decisions in a public limited company?

For **day-to-day** decisions: **majority** vote of the **board** Certain decisions **reserved for shareholders** at **general** meeting

What are the accounting requirements of a private limited company?

**Audited & published** accounts Records at Companies House are open to **public inspection**

What are the accounting requirements of a public limited company?

**Audited & published** accounts Records at Companies House are open to **public inspection**

How is a private limited company terminated?

Application to the **registrar** to **strike off** the company if it has **not carried on any activity for 3 months** Voluntary or compulsory **liquidation**

How is a public limited company terminated?

Application to the **registrar** to **strike off** the company if it has **not carried on any activity for 3 months** Voluntary or compulsory **liquidation**

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

Yes, they are required

What are the incorporation formalities for a private limited company?

File form **IN01** at Companies House + small fee **Memorandum of association** & **articles** required *(unless using default articles)*

What are the incorporation formalities for a public limited company?

File form **IN01** at Companies House + small fee **Memorandum of association** & **articles** required *(unless using default articles)* **£50,000 minimum** allotted share capital

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

Must be **registered** at Companies House & end with **ltd**

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

Must be **registered** at Companies House & end with **plc**

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

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

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

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**

What is the nominal value of a share?

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