Business Mediums Flashcards
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
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
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
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
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)
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
Which business mediums can be formed without the owner(s) knowing they are forming it?
Sole traders & partnerships
What is the definition of a partnership?
2 or more people ‘carrying on a business in common with a view of profit’
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)
Do sole traders have separate legal personality?
No
What is the liability of a sole trader?
Unlimited (sole trader is personally liable)
Who owns the property & other assets of a sole trader?
The sole trader personally
What are the accounting requirements for a sole trader?
No accounting requirements
Only name & address for service must be disclosed
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
Which business mediums pay which type of tax?
Income Tax
- Sole trader
- Partnership
- LLP
Corporation tax
- Private companies
- Public companies
What kind of client is a sole trader business medium most suitable for?
Lower net-worth business with few (if any) employees
Do partnerships have separate legal personality?
No
What is liability in a partnership?
Unlimited liability → the partners are jointly & severally liable
What is the minimum number of partners a partnership can have?
2
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
What are the 3 decisions in a partnership which require unanimity?
- Changing nature of business
- Introducing a new partner
- Changing terms of partnership agreement
Who owns the property & other assets of a partnership?
The members (not the partnership, because it does not have separate legal personality)
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
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
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?
- The constitution must state that it is a public company
- The words ‘public limited company’ or ‘plc’ must be included at the end of the company’s name
- 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
