Business, Organisations and Procedures

Question 1

What is a sole trader?

Answer 1

No formalities required

Not a separate legal personality

Unlimited liability applies

No public disclosure obligations

Question 2

What is a Private limited company?

Answer 2

Has a separate legal personality

Recognized by law as a legal person with its own rights and obligations separate from the individuals who run it

Limited liability refers to the ‘members’ own liability, not the company’s

A person becomes a member by buying shares in the company

A member cannot be asked to contribute further money to settle the company’s debts

Question 3

Incorporation of a private company limited by shares

Answer 3

Form IN01 (application to register a company) sent to Registrar Of Companies

memorandum and prescribed fee sent along with Form IN01

Company comes into existence on certificate of incorporation being issued

must have registered office and registered email address

Question 4

How does a private company limited by shares register for tax?

Answer 4

the company must register for corporation tax

Will automatically happen if incorporation was done online at Registrar;

otherwise must make a separate application to HMRC within three months.

Question 5

Partnerships definition

Answer 5

relation which exists between persons carrying on a business in common with a view to making a profit

Question 6

Aspects of a partnership?

Answer 6

Does not have a separate legal existence.

Partners are not protected by limited liability.

Partnership Agreement ensures that unwanted provisions of the Partnership act 1890 are avoided

Question 7

How are decisions made in a partnership?

Answer 7

decisions are taken by majority except:

when changing the nature of the business

introducing a new partner

changing the terms of the partnership agreement

Question 8

Explain authority in partnerships

Answer 8

Actual authority: Firm is liable for actions of individual partners if actually or expressly authorised

Apparent authority: Firm may be liable for actions that were not expressly or actually authorised but appeared to an outsider to be authorised.

Question 9

is the firm bound by actions of the partners?

Answer 9

yes and this is through the common law of agency

Question 10

how can a person seek to enforce liability against a partnership?

Answer 10

they can sue:

the partner with whom the contract was made

the firm

any person who was a partner at the time the debt or obligation was incurred

Question 11

what is the extent of partnership liability?

Answer 11

partners can be sued joint and severally

Question 12

Limited Liability Partnership formation

Answer 12

formed by registering incorporation document with companies house

LLP is a body corporate with separate legal personality

identity of members must be verified and LLP must maintain register of members

Question 13

liability extent in LLPs?

Answer 13

Members have no liability for LLP debts and liabilities

Question 14

Incorporation of LLP?

Answer 14

Form LLIN01 must be completed and filed with the Registrar of Companies.

prescribed fee payable

Two or more members must subscribe their names

LLP is created when Registrar issues certificate of incorporation

Question 15

If a partner leaves, a third party can treat all apparent partners of the firm (ie before the departure) as jointly liable to pay any new debt incurred by the partnership UNLESS What?

Answer 15

The person has been given:

• actual notice (s 36(1) PA 1890) - for those who have had actual dealings with the partner before departure; or
• constructive notice by virtue of publication of the departure in the London Gazette (s 36(2) PA 1890) -for those who have not had actual dealings with the partner before departure.

However, a former partner will not be liable for debts to any third party who did not know them to be a partner before they left.

Question 16

When can a non-partner (who was never a partner) be personally liable on a partnership debt?

Answer 16

If they have held themselves out as a partner (or have knowingly allowed themselves to be so held out).

Need:

(i) a representation, 🗣️

(ii) Reliance, and 👍

(iii) the third party’s state of mind (‘believing (having faith in) the representation’).🧠

It is important to appreciate that s 14 PA 1890 relates to the liability incurred by the NON-PARTNER, NOT the liability of the firm. The liability of the firm for the acts of a non-partner is established by applying the common law principles of agency.

Question 17

When will a Partner’s act bind the firm under s5 PA 1890?

Answer 17

• usual kind of business carried out

AND

• in the usual way of dealings.

Question 18

When will a Partnership NOT be bound by a Partner’s actions under s5 PA 1890?

Answer 18

the third party

• knew that the partner was not authorised to enter into the contract on behalf of the firm; or 😈🎩
• they did not know or believe that the partner was a partner. 🤷🎩

Question 19

How can a partner be expelled under the PA 1890?

Answer 19

A partner cannot be expelled by majority vote unless all of the partners have previously expressly agreed that a majority can do this.

(so can’t be voted out)

Question 20

What is the default effect of a Partner leaving a firm?

Answer 20

the partnership is dissolved

Question 21

By Default:

Does the LLP indemnify its members?

Answer 21

Yes - an LLP must indemnify its members for payments made and personal liabilities incurred in the ordinary and proper conduct of business.

Question 22

What is the clawback rule and why is it disadvantageous to LLP’s compared to companies?

Answer 22

in certain circumstances money taken out of the LLP by members up to two years before a winding up of the LLP can be clawed back into the pool of assets available to repay LLP’s creditors.

Question 23

What is the default position on return of capital on dissolution of a partnership?

Answer 23

Subject to any written partnership agreement, once all debts and liabilities have been paid, any money/assets left will be distributed so that each partner is

• paid back their original capital first.

Then:

• per asset sharing ratio - if this is not available then:
• per Profit Share Ration - if this is not available then:
• In equal shares

Question 24

What are the constitutional documents under CA 1985?

Answer 24

Articles of Association and the Memorandum

Question 25

What did the memorandum set out under CA 1985?

Answer 25

-An objects clause setting out the purposes for which the company has been formed.
-Acting outside of this purpose was described as acting ‘ultra vires’ or outside the company’s capacity.

Question 26

How can a company amend its articles?

Answer 26

By special resolution

Question 27

Who is bound by the articles?

Answer 27

The company and its members

Question 28

Who can enforce the articles?

Answer 28

Members will only be able to enforce provisions contained in Articles through the company itself.

Question 29

What is contained in Form IN01?

Answer 29

• The company’s proposed name and registered office;
• if company is private or public;
• if company is to be limited by shares (or guarantee);
• A statement of capital and initial shareholdings (s 10) (or details of guarantee)
• A statement of the company’s proposed officers (s 12) and persons with significant control (s 790); and
• A statement of compliance (s 13).

Question 30

What is set out in the certificate of incorporation?

Answer 30

• the name of the company. This may be changed at a later date;
• the company’s registered number.
• the date of incorporation.

Question 31

When is an email notifying of a Board Meeting deemed to have been served?

Answer 31

48 hours after sending