Chapter 3 - Legal Concepts And Considerations Flashcards
What are the 3 categories of legal status for a company?
1) Sole Trader
2) Partnership
3) Limited Company
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How are Sole Traders taxed?
- Income Tax via Self Assessment (on profits)
Paid over 3 dates and based on previous tax year’s income tax bill:
19/20
Jan 2020
July 2020
Jan 2021
- Capital Gains on sale of business assets
19/20
Jan 2021
- Class 2 & Class 4 NICs
2 = Self Assesment 4 = Through POA System
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How are LLP’s similar to Limited companies?
1) It’s own legal entity
2) Same registration process: Companies House
3) Same accounting process: Companies House
4) No personal liability on the partners
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How are LLP’s similar to traditional Partnerships?
1) All aspects of taxation
2) Partners are self-employed
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How are companies taxed?
Companies pay corporation tax on their profits, including gains plus NICs
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What are some additional rules for PLCs?
1) At least 2 Directors and 2 Shareholders
2) Company Secretary must exist
3) AGM of shareholders
4) Must have offered at least 25% of it’s ordinary share capital for sale to the public
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What are the 2 key pieces of legislation to be aware of with regards to Bankruptcy?
- The Insolvency Act 1986
- The Enterprise Act 2002
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What are the conditions that must be fulfilled before a petition to court can be submitted?
- Creditor is owed at least £5,000
- A “Demand for Payment” has not been met within 3 weeks (21 days)
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What is the role of an “Official Receiver”?
- Takes control of the debtor’s property
- Gathers details of all the debtors assets and liabilities
- Decides if a Trustee in Bankruptcy should be appointed
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What assets do NOT pass to the Trustee in Bankruptcy?
- Tools of the trade
- Clothing
- Bedding
- Vehicle (if required for the business)
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What is the main role of the Trustee in Bankruptcy?
To sell the debtors assets and distribute the funds raised the the creditors, using a set order.
They will review the debtor’s financial situation annually
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What is the order in which creditors are paid?
1) Bankruptcy Costs
2) Preferential Creditors
3) Unsecured Creditors
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What is a IVA/CVA?
Creditors will accept an agreed lower amount (75% of creditors must agree) to avoid the drawn out saga of bankruptcy/insolvency
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What is Administration?
An Administrator is appointed when the company is deemed saveable, to run the company as a going concern.
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What is the main stages of Liquidation?
1) Appoint a Liquidator
2) Identify creditors
3) Approve claims
4) Pay claims in priority order
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In what order are creditors paid?
1) Secured creditors
2) Liquidator and associated
3) Preferential creditors
4) Unsecured creditors
5) Interest on all loans
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What is a Legal Offer vs Legal Acceptance?
Legal Offer - completion and submission of the proposal or application form
Legal Acceptance - applicant agrees to be bound by the contract terms and conditions by giving consideration
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What are the 3 main conditions for a contract to binding?
1) Offer
2) Acceptance
3) Intention
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What is “Consideration” in contract law?
Anything of value, which each party must agree to exchange if the contract is to be valid. If only one party offers consideration, the agreement is not a legal and binding contract
In essence, both parties must stand to gain or lose something
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What is a material fact?
Any piece of information that would affect a Life Office’s assessment of risk.
Terms and Conditions would include “material facts” on how the policy works
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What are the 4 main steps carried out after the death of an individual?
1) Prove the Will
2) Complete the HMRC accounts
3) Receive probate
4) Distribute estate
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What are the 3 ways to revoke a Will?
1) Writing a new will
2) Deliberately destroying a Will
3) Marriage/Civil Partnership
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What is the role of a Legal Personal Representative(s)?
Consolidate all debts and taxes of the now deceased individual. Also responsible for distributing the estate according to the deceased individual’s Will (if applicable)
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What makes a Will valid?
- Must be in writing
- Signed by the Testator
- Must be witnessed by 2 or more people (attestation)
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What are the “3 Certainties” in relation to a Trust?
Words - Trust must be intended
Subject Matter - Asset in Trust must clearly be specified
Objects - The beneficiaries must be certain
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