Chapter 6: Business Organizations: The legal framework

Question 1

sole trader

Answer 1

one person owns the business and undertakes unlimited responsibilities/liabilities –> business = person who owns the business

Question 2

general partnership

Answer 2

at least 2 people carrying on a business in common with a view to profit –> not a legal person, merely a contractual relationship

Question 3

limited partnership

Answer 3

general partners run the business and one or more silent partners only contribute capital to the partnership –> general partners remain personally liable, the liability of silent partners is limited to their contribution

Question 4

limited liability partnership

Answer 4

a separate legal entity, giving its members limited liability while retaining certain elements of partnership

Question 5

limited liability company (UK)

Answer 5

shareholders cease to incur liability to contribute to the debts of the company once their shares have fully been paid up –> The liability for company debts is limited to each shareholder’s value of their shares

Question 6

limited liability company (US)

Answer 6

organisation which is a hybrid form between a corporation and a partnership –> owners are not personally liable of the debts of the company

Question 7

promoter

Answer 7

used in the creation of a new company –> registers the company, fiduciary duties, personally liable for pre-incorporation contracts

Question 8

registration documents UK

Answer 8

memorandum of association, registration form and articles of association

Question 9

memorandum of association

Answer 9

define its relationship with shareholders. The MOA is accessible to the public and describes the company’s name, physical address of registered office, names of shareholders and the distribution of shares

Question 10

registration documents US

Answer 10

articles of incorporation –> by-laws do not need to be filed

Question 11

by-laws

Answer 11

internal organisation of the company

Question 12

objects clause

Answer 12

states the purpose for which the business is set up

Question 13

articles of association

Answer 13

rules of the company

Question 14

authorised share capital

Answer 14

total nominal value of shares that might be issued

Question 15

issued capital

Answer 15

part of the authorised share capital already issued

Question 16

prospectus

Answer 16

all information to the investors in an IPO

Question 17

listing particulars

Answer 17

They contain detailed information about the securities and the issuing company –> company is already listed

Question 18

preference shares

Answer 18

(Preferred stock in the USA) pay a dividend at a fixed rate, before the ordinary shareholders get payed dividend –> no voting rights!

Question 19

ordinary shares

Answer 19

(Common stock in the USA) dividend depends on the financial position of the company –> shareholder has voting rights

Question 20

single debenture

Answer 20

one loan source

Question 21

series of debentures

Answer 21

pari passu

Question 22

pari passu

Answer 22

several loans ranking equally

Question 23

debenture stock

Answer 23

loan contract issued by a company or public body specifying an obligation to return borrowed funds and pay interest, secured by all or part of the company’s property

Question 24

debenture security

Answer 24

debenture can be secured by means of a charge on business assets

Question 25

fixed charge

Answer 25

a liability to a creditor which relates to specific assets of a company.

Question 26

floating charge

Answer 26

A floating charge is a security interest over a fund of changing assets (e.g. stocks) of a company or other legal person.

Question 27

lifting/piercing the veil

Answer 27

if fraud is suspected, a director/ shareholder can be identified with his company

Question 28

loan capital

Answer 28

money borrowed by the company as a legal person

Question 29

plc

Answer 29

public company

Question 30

ltd

Answer 30

private company