Chapter Three: Laws & Legal Concepts Flashcards
What is a sole trader?
Someone who runs their own business and the business assets form part of the clients assets. This extends to liabilities taken out for the company.
What are the tax liabilities of a sole trader?
- Profits are liable to income tax, CGT and Class 2 and Class 4 NI contributions.
- Employees must pay income tax and Class 1 NI contributions (collected by the employer).
- Class 1 Secondary NI Contributions.
Is a partner of a firm, liable for the tax of the other partners?
No, each partner is only liable for the tax on their share of the business.
To what level is a Limited Company responsible for its own debts and what is the exception?
A company is only liable up to the limit of its assets.
The exception is where the company has traded knowingly that the company was insolvent and therefore guilty of unlawful trading.
What is the major difference in the taxation of Limited Companies and unincorporated businesses?
Limited companies pay corporation tax
Unincorporated businesses pay income tax & CGT
If a person who has a power of attorney, becomes mentally ill or incapacitated, what happens to the POA?
The POA would be withdrawn.
What was the purpose of the Enduring Power of Attorney Act 1985?
To enable a person or persons to continue to act in the event of mental incapacity.
What would a person need to demonstrate to avoid the need for a EPOA?
- Understand relevant information
- Retain the information
- Evaluate that information in making a decision
- Communicate that information
When would a LPA be revoked?
- Donors Bankruptcy
- Death or bankruptcy of the attorney
- Dissolution of marriage or civil partnership between the donor and the attorney
- Attorneys incapacity (if they are the only attorney)
What conditions must be fulfilled to create a binding contract?
- An offer
- An acceptance (agreeing and understanding terms)
- An intention and each have the power to contract
- Consideration (pay or stand to pay something)
What are the additional requirements to a standard contract for a life assurance contract?
Utmost good faith - voluntarily disclose all material facts accurately and fully.
Insurable interest - the proposer must have a financial interest in the assured.
What were the changes to leaseholder rights under the Commonhold and Leasehold reform Act 2002?
A leaseholder has the right to buy or extend the lease provided they have lived in the property for the last two years.
Are contracts made by someone with a mental health condition invalid?
No, although the contract may be voided if they were unable to understand the nature of the agreement and the other party was aware of this.
What are the alternatives to liquidation for companies?
Administration
Voluntary Arrangements
When would a Will be automatically revoked?
Marriage (unless the will is made in anticipation of marriage)
Divorce (unless stated that divorce will not affect it)
Who are known as Legal personal representatives?
Executors and administrators of a Will/Estate.
A court will only consider a petition for bankruptcy where a creditor is owed at least how much?
£5K or a share of debts totalling £5K
What are the two types of a Grant of representation?
Letters of administration (no Will)
Grant of Probate (Will in place)
What might be the benefit of a trust in a life assurance arrangements?
They keep the policy benefits outside of a life assured or pension scheme’s estate and therefore inheritance tax is not payable on them
What are the three certainties of trusts?
The words used must be imperative
The subject matter must be certain
The objects of the trust must be certain
What three groups of people are subject to special rules, restricting their capacity to contract?
- Minors
- Mental health conditions
- Under the influence of drugs or alcohol
What are the three major formalities when writing a will?
- It needs to be in writing.
- It requires a signature.
- Attestation - witnessed by two people.
Who has legal ownership of trust property?
The trustees.
When would an ordinary POA be revoked?
Death, bankruptcy, expiry of a specified time, or the individual becomes mentally incapacitated.
