Company Structure Flashcards
Why set up as a limited company? (6)
Limited liability
Exposure is their injected capital/company assets
Greater tax planning opportunities
Use dividend allowance
Finance companies prefer ltd company as it can be sued as a separate entity and give a charge over assets
Meet their objectives (link to case study)
Why be a LLP over a partnership or limited company?
LLP allows partners to limit their liability so their personal assets are protected (unlike partnership)
Liability is limited to capital invested in the business as long as no personal guarantees are made
Additional protection is achieved with fewer legal responsibilities than a limited company
What are the disadvantages of an LLP? (5)
More complex to set up and run than a partnership
Formal agreement needs to be registered at Companies House
Less privacy as annual accounts need filing at Companies House
LLP harder to dissolve than a partnership as partners are ‘designated members’ of the LLP
Partners have additional responsibilities that they may not want
Are all partners bound to a lease agreement?
As partners or members they are deemed to be agents of the firm and can bind the firm to contracts as long as the contract is usual for the type of business. E.g. vans for tradesmen
Then all parties are bound by the contract terms
If taken out individually the other partner isn’t bound
What is the corporate document within a limited company that should be the starting place for putting in place share protection?
Articles of association
Deals with company internal affairs
Clause about disposal of shares on death, serious illness or retirement
Places a restriction on the transfer of shares
What are the liability issues with a partnership compared to a limited company?
Partners are joint and severely liable for partnership debts
In the event of default creditors would pursue them for the fill debt
The personal assets are at risk
They could face personal bankruptcy
No separation between them and the business
Limited company has separate legal entity
Liability limited to capital share (unless personal guarantees or wrongful trading at which point their personal assets are at risk)
Explain to partners why it is beneficial for them to have a written partnership agreement in place rather than relying on the Partnership Act 1890. (8)
Prevents the automatic dissolution of the partnership on death, bankruptcy or retirement (would happen under act)
Provides for partner being expelled or added (act doesn’t) and makes process clear
Allows unequal distribution of capital to reflect that invested (act shares equally)
Allows for unequal profit and loss sharing (act states its equal)
Determines who takes part in managing the business (act states equal)
Sets interest arrangements for loans to the partnership (act states 5%)
Governs if land and property introduced is owned by individual or partnership (act states partnership)
Allows partner who’s contributed more capital to receive interest on their capital (act doesn’t)
Aspects of the partnership agreement which will be relevant to the operation and continuation of the partnership (10)
Profit and loss sharing Provision for retirement Provision for bankruptcy Provision for death Provision for long term illness Provision for addition of new partner Provision for expulsion of partner Arrangements for management of business Provision interest payable on a loan Provision for introduction and distribution
Disadvantages of being a sole trader (6)
Personally liable for advice/services Liability is not limited so she risks family security Reduced tax planning opportunities Reduced state benefits More difficult to raise finance No one to share business decisions with
Disadvantages of being a limited company
Additional cost of compliance Greater regulation Must publish accounts Must publish and annual directors report Must publish a confirmation statement Requires second tax return (corporation tax)
How would someone’s income be treated under IR 35 rules?
Payments from the client to the company would be treated as if they’re Sandra’s earnings. These are compared to her actual earnings
The excess “deemed earnings” will be subject to income tax and class 1 NICs and will be allowed as a deduction in corporation tax calculation
If deemed earnings have already been paid and a dividend and therefore taxed then the dividend is exempt from tax
Certain other deductions are permitted (allowable expenses, pension contributions, and a flat rate 5% expense allowance)
