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Business Law and Practice > Introduction to Business Law and Practice > Flashcards

Introduction to Business Law and Practice Flashcards

**Topic**: Introduction to Business Law and Practice - Introduction to business law and practice - Different legal forms of business - Tax treatment of different business models - Private and public companies - Legal personality and limited liability - Core principles of contract law

1
Q

What are the costs associated with sole traders?

A

No set up costs - sole trader can start straight away

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2
Q

What are the risks associated with sole traders?

A

Unlimited personal liability

This may mean personal assets such as their home and cares may be liable for sale to meet debts of business

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3
Q

What is the structure of sole traders?

A

No formal structure - individual ca choose how they wish the run the business

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4
Q

What are the formalities associated with sole traders?

A

No CH filing or procedural requirements

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5
Q

Is there privacy for a sole trader?

A

Yes complete privacy

They do not need for publicly file their accounts like other business structures

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6
Q

How can a sole trader be financed?

A
  • Personal capital of sole trader’s cash savings
  • Personal loan
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7
Q

Who are contracts formed with when it comes to the business structure of a sole trader?

A

Sole trader

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8
Q

What are the costs of a partnership?

A

No set up costs - the partnership can start trading straight away

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9
Q

Can partnerships be formed without formal agreements and even without intention?

A

Yes

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10
Q

What are the associated risks with partnerships?

A

They have unlimited join or joint and several liability for debts and obligations of the partnership

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11
Q

How long will partners in a partnerhsip have joint liability for debts and obligations?

A

For all debts and obligations incurred whilst partners in the partnership

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12
Q

What is the difference between ‘joint’ and ‘joint and several’?

A

‘Joint’ - in contract

‘Joint and several’ - in tort

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13
Q

Does a partnership have a separate legal entity?

A

No

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14
Q

Are there any filing requirements of a partnership?

A

No filing requirements for CH filing or procedure

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15
Q

Do partnerships have complete privacy?

A

Yes - they are not required to post publicly filed accounts on CH

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16
Q

Who are the parties in a contract of a partnership?

A

The contract is between the third parties and the partners in the partnership as individuals

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17
Q

How can partners in a partnership fund a partnership?

A
  • Personal savings
  • Personal loans
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18
Q

What are the costs involved in an LLP?

A
  • Incorporation of business
  • Legal fees
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19
Q

What are the costs involved in a company?

A
  • Incorporation of business
  • Legal fees
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20
Q

Are there any associated liability risks in an LLP?

A

To an extent - they have limited liability to the amount that they’ve agreed to pay under the terms of their partnership agreement

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21
Q

How can the organisational structure of a company be decided between partners of an LLP?

A

In a formal written Members’ Agreement

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22
Q

Does an LLP enjoy separate legal personality?

A

Yes

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23
Q

Which business structure does the set up of an LLP follow/copy?

A

Companies

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24
Q

Do LLPs enjoy privacy?

A

They are required to file annual accounts and other information publicly and to CH

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25
Q

How can LLPs raise finance?

A
  • Borrow (loans) in its own name as an LLP
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26
Q

What are the liability risks associated to a company?

A

The liability of shareholders is limited to the amount of unpaid shares they have

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27
Q

Do companies enjoy a separate legal entity?

A

Yes

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28
Q

What does ‘separate legal entity’ mean?

A

That companies are distinct from their owners (shareholders)

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29
Q

Are companies required to be registered at CH?

A

Yes

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30
Q

What privacy concerns are there related to filing when it comes to the company business structure?

A

Companies must file and disclose at CH

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31
Q

How can companies raise finance?

A
  • Loans
  • Issue shares
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32
Q

Who do lenders prefer to lend money to and why?

A

Companies

Because they are subject to a higher degree of regulation and disclosure

They can also give more security for borrowing than individuals/partnerships

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33
Q

How is IT calculated for sole traders?

A

Taxed as the individuals income

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34
Q

How is IT and CGT calculated for partners in a partnership?

A

Taxed on their individual shares of the profits

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35
Q

How is CGT calculated for sole traders on one off transactions?

A

Charged to the individual as CGT

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36
Q

How is CGT calculated for sole traders on one off transactions?

A

Charged to the individual as CGT

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37
Q

What does it mean when we refer to partnerships as ‘tax transparent’?

A

HMRC looks through the partnership to the profits and gains of the partners

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38
Q

What is the name of the tax a company pays tax on their taxable total profits (TTP)?

A

Corporation tax

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39
Q

What is ‘taxable total profits’?

A

Profits made up of the company’s

  • Income profits
  • Capital gains
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40
Q

What rate is the TTP taxed ay?

A

Flat rate for the current tax year

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41
Q

Who is liable to pay a company’s TTP?

A

The company itself

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42
Q

When may ‘double taxation’ occur for a company?

A

If a company pays dividends to a shareholder

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43
Q

How does double taxation on dividends work for a company?

A

Company pays corporation tax on its TTP

Then pays dividends to shareholder, who then will be taxed IT

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44
Q

What are the three main types of private companies?

A
  1. Private companies limited by shares
  2. Private companies limited by guarantee
  3. Unlimited companies
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45
Q

Characteristics of a private company limited by guarantee

A
  • No share capital
  • Liability of members is limited to the amount the agreed to contribute in the event of a winding up
  • Relatively rare
46
Q

Can public limited companies (limited by shares) offer their shares to the public?

A

Yes

47
Q

What are ‘listed companies’?

A

Companies that are listen on the London Stock Exchange

48
Q

TRUE OR FALSE

When listed, it is the company that is listed

A

False

It is the shares that are listed, not the company

49
Q

What must a company be before it applies to have its shares listed on a stock exchange?

A

It must be a public company

50
Q

How are subsidiary private companies impacted by their parent company being listed?

A

They will be affected by the rules which govern their listed parent/holding companies

51
Q

What extent are listed companies regulated in comparison to private companies and public unlisted companies?

A

Listed companies are heavily regulated

Private companies and public unlisted companies are much less regulated

52
Q

What’s the difference between private and public companies regarding the offering of shares to the public?

A

Private companies - prohibited

Public companies - can offer shares to the public

53
Q

What’s the difference between private and public companies regarding shareholder resolutions being passed as written resolutions?

A

Private companies - can pass shareholder resolutions as written resolutions

Public companies - cannot pass shareholder resolutions as written resolution

54
Q

What are the two exception for written resolutions not being passed even in a private company?

A
  1. Removing a director
  2. Removing an auditor
55
Q

What is the minimum number of shareholders required for a private company?

A

1

56
Q

What is the minimum number of shareholders required for a public company?

A

1

57
Q

What is the minimum number of directors required for a private company?

A

1

58
Q

What is the minimum number of directors required for a public company?

A

2

59
Q

Is a company secretary required for a private company?

A

No

60
Q

Is a company secretary required for a public company?

A

Yes

61
Q

Is an annual GM required for private companies?

A

No, but they can do if they wish

62
Q

Is an annual GM required for public companies?

A

Yes

63
Q

What is the minimum share capital to be issues for private companies?

A

At least one share of a minimum of 1p

64
Q

What is the minimum share capital to be issues for public companies?

A

Minimum of £50k

65
Q

What certificate is required for private companies to trade?

A

Certificate of incorpration

66
Q

When can private companies commence business?

A

As soon as it is incorporated (receives its certificate of incorporation)

67
Q

What certificate is required for public companies to commence business?

A

Trading certificate which is issued by Registrar

68
Q

Do public companies require a certificate of incorporation?

A

Yes

69
Q

When does s.16 CA 2006 set out that a company becomes a ‘legal person’ i.e., has separate legal personality?

A

From date of issue of certificate of incorporation

70
Q
A
71
Q

Who do directors owe their duties to and who do they not owe duties to?

A

They owe duties to the company, not the shareholders

72
Q

What is the liability of shareholders of a company limited to?

A

The amount that they have paid (or agree to pay) for their shares

73
Q

What happens if a company has insufficient funds to meet its liabilities to company creditors?

A

They cannot pursue their claims against shareholder due to limited liability

74
Q

What happens to the shareholder investment if the a company becomes insolvent?

A

Shareholder lose the money they invested or have agreed to invest - that is the only extent of their liability

75
Q

What are the three fundamental elements of a simple and validly executed contract?

A
  1. Agreement [offer and acceptance]
  2. Intention and capacity
  3. Consideration
76
Q

What are ‘express terms’ of a contract?

A

Express statements made by parties which they intend to be bound by

77
Q

What are ‘implied terms’ of a contract?

A

they are presumed but unexpressed [in the contract] intentions of parties

78
Q

How can implied terms in law be given?

A

By the courts or by statute

79
Q

How can parties seek to ‘contract out’ of implied terms?

A

Including an express term to that effect

80
Q

What are the five ways whereby a contract may come to an end?

A
  1. Performance
  2. Agreement
  3. Breach
  4. Frustration [within very narrow limits; thus very rarely affects business in practice]
  5. Discharge by expiry
81
Q

When may frustration occur?

A
  • Where contract becomes impossible to perform due to total or partial destruction of necessary object to perform contract
  • Change in law or state intervention rendering performance illegal
  • An event fundamental to the contract doesn’t occur
82
Q

What is the remedy for a breach of a ‘condition’?

A

Repudiate contract

Plus right to sue for damages

83
Q

What is the remedy for a breach of a ‘warranty’?

A

Right to sue for damages

84
Q

What are ‘unliquidated damages’?

A

Damages that seek to make good the claimant’s losses and nothing else; purpose is to put them in the position that they would have been in had there not been a breach

85
Q

What is the entitlement to unliquidated damages subject to?

A
  • Duty to mitigate loss
  • Remoteness
86
Q

What are ‘liquidated damages’?

A

Damages that have been fixed or predetermined by contacting parties in the event of a breach

87
Q

What are ‘equitable remedies’?

A

Specific performances, injunctions

88
Q

What does the principles of agency set out for a principal/agent relationship?

Wha is an example of such a relationship?

A

Agent forms contract on behalf of the principal to create contractual obligations enforceable against the principal by a third party

E.g., company and its directors

89
Q

What is a ‘letter of comfort’?

A

Where a parent company provides ‘comfort’ to a bank that its subsidiary company will be able to make loan repayments

90
Q

What is the ‘Battle of the Forms’?

A

Where parties attempt to contract on their own terms

E.g., a buyer sends order form to supplier with its standard terms and conditions, supplier does the same alongside its acknowledgement of the order

91
Q

Whose terms prevail in a ‘Battle of the Forms’?

A

The party who send their terms last prevail

92
Q

What is ‘conditions precedent’?

A

Criteria/conditions that must be met before the agreement, or certain parts of the agreement, can come into force

93
Q

Where are conditions precedent usually found?

A

At the beginning of an agreement

94
Q

What is the issue of assignment and novation?

A

When a party to a contract is seeking to transfer its rights and obligations under the contract to a third party

95
Q

What is assigned under ‘assignment’?

A

Benefit (rights) of an agreement only

96
Q

What is assigned under ‘novations’?

A

Both the benefit (rights) and the burden to be transferred

97
Q

Who is required to consent to an ‘assignment’?

A

Can be effected without the consent of the other party to the contract

98
Q

Who is required to consent to a ‘novation’?

A

The original parties to the contract and the third parties

99
Q

How can contracting parties exclude the issue of assignment and novation and third party rights?

A

Including an express clause regarding ‘the doctrine of privity’ under the Contracts (Rights of Third Parties) Act 1999

100
Q

What are the two different types of contract called?

A
  1. Simple contract/agreement under hand
  2. Deed
101
Q

Why may a contract take the form of a deed?

A
  • Desirable to have limitation period for action arising from contract of 12 years (deed) rather than 6 years (simple contract)
  • Deeds will be binding even if valuable consideration isn’t given
  • document required to be executed as a deed e.g., land-related transactions
102
Q

When may it be desirable to execute a contract in deed form if valuable consideration hasn’t been given?

A

When it is questionable whether a party to the document is providing valuable consideration

103
Q

Who can execute a simple contract in a company?

A

Usually a director authorised by board resolution

Always check articles

104
Q

Who can execute a simple contract as an individual?

A

The individual can sign the agreement without the signature being witnessed

105
Q

Who can execute a simple contract in a partnership?

A

By one or more of the partners

106
Q

How is a deed properly executed within a company?

A
  • Signed by two authorised signatories if common seal is used or
  • Signed by a director the presence of a witness
107
Q

Who may the two signatories be when signing a deed on behalf of a company?

A
  • Director(s)
  • Company sec, if the company has one
108
Q

How is a deed properly executed within a partnership?

A

Executed by all partners

Should be witnessed

109
Q

How else can a deed be properly executed in a partnership if not all partners execute it?

A

If one or more partners is given power of attorney to execute deeds on behalf of the partnership

110
Q

How is a deed properly executed as an individual?

A

Individual needs to sign deed and have their signature witnessed

Business Law and Practice (7 decks)

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