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
What are the costs associated with sole traders?
No set up costs - sole trader can start straight away
What are the risks associated with sole traders?
Unlimited personal liability
This may mean personal assets such as their home and cares may be liable for sale to meet debts of business
What is the structure of sole traders?
No formal structure - individual ca choose how they wish the run the business
What are the formalities associated with sole traders?
No CH filing or procedural requirements
Is there privacy for a sole trader?
Yes complete privacy
They do not need for publicly file their accounts like other business structures
How can a sole trader be financed?
- Personal capital of sole trader’s cash savings
- Personal loan
Who are contracts formed with when it comes to the business structure of a sole trader?
Sole trader
What are the costs of a partnership?
No set up costs - the partnership can start trading straight away
Can partnerships be formed without formal agreements and even without intention?
Yes
What are the associated risks with partnerships?
They have unlimited join or joint and several liability for debts and obligations of the partnership
How long will partners in a partnerhsip have joint liability for debts and obligations?
For all debts and obligations incurred whilst partners in the partnership
What is the difference between ‘joint’ and ‘joint and several’?
‘Joint’ - in contract
‘Joint and several’ - in tort
Does a partnership have a separate legal entity?
No
Are there any filing requirements of a partnership?
No filing requirements for CH filing or procedure
Do partnerships have complete privacy?
Yes - they are not required to post publicly filed accounts on CH
Who are the parties in a contract of a partnership?
The contract is between the third parties and the partners in the partnership as individuals
How can partners in a partnership fund a partnership?
- Personal savings
- Personal loans
What are the costs involved in an LLP?
- Incorporation of business
- Legal fees
What are the costs involved in a company?
- Incorporation of business
- Legal fees
Are there any associated liability risks in an LLP?
To an extent - they have limited liability to the amount that they’ve agreed to pay under the terms of their partnership agreement
How can the organisational structure of a company be decided between partners of an LLP?
In a formal written Members’ Agreement
Does an LLP enjoy separate legal personality?
Yes
Which business structure does the set up of an LLP follow/copy?
Companies
Do LLPs enjoy privacy?
They are required to file annual accounts and other information publicly and to CH
How can LLPs raise finance?
- Borrow (loans) in its own name as an LLP
What are the liability risks associated to a company?
The liability of shareholders is limited to the amount of unpaid shares they have
Do companies enjoy a separate legal entity?
Yes
What does ‘separate legal entity’ mean?
That companies are distinct from their owners (shareholders)
Are companies required to be registered at CH?
Yes
What privacy concerns are there related to filing when it comes to the company business structure?
Companies must file and disclose at CH
How can companies raise finance?
- Loans
- Issue shares
Who do lenders prefer to lend money to and why?
Companies
Because they are subject to a higher degree of regulation and disclosure
They can also give more security for borrowing than individuals/partnerships
How is IT calculated for sole traders?
Taxed as the individuals income
How is IT and CGT calculated for partners in a partnership?
Taxed on their individual shares of the profits
How is CGT calculated for sole traders on one off transactions?
Charged to the individual as CGT
How is CGT calculated for sole traders on one off transactions?
Charged to the individual as CGT
What does it mean when we refer to partnerships as ‘tax transparent’?
HMRC looks through the partnership to the profits and gains of the partners
What is the name of the tax a company pays tax on their taxable total profits (TTP)?
Corporation tax
What is ‘taxable total profits’?
Profits made up of the company’s
- Income profits
- Capital gains
What rate is the TTP taxed ay?
Flat rate for the current tax year
Who is liable to pay a company’s TTP?
The company itself
When may ‘double taxation’ occur for a company?
If a company pays dividends to a shareholder
How does double taxation on dividends work for a company?
Company pays corporation tax on its TTP
Then pays dividends to shareholder, who then will be taxed IT
What are the three main types of private companies?
- Private companies limited by shares
- Private companies limited by guarantee
- Unlimited companies
Characteristics of a private company limited by guarantee
- No share capital
- Liability of members is limited to the amount the agreed to contribute in the event of a winding up
- Relatively rare
Can public limited companies (limited by shares) offer their shares to the public?
Yes
What are ‘listed companies’?
Companies that are listen on the London Stock Exchange
TRUE OR FALSE
When listed, it is the company that is listed
False
It is the shares that are listed, not the company
What must a company be before it applies to have its shares listed on a stock exchange?
It must be a public company
How are subsidiary private companies impacted by their parent company being listed?
They will be affected by the rules which govern their listed parent/holding companies
What extent are listed companies regulated in comparison to private companies and public unlisted companies?
Listed companies are heavily regulated
Private companies and public unlisted companies are much less regulated
What’s the difference between private and public companies regarding the offering of shares to the public?
Private companies - prohibited
Public companies - can offer shares to the public
What’s the difference between private and public companies regarding shareholder resolutions being passed as written resolutions?
Private companies - can pass shareholder resolutions as written resolutions
Public companies - cannot pass shareholder resolutions as written resolution
What are the two exception for written resolutions not being passed even in a private company?
- Removing a director
- Removing an auditor
What is the minimum number of shareholders required for a private company?
1
What is the minimum number of shareholders required for a public company?
1
What is the minimum number of directors required for a private company?
1
What is the minimum number of directors required for a public company?
2
Is a company secretary required for a private company?
No
Is a company secretary required for a public company?
Yes
Is an annual GM required for private companies?
No, but they can do if they wish
Is an annual GM required for public companies?
Yes
What is the minimum share capital to be issues for private companies?
At least one share of a minimum of 1p
What is the minimum share capital to be issues for public companies?
Minimum of £50k
What certificate is required for private companies to trade?
Certificate of incorpration
When can private companies commence business?
As soon as it is incorporated (receives its certificate of incorporation)
What certificate is required for public companies to commence business?
Trading certificate which is issued by Registrar
Do public companies require a certificate of incorporation?
Yes
When does s.16 CA 2006 set out that a company becomes a ‘legal person’ i.e., has separate legal personality?
From date of issue of certificate of incorporation
Who do directors owe their duties to and who do they not owe duties to?
They owe duties to the company, not the shareholders
What is the liability of shareholders of a company limited to?
The amount that they have paid (or agree to pay) for their shares
What happens if a company has insufficient funds to meet its liabilities to company creditors?
They cannot pursue their claims against shareholder due to limited liability
What happens to the shareholder investment if the a company becomes insolvent?
Shareholder lose the money they invested or have agreed to invest - that is the only extent of their liability
What are the three fundamental elements of a simple and validly executed contract?
- Agreement [offer and acceptance]
- Intention and capacity
- Consideration
What are ‘express terms’ of a contract?
Express statements made by parties which they intend to be bound by
What are ‘implied terms’ of a contract?
they are presumed but unexpressed [in the contract] intentions of parties
How can implied terms in law be given?
By the courts or by statute
How can parties seek to ‘contract out’ of implied terms?
Including an express term to that effect
What are the five ways whereby a contract may come to an end?
- Performance
- Agreement
- Breach
- Frustration [within very narrow limits; thus very rarely affects business in practice]
- Discharge by expiry
When may frustration occur?
- 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
What is the remedy for a breach of a ‘condition’?
Repudiate contract
Plus right to sue for damages
What is the remedy for a breach of a ‘warranty’?
Right to sue for damages
What are ‘unliquidated damages’?
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
What is the entitlement to unliquidated damages subject to?
- Duty to mitigate loss
- Remoteness
What are ‘liquidated damages’?
Damages that have been fixed or predetermined by contacting parties in the event of a breach
What are ‘equitable remedies’?
Specific performances, injunctions
What does the principles of agency set out for a principal/agent relationship?
Wha is an example of such a relationship?
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
What is a ‘letter of comfort’?
Where a parent company provides ‘comfort’ to a bank that its subsidiary company will be able to make loan repayments
What is the ‘Battle of the Forms’?
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
Whose terms prevail in a ‘Battle of the Forms’?
The party who send their terms last prevail
What is ‘conditions precedent’?
Criteria/conditions that must be met before the agreement, or certain parts of the agreement, can come into force
Where are conditions precedent usually found?
At the beginning of an agreement
What is the issue of assignment and novation?
When a party to a contract is seeking to transfer its rights and obligations under the contract to a third party
What is assigned under ‘assignment’?
Benefit (rights) of an agreement only
What is assigned under ‘novations’?
Both the benefit (rights) and the burden to be transferred
Who is required to consent to an ‘assignment’?
Can be effected without the consent of the other party to the contract
Who is required to consent to a ‘novation’?
The original parties to the contract and the third parties
How can contracting parties exclude the issue of assignment and novation and third party rights?
Including an express clause regarding ‘the doctrine of privity’ under the Contracts (Rights of Third Parties) Act 1999
What are the two different types of contract called?
- Simple contract/agreement under hand
- Deed
Why may a contract take the form of a deed?
- 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
When may it be desirable to execute a contract in deed form if valuable consideration hasn’t been given?
When it is questionable whether a party to the document is providing valuable consideration
Who can execute a simple contract in a company?
Usually a director authorised by board resolution
Always check articles
Who can execute a simple contract as an individual?
The individual can sign the agreement without the signature being witnessed
Who can execute a simple contract in a partnership?
By one or more of the partners
How is a deed properly executed within a company?
- Signed by two authorised signatories if common seal is used or
- Signed by a director the presence of a witness
Who may the two signatories be when signing a deed on behalf of a company?
- Director(s)
- Company sec, if the company has one
How is a deed properly executed within a partnership?
Executed by all partners
Should be witnessed
How else can a deed be properly executed in a partnership if not all partners execute it?
If one or more partners is given power of attorney to execute deeds on behalf of the partnership
How is a deed properly executed as an individual?
Individual needs to sign deed and have their signature witnessed
