Key Terms

Question 1

Fixed charge

Answer 1

Security over specific assets belonging to the company

Assets cannot be sold or disposed of without the company obtaining the consent of the lender

Example: land, factory, warehouse

Question 2

Floating charge

Answer 2

Security over assets that are changing in nature (fluctuate)

Assets can be sold or disposed of by the company in its usual course of business without the need of consent from the lender

Example: stocks, raw materials, finished articles

Question 3

S.5 PA 1890

Answer 3

Each partner is an agent of the firm

Question 4

S.9 PA

Answer 4

1890

Makes each partner jointly liable with the other partner for any debt

Question 5

Corporate personality

Answer 5

Through incorporation a company becomes a separate legal entity distinct from its members

Salomon v Salomon (1897)

The effects are- a company has unlimited liability, a company can sue and be sued on its own right, a company can be party to contracts

Question 6

Limited liability

Answer 6

Refers to the liability of the members of a company not the liability of the company

The liability of the company members is limited to paying only the price of their shares

If a company runs up millions of pounds in debt the members cannot be asked to pay more

Question 7

The veil incorporation

Answer 7

Law recognises a separation between the assets of a company and those of the members

The barrier separating the two is called the veil of incorporation

Question 8

Companies constitution

Answer 8

S.17 CA (2006)

A written statement outlining the rules powers and rights under which it will operate

Governs both members and company

Question 9

What is vicarious liability

Answer 9

A person is liable for the negligence committed by someone else

Question 10

Winding up

Answer 10

Process of putting an end to its life

Insolvency act 1986

Question 11

Types of liquidation

Answer 11

Compulsory liquidation by the courts

Voluntary liquidation divided into

Members voluntary liquidation
Creditors liquidation

Question 12

What is a director

Answer 12

S.250 CA 2006

Any persons occupying the position of director

Every company must have one director

Question 13

Removal of directors

Answer 13

By an ordinary resolution of the members

Question 14

Director duties

Answer 14

S. 171 - duty to act within the companies powers ( only use powers for the purpose they were given)

S.172 - duty to promote the success of the company

S.173 - duty to exercise independent judgement

Question 15

What are book debts

Answer 15

Can be subject to fixed charge or floating charge

Restrictions mean the company cannot sell/ spend the book debt without the banks consent

Question 16

Order of priority of creditors

Answer 16

1- fixed charge holders
2- liquidation expenses
3- preferential creditors
4- floating charge holders
5- unsecured creditors
6- differed creditors