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Law for Accountancy + Business > Lecture 10 - Business Structures > Flashcards

Lecture 10 - Business Structures Flashcards

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1
Q

Companies Act 2006 came into full force

A

1 October 2009

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2
Q

Limited company - liability

A

Shareholders not usually liable personally for debts/ obligations of company. Liability limited to a maximum of the amount of capital they invested.

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3
Q

Legal liability of a Ltd

A

Company always fully legally liable for debts and obligations

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4
Q

Members =

A

Shareholders (own company)

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5
Q

Directors =

A

Manage company on behalf members

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6
Q

Sole trader

A

Operates on his/ her own, has full personal liability for all debts of business

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7
Q

General partnership

A

Two or more people carrying on business together for profit. All partners personally liable for all debts of business.

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8
Q

Limited liability partnership

A

Liability of members is limited to their capital contribution.

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9
Q

Registered company (at companies house)

A

Main aspect = Limited liability of shareholders

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10
Q

Registered companies > 3 types

A
  • Companies incorporated under Companies Acts
  • Limited companies limited by guarantee
  • Limited companies limited by shares (public/ private)
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11
Q

Features of a company (4)

A
  • Separate legal personality
  • Perpetual succession regardless changes in ownership
  • All property and assets owned by company NOT members
  • Enters into own contracts, fully liable for debts > Directors are human agency.
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12
Q

Cases on separate personality (2)

A
  • Salamon v Salamon & Co 1897 > separate legal personality, can only sue company, even if 1 person has all shares in firm
  • Macaura v Northern Assurance 1925 > Timber destroyed in fire, insurance company not entitled to pay claim as goods insured under name of director, not company
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13
Q

Veil of incorporation

A

Court can break separate personality rule where appropriate. Must be due to wrongdoing.

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14
Q

Cases on veil of incorporation (3)

A
  • Daimler Co Ltd v Continential Tyre and Rubber Co. Ltd 1916 > Continental was English company owned by Germans, trading with enemy during wartime
  • Prest v Petrodel 2013 > divorce battle, properties owned by Petrodel not brought into account in divorce proceedings. Veil not lifted, but Supreme Court allowed through other means
  • Ord v Bellhaven Pubs Ltd 1998 > Ords bought pub from Bellhaven, lost money. BH underwent restructuring, assets transferred to subsids/ group companies therefore no assets. Ords wanted to lift veil, court declined.
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15
Q

Public companies characteristics (8)

A
  • Min 2 directors
  • Min £50,000 share capital
  • Min 2 members
  • Tight control over dividend payments/ finances/ audit
  • ‘Outside’ shareholders > shares can be sold on stock market and offered to public
  • Can’t buy own shares out of capital/ provide financial assistance for purchase own shares
  • Heavy restrictions on loans to directors
  • If quoted, must comply with Stock Exchange rules.
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16
Q

Private companies characteristics (7)

A
  • Min 1 director
  • Min £1 share capital
  • Min 1 member
  • More relaxed dividend/ financial and audit controls
  • Can buy own shares out of capital and provide financial assistance
  • Restrictions share transfer, can’t offer to public on open market
  • Fewer controls on loans to directors
17
Q

Limited liability > loans/ credit

A

Creditors will often only give credit to company if directors/ shareholders give personal guarantee. Concept limited liability illusory.

18
Q

General partnership governed by (2)

A
  • Partnership Act 1890
    OR
  • Formal contractual agreement between partners
19
Q

Sole trader advantages (2)

A
  • Taxed as self-employed
  • Runs business alone, makes all decisions
  • Don’t have to file accounts
20
Q

Sole trader disadvantages (3)

A
  • Liable for all debts
  • Responsible for all employer/ employee related issues
  • Business ceases when owner dies/ retires
21
Q

Partners in partnership

A

Both own and run business

22
Q

General Partnership advantages (6)

A
  • Partners can run business as they think fit
  • No incorporation formalities/ need to file accounts
  • Partners can contract on behalf partnership, shareholders cannot
  • Shares cannot be bought and sold
  • Two/ more companies can operate in partnership together (joint venture)
  • Easier to expel partners/ dissolve than Ltd
23
Q

General Partnership disadvantages (6)

A
  • Not a separate legal entity
  • Default provisions in PA 1890 if no Partnership Agreement outdated (only kicks in if partners disagree)
  • Disputes difficult and expensive to deal with
  • All partners liable for tort (negligence) committed by partner, whether knowledge of it or not
  • Partnership liable acts of partner which are authorised by other partners (expressly or by implication)
  • Even after leaving partnership, partner still liable for all debts contracted before date retirement
24
Q

Salaried partners

A

Liable for all debts and only paid fixed salary/ share profits

25
Q

If partner pays full amount partnership debt personally..

A

Entitled to indemnity from other partners in respect their ‘share’ debt

26
Q

Limited Liability Partnership advantages (4)

A
  • No limit of number members
  • Limited liability for partners/ members
  • Less formality and regulation than Ltd
  • Members can contract on behalf partnership
27
Q

Limited Liability Partnership disadvantages (2)

A
  • Must file accounts

- Banks prefer to lend to Ltds and cannot give floating charges

28
Q

Limited company limited by guarantee

A

No shares/ investment at start, liability limited to agreed fixed amount called upon if company wound up and can’t pay

29
Q

Partnership Act

A

1890

30
Q

Limited Liability Partnership Act

A

2000

Law for Accountancy + Business (16 decks)

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