Legal Concepts Flashcards
What is a Legal Person
Has rights, protection, privileges, responsibilities and liabilities under law - as natural persons do.
e.g Companies, Sovereign States, Co-operatives
What is a Legal Personality
Allows one of more natural persons to act as a ‘composite person’ for legal purposes
Often considered under law separately from its individual members, therefore may shield participants from personal liability
Lasting Power of Attorney
Created from Mental Capacity Act 2005, replacing EPA
Must registered with Office of Public Guardian (OPG)
- Property and affairs LPA - financial decisions
- Personal welfare LPA - healthcare decisions
Stages of Contract and Legality
Offer - Terms and Conditions - Acceptance
Consideration - mutual consideration on either side, one promises a service and the other payment. makes legally enforceable
Intention - must have intention of being legally binding. Commercial contracts assume this
Medium of Contract
Written or Orally are both acceptable
Certain agreements (e.g. property and tenancy) are writing only
4 Ways of Contract Discharge (PAFB)
- Performance - obligations of contract have been accomplished by both parties
- Agreement - mutual agreement to end contract
- Frustration - events occurred which make contract impossible to complete
- Breach - one party does not fulfil T and Cs or work is defective.
Legal and Beneficial Property Ownership
- Legal - named on title documents at Land registry or on share registers
- Beneficial - right to live in property. Power to control the sale and share the proceeds
Types of Property Ownership
- Individual - with absolute ownership
- Tenants in Common - two or more co-owners free to dispose of their share
- Joint Tenants - two or more in equal ownership, can only dispose of ownership by giving notice to other tenant and converting to ‘tenancy in common’. Share passes on death
Couples can change to tenancy in common to mitigate Pre-Owned Asset Tax (POAT)
Insolvency Definition and Aftermath
State where company cannot pay bills or obligations on time
Debts > Assets + Cash Flow
When insolvent, a company must immediately generate cash and settle or renegotiate debts
If it cannot recover, it will lead to bankruptcy or liquidation
Liquidation
The shutting down of a company
Liquidation occurs where a liquidator collects assets, pays debts to creditors and distributes surplus to members
The company is then removed from Register of Companies.
Alternatives to Liquidation
- Administration - administrator runs company affairs to rescue it
- Voluntary Arrangements - insolvency is avoided by making a deal between the company and its creditors
Bankruptcy Definition and Application
Again, when Liabilities > Asset
but whereas insolvency is a state, bankruptcy is by law (i.e company can be insolvent but not bankrupt)
Anyone can apply for bankruptcy or Creditors can petition if the person owes >£5000
Process of Bankruptcy
One bankruptcy order is made, an ‘Official Receiver’ will manage the affairs to pay off the creditors
If there are significant assets, an ‘insolvency practitioner‘ may be appointed to sell the assets
Alternative to Bankruptcy - Individual Voluntary Arrangement
To decide if an IVA is acceptable, a creditors meeting is called with at least 75% in favour
Monthly repayments to creditors
Conditions of a Will
- Must be in writing
- Signed and witness by 2 people
- Must be over 18
- Must have mental capacity
- Must be made under no pressure
Probate and Intestate
Probate - a specified ‘executor’ will share our estate and settle debts. If no executor names, a beneficiary will take the role
Intestate - person dies without a will or valid will and estate shared by laws of intestacy to next of kin
What is a Trust and Investments within a trusts
Arrangement where a person (the Settlor) transfers property to another person (the Trustee) who manages on behalf of specified persons (the Beneficiaries)
Trust Deed must be written in lifetime or by Will
Investment within a trust must follow the Trustee Act 2000
4 Main Types of Trust
- Bare
- Interest in Possession
- Charitable
- Discretionary
Bare (Absolute) Trust
Assets legally owned by the trustee for the absolute benefit of the beneficiaries
Income and capital gains are the beneficiaries for tax purposes
e.g. set up for child, disabled
Interest in Possession (Life Interest) Trust
Beneficiary has an interest in the benefits of the assets of the trust until their death
After the specified event (usually death), the persons interest cease and the interest will be held for the benefit of the second class beneficiary (the Remainderman)
e.g. Provide for spouse, while protecting assets for secondary children
Discretionary Trust
Trustees have discretion on how much to give to which beneficiaries and when = more freedom for trustee
Either:
- Settlor’s children/grandchildren becoming entitled at specified age
- Trustee’s discretion according to need
Can be used to mitigate Inheritance Tax by using a discretionary trust in the first couple member to die’s will. A ‘letter of wishes’ will give the surviving spouse enough assets but avoid some IHT liability
Duties of a Trustee (IIADSR)
- INVEST the trust fund
- Act IMPARTIALLY
- Take appropriate ADVICE (professionally) - unless too small for costs to outweigh or already qualified
- DISTRIBUTE trust properly
- Keep trusts property SECURE - insure tangible items
- Keep RECORDS - advice, investments, costs and money paid to beneficiaries
