Legal Concepts And Considerations Flashcards
What is a sole trader?
An individual who solely controls their own business. They are personally liable for any debts and liabilities.
Profits are liable to income tax. A sole trader will pay national insurance contributions.
What is a partnership?
Not a separate legal entity. Any debts are the liability of each partner jointly.
Each partner is liability for income tax, national insurance contributions and capital gains tax.
What is a limited company?
They have their own separate legal entity. Only liable for debt to the extent of its assets. Just be at least 1 director.
Profits and capital gains are liable to corporation tax.
What is the order that creditors are paid upon bankruptcy?
- bankruptcy costs - fees of the official receiver & the courts
- preferential creditors - missed wages, accrued holiday pay, pension contributions, secured borrowing
- unsecured creditors - all other creditors.
What are the conditions of contract law?
1) Offer - an offer must exist
2) Acceptance - the offer must be accepted
3) Intention - there must be an intention to contract
Who does not have capacity to contract?
Minors, individuals without mental capacity, individuals who are drunk.
What are the 3 different types of ownership of property?
Freehold, Leasehold, Commonhold
What is freehold?
Building and land are owned by the individual until they sell or die.
What is leasehold?
The land is owned separately and not by the owner of the property. The purchase buys the property and leases the land. The property owner pays rent to the freeholder. At the end of the term, the property and land reverts back to the freeholder unless the leaseholder purchases it.
What is commonhold?
Flats are owned by the purchaser and the owners are members of a commonhold association.
The association owns the land, building and the common parts. A management company provides maintenance for the common areas.
How will an estate be shared if a person died intestate?
If there is a spouse and no children, they will inherit everything.
If there is a spouse & children, the spouse will inherit the first £270,000 and 50% of anything over. The other 50% is shared between the children.
If no spouse and there are relatives, everything is passed in the following order: children, grandchildren, parents, brothers & sisters, grandparents, aunts & uncles.
If no spouse and no relatives, the crown inherits everything.
What are the three parties to a trust?
1) settlor - original owner of the asset
2) trustee - legal owner of the asset held in trust
3) beneficiary - long term indented recipients of the asset.
What is a bare / absolute trust?
This trust has a fixed & unchangeable beneficiary. The main trustee duty is to transfer the property to the beneficiary at a stated age.
Transfers into this trust are classed as potentially exempt. No IHT is due up front. If the donor survives for 7 years, the transfer is exempt.
What is an interest in possession?
The beneficiary has a present right to income and possibly capital.
Transfers are chargeable so there may be some up front IHT.
What is a discretionary trust?
There is no named beneficiary. Appointment of assets is at the discretion of the trustees. No one beneficiary has an interest in possession.
There is absolute flexibility as to what the beneficiaries get.
