MCQ's

Question 1

WS1 - Introduction to business models and partnership agreeements

Which ONE of the following correctly represents the characteristics of an LLP?

(a) The LLP is a separate legal entity and enters into contracts on its own behalf. Certain partners can have limited liability, but these partners must not be involved in the management of the business and are known as sleeping partners.
(b) The LLP is a separate legal entity and enters into contracts on its own behalf. All partners have limited liability. Although LLPs must be registered at Companies House there are no further filing requirements for LLPs.
(c) The LLP is a separate legal entity and enters into contracts on its own behalf. All partners have limited liability. LLPs must be registered at Companies House and must submit annual accounts.
(d) The LLP is a separate legal entity and enters into contracts on its own behalf. All partners have limited liability. An LLP is a better structure for investment than a traditional partnership as it can issue shares and therefore attract investment.
(e)The LLP is a separate legal entity and enters into contracts on its own behalf. All partners have limited liability. Only professional firms such as law firms and accountancy firms may become LLPs.

Answer 1

C

Question 2

Which ONE of the following is correct in relation to a traditional partnership?

(a) In the absence of an express written Partnership Agreement, the Partnership Act 1890 provides that all profits are shared equally, partners are jointly and severally liable for debts of the partnership and all partners can participate in management.
(b) In the absence of express agreement, the Partnership Act 1890 provides that all profits are shared equally, partners are jointly and severally liable for debts of the partnership and all partners can participate in management.
(c) Under the Partnership Act 1890, in the absence of express agreement, partners will cease to be liable for debts incurred by the partnership at a time when they were partners once they leave the partnership.
(d) Partnerships must be registered at Companies House but there is no requirement to file annual accounts.
(e) A partnership is formed when two or more persons sign a Partnership Agreement.

Answer 2

B - Correct. Although any express agreement will override the default provisions of the Partnership Act 1890 (written or oral), partners should ensure that they draw up a written express Partnership Agreement to regulate their partnership as they require which will provide for certainty. The default provisions of the Partnership Act 1890 are rarely appropriate for modern businesses.

Question 3

Which ONE of the following is correct?

(a) Directors of a company can also be shareholders in the same company.
(b) A private company can raise equity finance by offering to sell its shares to the public.
(c) All companies are required to have one annual general meeting each year.
(d) Private limited companies are required to have at least two directors.

Answer 3

A

Question 4

Jason, Kim and Sophia have set up a brand consultancy business (Branded). The business is doing well and they now are looking to expand. They have a number of family members and friends who are willing to invest in the business. They seek your advice as to whether to incorporate the business as a private limited company. Which of the following is correct?

(a) A key advantage of incorporation is that the directors of the company are able to run the company without any input from the shareholders.
(b) Branded can only be incorporated as a private limited company if it has at least £50,000 of share capital.
(c) A key advantage of incorporation is that shareholders are able to invest in shares in the company with their liability being limited to the amount unpaid on their shares (if any).
(d) An advantage of incorporating the business as a private limited company is that Branded will be able to offer shares to the public in order to increase the capital available to the business.

Answer 4

C

Question 5

Which one of the following correctly states the position with regards to provisions in the Memorandum restricting the objects of companies formed under the Companies Act 1985?

(a) Any restrictions in the Memorandum of companies incorporated under the 1985 Act are no longer binding, since under the CA 2006, the Memorandum has no constitutional significance.
(b) Any restrictions in the Memorandum of companies incorporated under the 1985 Act continue to bind the company and cannot be removed.
(c) Any restrictions in the Memorandum of companies incorporated under the 1985 Act take effect as if they were contained in the Articles and are binding until the Articles are amended or new Articles adopted.

Answer 5

C

Question 6

Which one of the following correctly describes the position of the objects clause (the clause setting out the purposes for which the company was formed) of companies incorporated under the Companies Act 2006?

(a) Companies formed under CA 2006 have unrestricted objects. It is not possible to restrict the objects of a company formed under CA 2006.
(b) All companies formed under CA 2006 will contain a provision in the Memorandum setting out the purposes for which the company was formed. This is known as an “objects clause”.
(c) Companies formed under CA 2006 have unrestricted objects, unless a specific restriction is inserted into the company’s articles.

Answer 6

C

Question 7

When incorporating a company from scratch, which one of the following correctly states the documents that must be filed at Companies House?

(a) The Articles of Association (unless Model Articles are used without amendment), fee and form IN01.
(b) The Memorandum, Articles of Association (unless Model Articles are used without amendment), Certificate of Incorporation and fee.
(c) The Articles of Association (unless Model Articles are used without amendment), fee, Share Certificates and form IN01.
(d) The Memorandum, Articles of Association (unless Model Articles are used without amendment), fee and form IN01.

Answer 7

D

Question 8

When does a company become a legal entity?

(a) From the date on which the incorporation documents are filed at Companies House.
(b) From the date of incorporation as set out on the certificate of incorporation.
(c) From the date on which the company is allocated a registered number.
(d) From the date on which the incorporation documents are received by Companies House (if this is different from the date of filing).

Answer 8

B

Question 9

Your client has purchased a shelf company which has been incorporated with Model Articles and seeks your advice as to how to effect a change of name of the company. Which one of the following is correct in relation to the procedure required to change the name of the company?

(a) The name may be changed by a board resolution of the directors.
(b) It is not possible to change the name of a company.
(c) An ordinary resolution of the shareholders is required.
(d) A special resolution of the shareholders is required.

Answer 9

D

Question 10

What is the ‘nominal value’ of a share?

(a) The amount over and above £1 that the shareholder pays for the share on subscription.
(b) The minimum subscription price for that share.
(c) The maximum subscription price for that share.
(d) The amount paid by the shareholder for the share at the time of purchase.

Answer 10

B

Question 11

What is the ‘issued share capital’ of a company?

(a) The total number of shares in issue at that time.
(b) The total amount in value (nominal and premium) of all shares in issue at that time.
(c) The total amount in value that has been paid up on all shares in issue at that time.
(d) The total number of shares that the company is permitted to allot.

Answer 11

B

Question 12

Which one of the following would be a Person with Significant Control in relation to a company?

(a) Any director.
(b) A shareholder who holds 25% of the voting share capital in the company, who is also a director.
(c) A shareholder who holds 30% of the voting share capital of the company.

Answer 12

C

Question 13

What is the meaning of “quorum” for a board or general meeting?

(a) A representative of a shareholder who is unable to attend the meeting.
(b) The number of attendees at a meeting of the board or shareholders.
(c) The minimum number of people that must be present for the meeting to be valid.
(d) The notice period required for the meeting to be valid.

Answer 13

C

Question 14

Which of the following correctly sets out the thresholds for ordinary and special resolutions of the shareholders?

(a)An ordinary resolution is passed by 75% or more of the votes. A special resolution is passed by more than 50% of the votes.
(b) An ordinary resolution is passed by more than 50% of the votes. A special resolution is passed by 75% or more of the votes.
(c) An ordinary resolution is passed by more than 50% of the votes. A special resolution is passed by more than 75% of the votes.
(d) An ordinary resolution is passed by 50% or more of the votes. A special resolution is passed by 75% or more of the votes.

Answer 14

B

Question 15

Which ONE of the following is correct ?

(a) All private limited companies must appoint a chairman.
(b) The chairman has a casting vote under MA 13, but this may be removed. The chairman is chosen by the shareholders.
(c) The chairman has a casting vote under MA 13, but this may be removed. The chairman is chosen by the board of directors.

Answer 15

C

Question 16

Bill, Paul, Simon and Ben are all shareholders of Magic Music Limited (‘Magic’). They have recently decided to rebrand Magic as they feel that the company’s name is outdated. As part of the rebranding they will need to change Magic’s name. They each hold the following number of shares in Magic:

Bill - 28 shares

Paul - 48 shares

Simon - 20 shares

Ben - 4 shares

Magic’s Articles of Association do not deal with changes to Magic’s name and Magic intends to deal with the change of name at a forthcoming GM. Which ONE of the following statements is correct?

(a) If only Bill and Paul voted in favour of the resolution on a show of hands then it could be passed.
(b) On a show of hands all of the shareholders would need to vote in favour of the resolution in order for it to be passed.
(c) On a poll the resolution could be passed if only Bill and Paul voted in favour of it.
(d) On a poll the resolution could be passed if Bill, Simon and Ben all voted in favour of it.

Answer 16

C - This is the correct answer. Changing the name of the company requires a special resolution (s 77 CA 2006). A special resolution requires the approval of 75% or more of the votes. Bill and Paul together hold 76% of the shares so on a poll vote they can pass a special resolution.

Question 17

Major decisions affecting the company (such as the power to remove a director and the power to change the company’s name) will be taken by which ONE of the following?

(a) The shareholders
(b) A committee of directors.
(c) The board of directors
(d) The partners

Answer 17

A

Question 18

Which of the following correctly represents the documents that must be filed at Companies House when a company votes to amend its articles?

(a) Copy of the amended articles, copy of the GM and BM minutes.
(b) Copy of an ordinary resolution, copy of the amended articles.
(c) Copy of the amended articles, copy of the GM minutes.
(d) Copy of a special resolution, copy of the amended articles.

Answer 18

D

Question 19

Two women are setting up a business together. They are primarily concerned with their ability to raise finance and limiting their own personal liabilities as investors. They also do not want to spend lots of money setting up the business.

Which of the following is the best advice to the women in terms of the most suitable business model to use for their new business?

(a) They should incorporate a private limited company. Whilst there are costs involved in setting up the company, they will enjoy limited personal liability and have a choice of finance options.
(b) They should incorporate an LLP. Whilst there are costs involved in setting up the company, they will enjoy limited personal liability and be able to issue shares and take out bank loans in the LLP’s name.
(c) The women should incorporate an LLP. They will enjoy limited personal liability.
(d) They should trade as a traditional partnership. It is free to set up and the partnership has the ability to take out loans.

Answer 19

A

Question 20

Which of the following correctly describes the structure and tax position of an LLP?

(a) An LLP has a separate legal personality. The LLP pays income tax on its profits and capital gains tax on its gains.
(b) An LLP is not a separate entity from its partners. The partners are taxed as individuals on their shares of the profits and gains.
(c) An LLP has a separate legal personality. The partners pay corporation tax on the partnership profits.
(d) An LLP is not a separate entity from its partners. The LLP pays corporation tax on the partnership profits.
(e) An LLP has a separate legal personality. The partners are taxed as individuals on their shares of the profits and gains.

Answer 20

E

Question 21

Which one of the following correctly describes the structure and tax position of a traditional partnership?

(a) A partnership has a separate legal personality and the partners are taxed as individuals.
(b) A partnership is not a separate entity from its partners and the partners are taxed as individuals.
(c) A partnership has a separate legal personality. The partnership pays income tax on the partnership profits.
(d) A partnership has a separate legal personality. The partnership pays corporation tax on the partnership profits.

Answer 21

B

Question 22

What is meant by “double taxation of profits” in the context of a company?

(a) The company pays capital gains tax on its profits before the payment of dividends to its shareholders. The individual shareholders who receive the dividends will pay income tax on the amount of the dividend.
(b) The company pays income tax on its profits before the payment of dividends to its shareholders. The individual shareholders who receive the dividends will pay income tax on the amount of the dividend.
(c) The company pays corporation tax on its profits before the payment of dividends to its shareholders. The individual shareholders who receive the dividends will pay capital gains tax on the amount of the dividend.
(d) The company pays corporation tax on its profits before the payment of dividends to its shareholders. The individual shareholders who receive the dividends will pay income tax on the amount of the dividend.

Answer 22

D

Question 23

X Ltd is a private limited company. The board would like to re-register the company as a public limited company.

X Ltd currently has 1 director and 2 shareholders but does not have a company secretary. The company has an issued share capital of £100.

Which of the following statements about the structure of the re-registered PLC is correct?

(a) Once re-registered as a PLC the company can continue to use written resolutions to make shareholder decisions.
(b) The company will need at least one more shareholder.
(c) The company will need to appoint at least one more director to the board.
(d) The company will not need to increase its share capital to be re-registered as a PLC.
(e) The company will not need to appoint a company secretary but may do so if it wishes.

Answer 23

C

Question 24

ABC Plc is a public limited company. It has decided to seek listing on the London Stock Exchange. ABC Plc has a private limited subsidiary called DEF Ltd.

Which one of the following statements is correct?

(a) It is not the company ABC Plc that will be listed, but its shares.
(b) As a Plc, ABC Plc must apply to have its shares listed.
(c) ABC Plc will only be able to offer shares to the public once it is a listed company.
(d) DEF Ltd should apply for listing once ABC Plc has listed its shares.
(e) The shares of DEF Ltd will also be listed once ABC Plc is listed.

Answer 24

A

Question 25

X Ltd is converting to a Plc. Which one of the following correctly sets out when X Plc may commence trading as a Plc?

(A) Once the trading certificate has been issued by the Registrar of companies.
(b) Once the new certificate of incorporation and trading certificate showing that the company’s allotted share capital is not less than the minimum has been issued by the Registrar of companies.
(c) Once the directors have changed the name of the company at its registered office and on its stationery.
(d) Once the new certificate of incorporation has been issued by the Registrar of companies.

Answer 25

B

Question 26

A shareholder of a private limited company has bought 1000 £1 shares in the company but has only paid the company £100 so far.

The company has become insolvent but owes a creditor £25,000. The creditor is threatening to bring proceedings for the whole amount against the shareholder.

Which one of the following statements is correct?

(a) The extent of the shareholder’s liability is a further payment of £1000 into the company. The shareholder will not be liable to the creditor for any further sums.
(b) The extent of the shareholder’s liability is a further payment of £900 into the company. The shareholder will not be liable to the creditor for any further sums.
(c) The shareholder is jointly and severally liable with all the other shareholders to the creditor for the total sum of the claim.
(d) The company has limited liability to the amount invested by the shareholders.
(e) The shareholder’s liability will be limited to a proportion of the amount claimed depending on the proportion of their shareholding.

Answer 26

B

Question 27

A man applied to Companies House two days ago to incorporate a company. The certificate of incorporation was issued today by Companies House. The man is the sole shareholder and director of the company.

Which one of the following statements about the legal personality of the company is correct?

(a) It will be possible for the company to own its own property or enter into contracts from the date of the man applied to incorporate the company.
(b) The company has a separate legal personality from the date that the man applied to incorporate the company.
(c) It is not possible for the company to have separate legal personality from the sole shareholder and director because they will always be seen as one entity.
(d) The company has a separate legal personality from today.
(e) If the director of the company changes the company is automatically wound up.

Answer 27

D

Question 28

The significance of limited liability to shareholders in a company may be overridden to some extent by which one of the following?

(a) Where the company has only one shareholder, that shareholder will have unlimited liability.
(b) Where the company’s shareholder is itself a company, the parent or holding company will have unlimited liability for the debts of its subsidiary company.
(c) Where the shareholders are also directors, they will have personal liability for debts of the company.
(d) Contractual means such as banks requiring a guarantee from the shareholder(s) of the company as part of lending money to the company.

Answer 28

D

Question 29

Ten partners are in a partnership without a written agreement. The partnership is a firm of accountants.

The partnership is not doing very well financially and is two months late with rent. The finance partner signed the lease agreement with the landlord five years ago on behalf of the partnership.

The senior partner will retire in two months’ time.

Which one of the following statements represents the correct position with regards to the liability of the partners for the overdue rent?

(a) The partnership is liable for the overdue rent.
(b) The senior partner will not be liable for the overdue rent once they retire in two months.
(c) All ten of the partners are jointly liable for the rent.
(d) Only the finance partner will be liable as they signed the lease.
(e) All ten of the partners are jointly and severally liable for the rent.

Answer 29

C

Question 30

Which one of the following is correct in relation to the tax treatment of partnerships?

(a) Partners in a partnership are liable to pay income tax and capital gains tax on their share of the income and capital gains of the partnership. Only the partners therefore need to submit tax returns.
(b) Partners in a partnership are liable to pay income tax and capital gains tax on their share of the income and capital gains of the partnership. The partnership itself is not liable to pay tax.
(c) Partners in a partnership are not liable to any tax in relation to the profits and gains of the partnership. The partnership itself is liable to pay corporation tax.
(d) Partners in a partnership are liable to pay income tax and capital gains tax on their share of the income and capital gains of the partnership. The partnership itself is also liable to pay income and capital gains tax.
(e) Partners in a partnership are liable to pay income tax and capital gains tax on their share of the income and capital gains of the partnership. The partnership itself is also liable to pay corporation tax.

Answer 30

B - Correct. A partnership is not a separate legal entity and therefore does not pay tax.

Question 31

A firm of surveyors is seeking your advice in relation to a contract entered into by one of the partners. The contract was for a building project and the managing partner had agreed that the partners would do the work for £5,000. The remaining partners are upset as they believe that the managing partner significantly under-quoted for this project and that in fact they should be charging at least £7,000.

Work has not yet started on this contract since the remaining partners are seeking to avoid the contract on the basis that the managing partner was not authorised to enter into it. The written partnership agreement requires that all quotes for work should be signed off by at least two partners.

Which one of the following is the best advice to the partnership?

(a) The partnership will not be bound by the contract since the written partnership agreement requires that all quotes for work should be signed off by at least two partners. The managing partner was therefore acting in breach of the partnership agreement.
(b) The partnership will be bound by the contract since the other partners, in allowing the managing partner to give the quote, will be said to have ratified the partner’s act.
(c) The partnership will be bound by the contract since the act is for carrying on business of the kind carried on by the firm, in the usual way. There does not appear to be anything on the facts to indicate that the customer knew that the managing partner was not authorised to enter into the contract on behalf of the firm.

Answer 31

C

Question 32

Three individuals (Partner X, Partner Y and Partner Z) began trading together as a partnership 12 months ago. The partners have never signed a partnership agreement.

Partner X contributed 55% of the start up capital; partner Y contributed 40% of the start up capital and Partner C contributed 5% of the start up capital.

Which of the following statements represents the correct position with regards to the rights to the profits of the partnership and a salary for each partner under the default provisions of the Partnership Act 1890?

(a) None of the partners are entitled to a share of the profits; all of the partners are entitled to a an equal salary.
(b) The three partners are entitled to a profit share in the proportion to their capital investments; and a salary in the proportion to their capital investments.
(c) The three partners are entitled to a profit share in the proportion to their capital investments; none of the partners are entitled to a salary.
(d) All three partners are entitled to an equal share of the profits; all three partners are entitled to receive a salary in the proportion of their capital investments.
(e) All three partners are entitled to an equal share of the profits; none of the partners are entitled to a salary.

Answer 32

E

Question 33

Three individuals have started a business together and have been working in partnership for six months. They have not entered into any formal partnership agreement. Two of the individuals would like to introduce a new partner to the business, but the third individual has reservations about the new proposed partner.

Which of the following is the correct advice as to the appointment of the new partner?

(a) In the absence of agreement, the appointment of a new partner requires unanimity therefore two of the partners cannot appoint the proposed new partner without the agreement of the third existing partner.
(b) In the absence of agreement, it is not possible to introduce a new partner to an existing partnership. The effect of this will be that the existing partnership is dissolved, and a new partnership will arise automatically once the new individual commences working with the other partners.
(c) In the absence of agreement, the appointment of a new partner requires a majority vote therefore two of the partners can appoint the proposed new partner without the agreement of the third partner.

Answer 33

A

Question 34

Five partners are in a partnership with no formal partnership agreement. Four of the partners are unhappy with the fifth partner and wish to remove the partner.

Which of the following statements represents the correct advice to the partners about removal of the fifth partner?

(a) It will not be possible to remove the fifth partner without unanimous consent.
(b) Once the partner leaves, they will have no claim on the partnership assets.
(c) Once removed, the partnership will continue without the fifth partner.
(d) It will be possible for the four partners to remove the fifth partner because they represent a majority.
(e) Once removed, the partnership will continue without the fifth partner, provided that the partners appoint a fifth partner to take the place of the expelled partner.

Answer 34

A

Question 35

Two months ago a couple set up an LLP through which to operate their business. They had been trading as a traditional partnership before the incorporation of the LLP.

Which of the following best describes the change in taxation?

(a) There is no change in taxation; the LLP is treated as a partnership for taxation purposes.
(b) Both the LLP and the partners will pay income tax.
(c) The partners will now need to pay corporation tax, instead of income tax.
(d) The partners will pay income tax on their dividends from the LLP instead of their earning from the partnership.
(e) The LLP will pay corporation tax and the partners will continue to pay income tax.

Answer 35

A

Question 36

Two individuals want to start a business together and their main concern is to limit their personal liability. They are choosing between a traditional partnership and an LLP. They are both going to be active in the running of the business. They do not want to spend a lot of money in the set up of the business but they need the ability to raise some finance in the future.

Which of the following represents the best advice to this client for their business?

(a) The individuals should trade as a partnership because it will be cheaper.
(b) The individuals should incorporate an LLP because it is not necessary to have a partnership agreement, which will save costs.
(c) The individuals should incorporate an LLP because it will be cheaper than starting a traditional partnership.
(d) The individuals should incorporate an LLP because they will enjoy limited liability.
(e) The individuals should trade as a partnership as they will have limited liability for debts.

Answer 36

D

Question 37

Which one of the following is generally seen as an advantage of an LLP when compared to a private limited company?

(a) LLPs are not required to file accounts at Companies House.
(b) An LLP has a separate legal personality from its members.
(c) There is little set statutory procedure to follow for an LLP when the partners are making decisions and in day to day management.
(d) LLPs are capable of creating a floating charge over the assets of the LLP.
(e) Partners in an LLP have limited liability.

Answer 37

C

Question 38

Two individuals want to start a business together and are keen to limit their liability. They are both going to be active in the running of the business. They do not want to spend a lot of money in the set up of the business, but they need the ability to raise some finance easily and flexibly in the future in the business name.

Which of the following would be the best vehicle for their business?

(a) A partnership
(b) A limited liability partnership
(c) A public limited company
(d) A private limited company
(e) A sole trader

Answer 38

D Correct. This option has flexibility in raising finance and limit the personal liability of the individuals.

Question 39

Your client is in the process of setting up an online recruitment business. In the future, it is hoped that staff will be employed to undertake a variety of tasks within the business, but for now, all work is carried out by your client who has secured investment from a family member. It has been agreed verbally that the family member will not be entitled salary and will not have any involvement in the day-to-day running of the business. Your client intends to take a salary from the business, but he has not discussed this with the family investor.

You have advised your client on the choice of business medium for this venture and your client has decided that a partnership would be the best option. Your client is keen to keep legal work and formality to a minimum at this stage and has asked you to explain the implications of continuing without a partnership agreement until the business has a regular turnover.

Which of the following statements best describes the impact of your client accepting the investment and continuing without a partnership agreement?

(a) Both partners would be entitled to equal salaries, equal shares in the profits of the partnership and decisions would require the consent of both partners.
(b) Both partners would be entitled to equal salaries and equal shares in the profits of the partnership, but decisions would be made by your client alone.
(c) Neither partner would be entitled to any salary, both partners would be entitled to equal shares in the profits of the partnership and decisions would require the consent of both partners.
(d) Neither partner would be entitled to any salary, both partners would be entitled to equal shares in the profits of the partnership and decisions would be made by your client alone.
(e) Neither partner would be entitled to any salary, your client would be entitled to all of the profits of the partnership and decisions would be made by your client alone.

Answer 39

D - Correct. The Partnership Act 1890 contains a default code, which applies to relations between the partners themselves in the absence of any contrary agreement. Here, there is a contrary agreement which provides that the family member will not be entitled to a salary and will not participate in decisions of the partnership. The default provisions will apply in respect of your client’s salary (no entitlement) and profit share (equal shares).

Question 40

Two individuals (Partner A and Partner B) began trading together as a partnership five years ago. Two years ago a third partner, (Partner C) joined the partnership.

Partner A put in 75% of the start up capital and partner B put in the remaining 25%. Partner C has never contributed any capital but the partnership uses a warehouse owned by Partner C. The partners have never entered into any formal agreement.

Which of the following statements represents the correct position with regards to the rights to the profits of the partnership and a salary for each partner under the default provisions of the Partnership Act 1890?

(a) Partner A and Partner B are entitled to an equal share of the profits, but Partner C is not entitled to any profits. None of the partners are entitled to a salary.
(b) Partner A and Partner B are entitled to an equal share of the profits, but Partner C is not entitled to any profits. All three partners are entitled to an equal salary.
(c) The three partners are entitled to an equal share of the profits and a salary in equal proportions to their original capital investment.
(d) The three partners are entitled to a share of the profits equal to the percentage of their original capital investment and no salary.
(e) The three partners are entitled to an equal share of the profits but none of the Partners are entitled to a salary.

Answer 40

E - Correct. Under the Partnership Act 1890 all partners are entitled to an equal share of the profits, regardless of their original investment and the PA 1890 states that unless it is agreed to the contrary no partner shall take a salary.

Question 41

You act for a partnership which is made up of 8 partners. There is no written partnership agreement. Profits have always been shared equally between the partners.

Three years ago, the partners all agreed to take out a loan to renovate their main office. The partners all contributed equally to repaying the loan. Unfortunately, the partnership has not been profitable, and they have recently defaulted on the loan repayments.

One of the partners is about to retire. No documentation has been drafted to confirm the details of her retirement. Can the partner who is about to retire be liable for repaying any of the loan?

(a) No, because there is no written partnership agreement therefore under the default provisions of the Partnership Act 1890, only the current partners will be jointly and severally liable for debts of the partnership.
(b) Yes, because there is no written partnership agreement therefore under the default provisions of the Partnership Act 1890, all those persons who were partners at the time that the loan agreement was entered into will be jointly liable for repaying the loan regardless of retirement.
(c) Yes, because there is no written partnership agreement therefore under the default provisions of the Partnership Act 1890, all those persons who were partners at the time that the loan agreement was entered into will be be jointly and severally liable for repaying the loan regardless of retirement.
(d) No, because there is no written partnership agreement therefore under the default provisions of the Partnership Act 1890, only the current partners will be jointly liable for debts of the partnership.
(e) No, because the partners have not entered into a written partnership agreement which deals with liability on retirement therefore once the partner retires, she is no longer a partner and therefore has no liability for any debts of the partnership.

Answer 41

B - Correct. Under the Partnership Act 1890 every partner is jointly liable for contractual debts and a partner will still be liable even though they have retired.

Question 42

Client A and client B are looking to start up a new business offering commercial cleaning services locally. The only requirements of the clients are that (i) the profits and capital of the business are split equally between them and (ii) their liability is limited to their investment in the business (the ‘Agreed Terms’). Provided that these requirements are met, the clients want as little formality and documentation as possible.

What type of partnership would be most appropriate for the clients?

(a) A limited liability partnership because although it requires a written agreement to operate on the Agreed Terms, it is a separate legal entity offering limited liability.

(b) A partnership because although it is not a separate legal entity, it offers limited liability and does not require a written agreement to operate on the Agreed Terms.
(c) A partnership because although it requires a written agreement to operate on the Agreed Terms and is not a separate legal entity, it does offer limited liability.
(d) A limited liability partnership because it is a separate legal entity offering limited liability and does not require a written agreement to operate on the Agreed Terms.
(e) A limited liability partnership because although it is not a separate legal entity it does offer limited liability and does not require a written agreement to operate on the Agreed Terms.

Answer 42

D - Correct. Whilst the other answer options might sound plausible, they are each incorrect. A partnership is not a separate legal entity and does not offer limited liability for the partners whereas the opposite is true for a limited liability partnership. Additionally, a partnership agreement is not legally required to set up a partnership or limited liability partnership and would not strictly be needed if the terms agreed matched the statutory default provisions.

Question 43

WS2 - Formation of a Company

Which of the following statements correctly describes the legal effect of the articles of a company?

(a) The Articles take effect as a contract between the members themselves in their personal capacities. Members are able to enforce the provisions of the Articles both against the company and directly against other members.

(b) The Articles take effect as a contract between the company and its members. Members are able to enforce the provisions of the Articles both against the company and directly against other members.

(c) The Articles take effect as a contract between the company and its members. Members will only be able to enforce provisions contained in Articles against other members through the company itself.
(d) The Articles take effect as a contract between the members themselves in their personal capacities and therefore members may enforce provisions contained in the Articles directly against other members.

Answer 43

C -

Question 44

You are advising a client about incorporating a limited company.

Which of the following statement about the constitution of the company is correct?

(a) The client will not need a memorandum of association to incorporate a company.
(b) The main constitutional documents will be the memorandum.
(c) The newly incorporated company will have unrestricted objects unless the client chooses to restrict them.
(d) If there is a conflict between the Articles of Association and the CA 2006, the Articles of Association will prevail.

Answer 44

C

Question 45

A company was incorporated in 2010. Which of the following statements about the company’s memorandum is correct?

(a) Since this company was incorporated in 2010, it would not have required a memorandum.
(b) The memorandum has no constitutional significance but it is required to be filed on incorporation. It simply amounts to a declaration on the part of the company’s subscribers that they wish to form a company and agree to become members of that company.
(c) The memorandum is a constitutional document. It will include an objects clause setting out the purposes for which the company has been formed. Any acts outside the scope of the objects clause are said to be ultra vires.

Answer 45

B

Question 46

You are instructed to convert a shelf company PP123 Limited for your client. The one issued share will be transferred to your client WYX Plc and your client plans to appoint 2 directors from its own board to the board of the shelf company.

Which one of the following statements about the conversion is correct?

(a) The current directors should resign before the new directors are appointed to ensure a clean break.
(b) Your client will control PP123 Limited once the share transfer is registered at Companies House.
(c) Your client will control PP123 Limited once it is entered on the register of members.
(d) Your client will control PP123 Limited once its shareholding is paid for.
(e) PP123 Limited will be a separate legal entity after the conversion.

Answer 46

C

Question 47

Your client wishes to incorporate from scratch a new company, which will have unamended Model Articles. Which one of the following correctly describes the documents that will need to be filed at Companies House?

(a) The memorandum, fee, the company’s Articles and Form IN01.
(b) The fee and Form IN01.
(c) The fee, Model Articles and Form IN01.
(d) The memorandum, fee, Model Articles and Form IN01.
(e) The memorandum, fee and Form IN01.

Answer 47

E

Question 48

You are advising a client on a shelf company conversion. As part of the conversion, the client wishes to change the name of the company. The company has unamended Model Articles.

Which one of the following statements about the company name is correct?

(a) The new name will be effective once the Registrar of Companies issues a new certificate of incorporation.
(b) The new name will be effective once the Company votes to change the name.
(c) The new name will be effective once the correct form has been submitted to Companies House.
(d) The company requires an ordinary resolution to change the name of the company.
(e) The Directors can change the name themselves once they are appointed to the Board.

Answer 48

A

Question 49

A company has unamended model articles and 4 shareholders with the following shareholdings:

A - 500 (50%)

B - 250 (25%)

C - 150 (15%)

D - 100 (10%)

The company wishes to shareholders to pass a special resolution using the written resolution procedure.

Which of the following statements is correct advice regarding the procedure?

(a) All shareholders must unanimously consent to the written resolution.
(b) The special resolution can only be passed if 3 of the 4 shareholders vote in favour.
(c) A and B can pass the special resolution alone.
(d) If C and D abstain, their votes won’t count.
(e) If one of the shareholders doesn’t vote for 21 days because they miss the email, it will be too late to vote for the resolution as the written resolution will have lapsed.

Answer 49

C

Question 50

A company has unamended model articles and 4 shareholders with the following shareholdings:

A - 500 (50%)

B - 250 (25%)

C - 150 (15%)

D - 100 (10%)

The company wishes the shareholders to pass an ordinary resolution at a General Meeting. All shareholders will attend the meeting and vote.

Which of the following statements is correct advice regarding the procedure?

(a) If A is not in favour of the resolution, it cannot be passed.
(b) A can pass the ordinary resolution alone.
(c) The ordinary resolution can only be passed if 3 of the 4 shareholders vote in favour.
(d) If B, C and D all vote in favour of the ordinary resolution, it will be passed despite A voting against it.

Answer 50

C - Wrong A poll vote may be demanded by any of the shareholders and on a poll vote, the ordinary resolution may be passed by A plus any one of the other shareholders.

A - A holds 50% of the shares therefore can call a poll vote and is able to block the ordinary resolution (since more than 50% is required to pass)

Question 51

A company has unamended model articles and 4 shareholders with the following shareholdings:

A - 500 (50%)

B - 250 (25%)

C - 150 (15%)

D - 100 (10%)

The company wishes the shareholders to pass a special resolution at a General Meeting. All shareholders will attend the meeting and vote.

Which of the following statements is the correct advice regarding the procedure?

(a) A, B and either C or D will need to vote in favour for the special resolution to be passed.
(b) If B votes against the special resolution, it cannot be passed.
(c) The special resolution may be passed by A and B alone.
(d) The special resolution can be passed if any 3 of the 4 shareholders vote in favour.

Answer 51

C A majority of 75% or more is required to pass a special resolution.

Question 52

A company has unamended Model Articles and an issued share capital of 100,000 ordinary shares which is held by the following shareholders:

A 5,000 (5%)

B 20,000 (20%)

C 70,000 (70%)

D 2,000 (2%)

E 3,000 (3%)

Which one of the following combinations of shareholders would be able to consent to the meeting being held on short notice?

(a) A, B, and D
(b) A, D and E
(c) B, C and D
(d) B and C
(e) C, D and E

Answer 52

C - * S307 provides that for private company, GM may be called on short notice if it is agreed by:
- A majority of shareholders in number who, so, this means that the number of shareholders in favour must be majority, irrelevant of share size, e.g if 4 shareholders, 3 must support short notice
- Together hold shares with a nominal value of not less than 90% of the total nominal value of the shares which give right to attend and vote at GM. (This can be icnreased up to 95% in companys articles)

Question 53

A company has held a general meeting to:

Amend its articles by special resolution and
Authorise a loan to a director by ordinary resolution
Which one of the following options represents the correct pair of documents that must be filed at Companies House?

(a) Copy of special resolution and a copy of the loan agreement.
(b) Copy of the amended articles and a copy of the ordinary resolution.
(c) Copy of the amended articles and the general meeting minutes where the approval for the loan occurred.
(d) Copy of the special resolution and a copy of the ordinary resolution.
(e) Copy of the amended articles and a copy of the special resolution.

Answer 53

E - * All special resolutions must be filed and generally ordinary do not (but there are some exceptions to this such as an authority to allot shares)
* Amended articles must be filed along with any forms companies house requires such as change of name form NM01.

Question 54

A company with unamended Model Articles wishes to change its articles by special resolution. The company has four shareholders, two of whom are also directors. The company does not use the written resolution procedure and therefore a General Meeting will need to be held. Which of the following correctly sets out the requirements for a valid General Meeting?

(a) The Board must call the General Meeting, giving 14 clear days’ notice. The quorum for the meeting is 1 shareholder. Voting takes place on a show of hands unless a poll vote is demanded.
(b) The Board must call the General Meeting, giving 14 clear days’ notice. The quorum for the meeting is 2 shareholders.
(c) The Board must call the General Meeting, giving 14 days’ notice. The quorum for the meeting is 2 shareholders.
(d) The Board must call the General Meeting on reasonable notice. The quorum for the meeting is 2 shareholders.
(e) The shareholders must call the General Meeting, giving 14 clear days’ notice. The quorum for the meeting is 2 shareholders. Voting takes place on a show of hands unless a poll vote is demanded.

Answer 54

B -

Question 55

A corporate client of your law firm has bought a shelf company named Shelfco 123 Ltd (‘Shelfco Ltd’) on your recommendation. Shelfco Ltd has unamended Model Articles for a private company limited by shares. The Board of Directors of Shelfco Ltd wishes to change the name of the company to a more suitable commercial name. What is the correct procedure for changing the company name of Shelfco Ltd under the Companies Act 2006? (Assume the name chosen by the client is available and not subject to any objections by another party.)

(a) To change the name of Shelfco Ltd under the Companies Act 2006, Shelfco Ltd’s shareholders must pass a special resolution.
(b) To change the name of Shelfco Ltd under the Companies Act 2006, Shelfco Ltd’s shareholders may pass an Ordinary Resolution. Alternatively, the Board may pass a Board Resolution.
(c) To change the name of Shelfco Ltd under the Companies Act 2006, Shelfco Ltd’s Board merely needs to pass a Board Resolution.
(d) To change the name of Shelfco Ltd under the Companies Act 2006, Shelfco Ltd’s shareholders must pass an Ordinary Resolution.
(e) To change the name of Shelfco Ltd under the Companies Act 2006, Shelfco Ltd’s shareholders may pass a special resolution. Alternatively, the Board may pass a Board Resolution.

Answer 55

A - Correct. Section 77(1)(a) Companies Act 2006 requires the shareholders of Shelfco Ltd to pass a Special Resolution. Section 77(1)(b) does allow for the company to determine another method for changing the name in its articles but since Shelfco Ltd has unamended Model Articles, the only option is to use the special resolution procedure.

Question 56

A company entered into a contract with an office equipment supplier to purchase 3 projectors. The contract was signed by the sole director on behalf of the company. The director and his wife are the shareholders of the company. The supplier delivered the projectors as agreed but the company failed to pay the purchase price.

Which statement best describes what legal action the supplier can take?

(a) The supplier can sue the company and the director for the purchase price.
(b) The supplier can sue the sole director for the purchase price.
(c) The supplier can sue the shareholders for the purchase price.
(d) The supplier can sue the company for the purchase price.
(e) The supplier can sue the company and the shareholders for the purchase price.

Answer 56

D - This is correct. The doctrine of separate legal liability means that the company is liable for its own debts.

Question 57

Two individuals (A and B) want to incorporate a private limited company as soon as possible. A and B propose to each take 50% of the shares and become directors of the company. A is negotiating a supply agreement, on behalf of the not yet incorporated company with a company (C) to take effect once the company is incorporated. If A were to sign the agreement with C now, before the company is incorporated, who would be liable under the agreement?

(a) A, B and the not yet incorporated company
(b) A
(c) The not yet incorporated company, once it is incorporated.
(d) A and B
(e) Nobody, the contract would be void

Answer 57

Correct. Under s 51(1) Companies Act 2006, the person signing the purported agreement between the unincorporated company and C would be personally liable.

Question 58

You act for a private limited company that was incorporated last year. The company’s only asset is the company bank account which holds £10,000 on deposit. The company has asked for your advice on changing its current company name.

Which one of the following statements is correct in relation to the company’s change of name?

(a) The change of name will be effective once the Registrar of Companies has issued the certificate of incorporation on a change of name.
(b) The company will be issued with a new certificate of incorporation following the change of name which will confirm its new name and new company number. The change of name is effective once this new certificate has been issued by the Registrar of Companies.
(c) The change of name will be effective once the Registrar of Companies has received notice of the relevant special resolution.
(d) The change of name will be effective as soon as the company has passed the required special resolution to change the company’s name.
(e) The company will not be issued with a new certificate of incorporation following the change of name. The Registrar of Companies will change the company’s name online at Companies House only. The change of name is effective once the Registrar of Companies has received notice of the relevant special resolution.

Answer 58

A -Correct. A change of name will be effective once the Registrar of Companies has issued the certificate of incorporation on a change of name (s 16 CA 2006). The company registration number will not change.