NoteBook LM simplified notes

Question 1

company is

Answer 1

its own legal entity. Shareholders get limited liability and are protected from business debts

Question 2

Sole traders and general partnerships are

Answer 2

personally liable but not shown on Companies House

Question 3

Limited Liability Partnerships

Answer 3

two or more people
More regulated / formal than the above, separate legal entity in its own right
Keep all profits
Own all assets
Liability is limited

Question 4

Private companies need at least how many numbers of directors

Answer 4

1

Question 5

public companies need at least what number of directors

Answer 5

2

Question 6

When is a director disqualified

Answer 6

misconduct - acting dishonestly and running a company into the ground

Question 7

what do shareholders do

Answer 7

weigh in on big meetings through written resolutions and general meetings
they have a say on the big stuff like mergers

Question 8

big decisions require

Answer 8

shareholder approval

Question 9

board of directors manage

Answer 9

day to day operations

Question 10

ordinary resolutions require

Answer 10

simple majority vote

Question 11

special resolutions require

Answer 11

higher threshold at least 75% of the votes big changes need broad support

Question 12

share capital

Answer 12

money invested by shareholders

Question 13

security is collateral for

Answer 13

a business loan, lender want a security interest

Question 14

common security includes

Answer 14

fixed charges on specific assets
floating charges on a pool of assets that might change
mortgages
guarantees - personal promises to pay the debts if the company cant

Question 15

floating charge covers a

Answer 15

pool of assets that might change over time

Question 16

wrongful trading

Answer 16

holding directors accountable recognising the warning signs and making responsible decisions (directors). Directors should act in the best interests of the company

Question 17

how does the court prove that a direct should have known

Answer 17

Two part test:

consider the knowledge skill of a reasonable person in that director’s position at the time & look at the director’s actual knowledge and experience

(note: more expertise the director has more likely they should be expected to mitigate the risk). Can’t plead ignorance should exercise care.

Question 18

what can the court do if they find that a director has engaged in wrongful trading

Answer 18

• ask the director to personally contribute to the company’s debts. They could end up personally liable for the company’s losses

Question 19

what is wrongful trading

Answer 19

where a director acts wrongfully and without reasonable care and skill in the run up to the company’s insolvency

Question 20

what is fraudulent trading

Answer 20

carrying on the business with the intent to de-fraud creditors about intentionally misleading people for a gain. Leave the creditors with nothing

Question 21

fraudulent trading is

Answer 21

a specific offence
use the company’s structure to deceive creditors
using the company as a weapon to keep creditors

Question 22

transactions that can be challenged

Answer 22

transactions at an undervalue
avoiding a floating charge
preferences

Question 23

what is a transaction at an undervalue (provide an example)

Answer 23

selling a property at an undervalue to a family or friend
ie. connected person.

Question 24

what is a preference and provide me an example

Answer 24

when a company gives preferential treatment to one creditor. Pay back certain loans but miss out the other creditors

Question 25

insolvency law protects

Answer 25

creditors and companies about a balance

Question 26

administration

Answer 26

restructuring attempt to rescue the company as a going concern if not achievable, achieve the best outcome for the creditors

Question 27

what powers does an administrator have

Answer 27

broad powers company is protected from legal action by creditors

Question 28

during administration, what happens if a company's problems are too severe

Answer 28

administrator will recommend liquidation

Question 29

CVA - Company Voluntary Arrangments

Answer 29

reaching a compromise between the company and creditors company proposes a plan extending payment deadlines converting debts to equity if 75% of creditors agree to the plan way for the company to re-construct its debt allows the company to keep trading require a high level of trust between company and its creditors

Question 30

fixed asset receivership

Answer 30

when a company has secured a loan by pledging specific assets if the company defaults on that loan creditor can come into the company and take back those assets

Question 31

moratorium

Answer 31

gives companies a breathing space without facing immediate pressure to pay back creditors can last up to 20 business days can be extended by 20 days without consent of creditors, beyond that for a year need creditor consent

Question 32

conditions of a moratorium

Answer 32

company has to believe it has a real chance of survival cannot have used before

Question 33

investors using equity finance become

Answer 33

shareholders in the company and have a say over major decisions of the company

Question 34

what are investors hoping for

Answer 34

a return on their investment and shareholding. Looking for a dividend which is a payment from the profits to shareholders. Hoping for the shareholder value to grow over time

Question 35

debt financing

Answer 35

borrowing money for the company bonds (i owe yous, pay back at a later date), bank loans, over drafts using debt strategically to fuel growth

Question 35

equity finance

Answer 35

doesn't have to be repaid provides a long term investment lose potential control over the business long term partnership with investors who believe in the countries future

Question 36

security and debt financing

Answer 36

security gives lenders a priority claim on specific assets acts as a guarantee lender has a way to recoup their assets, if the company cannot make its payments incentivises borrowers to pay back assets

Question 37

floating charges

Answer 37

cover a pool of assets that might change over time like inventory

Question 38

financial management is about

Answer 38

making smart decisions about how a company utilises its resources. CFO of own life; organised, strategic and accountable, transparency being open and honest about the company's position