Pre-Module - Introduction to BLP

Question 1

Tax treament of Different Business Models - Introduction: What is another consideration for choice of business structure?

Answer 1

• How much tax will be payable on profits of the business.
• This will largely depend on the business model.

Question 2

Tax treament of Different Business Models - a) Sole Traders: What must be remembered?

Answer 2

• Business is not a seperate legal entity.
• Thus, any profits are taxed as individuals income for income tax purposes and any gains made on one off transactions will be charged under capital gains tax.
• We will learn more later.

Question 3

Tax treament of Different Business Models - b) Partnerships: What must be remembered?

Answer 3

• Similar, in that they are not a seperate entity.
• For tax purposes, they are transparent, so HMRC looks through partnership to profits and gains of partners and they are taxed on individal shares of profits and chargable gains.

Question 4

Tax treament of Different Business Models - c) LLPs: How is tax applied to LLP’s?

Answer 4

These are a hybrid entity in which have features in common with partnership and partnershps.
While treated as seperate entity for liability similar to a compnay, for tax they are treated like a partnership so:

• Partners are taxed as individuals on their share of LLP’s profits and gains.

Question 5

Tax treament of Different Business Models - d) Companies: How are companies seen and taxed?

Answer 5

• Seperate legal entity from owners (shareholders/members)
• Companies will pay coporation tax on their taxable total profits made up of income profits and capital gains.
• TTP is taxed at flat rate for that tax year and the company itself is liable to pay.

Question 6

Legal Personality and Limited Liability - Introduction: What are the two key principles of company law which make it an attractive model?

Answer 6

• Seperate Legal Personality - A company has seperate legal personality from that of its owners (S16 sets out company becomes a legal person from date of incorporation which is date of issue of certificate).
• Limited Liability - Shareholders liablity for debts is limited unlike sole trader/partners in partnership

Question 7

Legal Personality and Limited Liability - a) Seperate personality of a company: What established the principle of seperate elgal personality?

Answer 7

Salomon v Salomon in which HOL set out that company is seperate person and resposbile for its own debts and liabilities and it continues to exist even if shareholders/directors change.

Question 8

Legal Personality and Limited Liability - a) Seperate personality of a company: What ae the conseuqneces of seperate legal personality?

Answer 8

• Company owns its own property
• Company enters its own contracts and thus any benefits/liabilitys belong to company not shareholders/directors
• Company sues and is sued on its own
• Company can seperate out different elements of a business

Question 9

Legal Personality and Limited Liability - b) Limited Liability: Who is this relevant to?

Answer 9

Refers to liability of shareholders for the companies debt in which it is limited to the amount they have paid or agreed to pay for their shares and their assets are entirely seperate from the company.

Note - Limited liability does not mean company’s liaiblity lmited but that of the shareholders.

Question 10

Legal Personality and Limited Liability - b) Limited Liability: What does this mean for creditors?

Answer 10

They can claim against company but if insufficient funds they cannot pursue the shareholders.

Question 11

Legal Personality and Limited Liability - b) Limited Liability: What is the commercial significance of limited liability?

Answer 11

The concept of liablity liability is fundamental to understand:

• PPassive investement through shareholders investing in a company knowing the rest of their assets are safe and without taking on active role of management.
• Why many seek to conduct byusiness through model of a limited liability company
• Why groups of company have developed with riskier business divisions been conducted through seperate companies in the group without less risky companies becoming vulnerable to creditors of riskier companies.

Question 12

Legal Personality and Limited Liability - b) Limited Liability: How should you be commercially aware to this?

Answer 12

• Limited liability encourages investement and encourages businesses to take risk which generates money.
• There are limits on this doctrine both commercially and legally in which it has seen court can “pierce the corporate veil” in the interests of justice, e.g if company was a facade.
• Commercially strong counterparty can negate much of the advantage through contract such as bank requiring guanratee from shareholders for agreement to lend money.
• Creditors should therfore assess the financial viablity of a company when dealing.

Question 13

Principles of Contract Law - Introduction: Why is this relevant?

Answer 13

• Contract law unprines many area of busines law.
• Every type of entity enters into contract in the coruse of its business for sale and purchase of goods/service.
• Business may appooint agents to sell or distrbute and therfore its important to understand extent of authority and basic elements of agency within contract law.

Question 14

Principles of Contract Law - (a) Key elelemnts of formation: What are the key elements to a contact?

Answer 14

• Agreement - Parties must have or be deemed to have reach an agreement and in order to determine this must look at negotiations for offer and acceptance.
• Intention and capacity - Parties must have intended or be deemed to have intended to create legal relations and must be capable of making a contract.
• Consideration - According to terms of agreement, some advantage must move from one party to another.

Question 15

Principles of Contract Law - (b) Terms of a contract: What are express terms?

Answer 15

These are express statements made by parties and by which they intend to be bound.

Question 16

Principles of Contract Law - (b) Terms of a contract: What are implied terms?

Answer 16

• A term is implied in fact to give effect to presumed but unexpressed intentions of the parties in which coruts may consider trade customs, conduct, course of dealing between parties and need to give business efficiacy.
• A term implied in law either by courts or by statute is in priinciple effective regardless of intention of parties and parties may seek to contract out of implied term by law by including express term.

Question 17

Principles of Contract Law - (c) How a contract comes to an end: What are the five ways in which a contract may end?

Answer 17

• Performance
• Agreement
• Breach
• Frustration
• Discharge by expiry

Question 18

Principles of Contract Law - (c) How a contract comes to an end: 1) How does performance end a contract?

Answer 18

• Contractual obligation is discharged by complete performance of the undertaking and where promiser is unable or unwilling to give more than partial performance, general rule is no discharge.
• Practical effect is that if contract provides for payment by one after perofrmance by other, no action to recover payment may be maintained until performance complete.

**Note - There is exceptions such as if one party rendered only partial perforamnce of obligations, it is possible, other party rather than reject work done, might accept partial performance. **

Question 19

Principles of Contract Law - (c) How a contract comes to an end: 2) How does agreement end a contract?

Answer 19

A contractual obligation may be discharged by agreement, either by a subsequent contract or by operation of term in original.

Question 20

Principles of Contract Law - (c) How a contract comes to an end: 3) How does breach end a contract?

Answer 20

• Usualu remedy for breach if award of compensatory damages (so, most do not terminate contract)
• However, sometimes, injured party may treat contact as repudiated by the breach and will be discharged from further liabiltiy under contract and sue for damaged.

Question 21

Principles of Contract Law - (c) How a contract comes to an end: 4) How does discharge by expiry end a contract?

Answer 21

A contract will expire when completed in accordance with own terms which could be by a date or occurance of a specified event.

Question 22

Principles of Contract Law - (c) How a contract comes to an end: 5) How does frustration end a contract?

Answer 22

This may be raised as defence to action for breach of contract where something happens after contract formed which may make performance impossible, such as:
* Contract become impossible due to total or partial descrution of some object necessary to perform
* A change of law which makes attempted performance illegal

Question 23

Principles of Contract Law - (d) Remedies available: What is significant when considering case of breach?

Answer 23

Traditional view is that each term, whether express or implied is either a condition or a warranty depending on the importance with regard to the contract.

Question 24

Principles of Contract Law - (d) Remedies available: What is a condition and what does it allow for on breach?

Answer 24

An important term going to the root of the contract which allows for repudation of contract and right to sue for damages.

Question 25

Principles of Contract Law - (d) Remedies available: What is a warranty and what does it allow for?

Answer 25

Warranty is a less important term not going to the root and onyl remedy is right to sue for damages.

Question 26

Principles of Contract Law - (d) Remedies available: What are the three redmial responses developed by law:

Answer 26

• Unliquidated damages - Assessed on compensatory principle to make good claimants loss and nothing else and put the claimant back in the position had contract not been breach but they hold duty to mitigate any loss suffered.
• Liquidated damages are where contracting parties stipulate in contract a fixed/pre-determined sum payable as damaged in event of breach. (If sum insered is intended as punished and cannot be justified commercially than it is seen as penalty clause which is unenforceable.
• Equitable remedies included specific perforamcne and injunctions.

Question 27

Principles of Contract Law - (f) Principle/Agent Relationship: What is principle of agency concerned with?

Answer 27

The circumstances in which the agent can form contracts on behalf of the principal to create contractual obligations enforceable against principal by a TP.

Question 28

Principles of Contract Law - (f) Principle/Agent Relationship: How do these principles apply?

Answer 28

• If agent acts within their actual authority weather express or implied, principal is bound.
• If agent acts outside actual authority but within their apparent authority, principal is bound.
• If agent acts outside actual and apparent authority, principal is not bound but can ratify agents acts.
  *

Question 29

Principles of Contract Law - (g) Commercial Contracts (Specific issues): What are the heads of terms and their purpose?

Answer 29

• These are used in many corporate and commercial transaction to outline agreed intentions prior to negotiation of formal contract.
• Commonly intended to be non-binding except for one or two clauses but carry substantial moral force and often negotiated before lawyers involved.

Question 30

Principles of Contract Law - (g) Commercial Contracts (Specific issues): What are letters of comfort and their purposes?

Answer 30

• These are seen in loan finanance transactions e.g where paent company seeking to provide comfort to bank that subsiduary will be able to make repayments.
• Parent company may make representations as to subsidiary past or future performance or that its policy to ensure they can pay their debts.

Note - Much case law surround if this can allo0w bank to sue if subsiduary default and remains a grey area.

Question 31

Principles of Contract Law - (g) Commercial Contracts (Specific issues): What are battle of the forms?

Answer 31

• This is where both parties attempt to contract each other on their own standard terms (e.g buyer sends form to supplier with standard terms but supplier sends acknowledgement with their own which buyer made an offer and suppler made counter offer on their own terms)
• So, often it means whoever sends last prevails but this is not a safe way to ensure they prevail and safer to agree unequivocally what terms apply.

Question 32

Principles of Contract Law - (g) Commercial Contracts (Specific issues): What are conditions precedents and their purpose?

Answer 32

Usually at start of agreemnts and these are criteria of conditions which must be met before agreement or certain parts of it can coem into force.

Question 33

Principles of Contract Law - (g) Commercial Contracts (Specific issues): When does assignment and novation arise/

Answer 33

If one party is seeking to transfer rights and obligations to another party.

Question 34

Principles of Contract Law - (g) Commercial Contracts (Specific issues): What is assignment?

Answer 34

With assignment, only the benefit of an agreement can be assigned and not the burden and it is agreement between assignor and assignee effected without consent or even knowledge of the other party.

Check contract as usually states if it is permitted.

Question 35

Principles of Contract Law - (g) Commercial Contracts (Specific issues): What is novation?

Answer 35

• This allows both benefit and burden to be transferred in that the third party steps into the shoes of the party they replace.
• This requires consent of all parties.

Question 36

Principles of Contract Law - (h) Contracts (Rights of TP’s) Act 1999: What is doctrine of privirty and what does this act set out?

Answer 36

• Doctrine is that only parties to contract have rights and obligations under it.
• This act concers rights on parties not party to original contract and therfore amends this doctrine.
• To avoid, it is possible for contract to specifically state TP rights excluded.

Question 37

Principles of Contract Law - (i) Execution of agreements: What are the two types of contract?

Answer 37

• Simple contract/agreeemnt underhand which is agreement not intended to take affect of a deed.
• A deed

Question 38

Principles of Contract Law - (i) Execution of agreements: What is general position for a contract?

Answer 38

It will take form of an agreement underhand unless it has to take the form of a deed for any of the following:
* Document required to be executed as a deed such as land
* Desirable to have limitation period for an action arising from contact of twelve years through deed rather than six for simple
* Questionable if party to doucment is providing valuable consideration but if document is deed, it will be binding even if no valuable considaeration given.

Question 39

Principles of Contract Law - (i) Execution of agreements: Who can execute a simple contract/agreement under hand?

Answer 39

• Company - This would usually be director or authorised by board resolution but check company articles to ensure no further requirements.
• Individual - If individal, individual can simply sign agreement without need for it to be witnessed.
• Partnership - Agremeent can be entered into by one or more of the partners.

Question 40

Principles of Contract Law - (i) Execution of agreements: Who can execute a deed?

Answer 40

• Company - Must be signed by two authroised sinatories (who must be directors or company sec if it has one if common seal used or signed by single director in presence of witness.
• Individual - Needs to sign deed and have their signature witnessed.
• Partnership - Individual partner does not have authority to execute deed on behalf of partnershp unless authority expressly conferred by deed, and therfore should be executed by all unless one or more partners is given power of attorney and it would also need to be witnessed.