Starting a new business through the vehicle of a company, partnership, LLP, or as a sole trader Flashcards
1
Q
Sole trader -
Formation:
A
no formalities required.
2
Q
Sole trader -
Separate legal personality:
A
no
3
Q
Sole trader -
Liability of members:
A
unlimited liability
4
Q
Sole trader -
Public disclosure and reporting:
A
no
5
Q
Sole trader -
Management:
A
self-managed
6
Q
Sole trader -
Security:
A
fixed charges only
7
Q
Sole trader -
Transfer of ownership rights:
A
no
8
Q
Sole trader -
Dissolution:
A
cease trading as sole trader.
9
Q
Partnership (PA 1890) -
Formation:
A
exists when 2 or more people carry on a business in common with a view to make a profit.
10
Q
Partnership (PA 1890) -
Separate legal personality:
A
no separate legal personality from its partners.
11
Q
Partnership (PA 1890) -
Limited liability:
A
unlimited liability for debts and liabilities of the partnership.
12
Q
Partnership (PA 1890) -
Public disclosure and reporting:
A
no
13
Q
Partnership (PA 1890) - Management:
A
by partners
14
Q
Partnership (PA 1890) -
Security:
A
fixed charges only
15
Q
Partnership (PA 1890) -
Transfer of ownership rights:
A
partner can’t withdraw from partnership by transferring his interest, as his exit will bring the partnership to an end.
New partner may or may not be accepted as a partner in the new partnership.
16
Q
Partnership (PA 1890) -
Dissolution:
A
remains as long as partners carry on business in common with a view to a profit.
17
Q
Limited Liability Partnerships (LLPA 2000) -
Formation:
A
formed by registering an incorporating document with CO HSE.
18
Q
Limited Liability Partnerships (LLPA 2000) -
Separate legal personality:
A
separate legal entity from its members.
19
Q
Limited Liability Partnerships (LLPA 2000) -
Liability of members:
A
members have no liability for the debts and liabilities of the LLP.
On a winding up, members are liable to contribute to the LLP the amount (if any) agreed in the LLP Agreement.
20
Q
Limited Liability Partnerships (LLPA 2000) -
Public disclosure and reporting:
A
extensive public disclosure, reporting requirements apply.
21
Q
Limited Liability Partnerships (LLPA 2000) -
Management:
A
managed by the members.
22
Q
Limited Liability Partnerships (LLPA 2000) -
Security:
A
fixed and floating charges.
23
Q
Limited Liability Partnerships (LLPA 2000) -
Transfer of ownership rights:
A
members can’t transfer their ownership interest without the agreement of the other members.
24
Q
Limited Liability Partnerships (LLPA 2000) -
Dissolution:
A
remains until terminated by removal from the register.
25
Private Limited Company (CA 2000) - Formation:
formed by registering specified documents and forms with CO HSE.
26
Private Limited Company (CA 2000) - Separate legal personality:
separate legal personality from its members and managers.
27
Private Limited Company (CA 2000) - Liability of members:
members have no personal liability for the debts and liabilities of the company.
When called upon or on a winding up, members are required to contribute any unpaid part of the nominal value of the shares they own.
28
Private Limited Company (CA 2000) - Public disclosure and reporting:
public disclosure requirements: constitutional documents, details of capital, details of members, directors, and accounts
(exemptions for small and dormant companies apply).
29
Private Limited Company (CA 2000) - Management:
directors responsible for daily management.
30
Private Limited Company (CA 2000) - Security:
fixed and floating charges.
31
Private Limited Company (CA 2000) - Transfer of ownership rights:
member can transfer shares and cease to be a member of the company without the consent of the company or other members unless there is provision in the articles.
32
Private Limited Company (CA 2000) - Dissolution:
remains until it is dissolved by the registrar removing its name from the register.
33
Public Limited Company (CA 2006) - Formation:
formed by registering specified documents and forms with CO HSE.
34
Public Limited Company (CA 2006) - Separate legal personality:
separate legal personality from its members and managers.
35
Public Limited Company (CA 2006) - Liability of members:
members have no personal liability for the debts and liabilities of the company.
When called upon or on a winding up, members are required to contribute any unpaid part of the nominal value of the shares they own.
36
Public Limited Company (CA 2006) - Public disclosure and reporting:
extensive public disclosure requirements: constitutional documents, details of capital, details of members, directors, and audited documents.
37
Public Limited Company (CA 2006) - Management:
directors responsible for daily management.
38
Public Limited Company (CA 2006) - Security:
fixed and floating charges.
39
Public Limited Company (CA 2006) - Transfer of ownership rights:
member can transfer shares and cease to be a member of the company without the consent of the company.
Unlikely to be transfer restrictions since a PLC.
40
Public Limited Company (CA 2006) - Dissolution:
remains until it is dissolved by the registrar removing its name from the register.
41
A company has...
a separate legal personality.
42
The company is recognised by law as...
a legal person which has its own rights and obligations separate from natural persons (the individuals) who run it.
43
The company is recognised by law as a legal person which has its own rights and obligations separate from natural persons (the individuals) who run it.
This means that:
Company owns its own property.
Company can sue and be sued in its own name.
Company will enter into contracts with third parties and incur contractual rights and obligations.
Company is able to borrow money and give security over its assets.
Company can incur debts in its own name.
Company property doesn’t belong to the members of the company.
The directors and members have no direct liability for the debts of the company and creditors can’t sue them to pay off these debts or seize their personal assets.
Company is taxed separately from the members and directors of the company.
The liability to pay for tax for the company’s activities is the company’s alone.
44
Limited Liability refers to?
the members own liability, not about company’s liability.
45
Person becomes a member by?
buying shares in a company. Become an owner of the company.
46
Member will hand over money to the company in return for?
the company issuing him with shares.
47
Shares will have fixed legal monetary value known as?
the nominal value or par value.
48
Member’s liability will be limited to?
the nominal value they have paid for the shares.
49
Member CAN’T be asked to contribute any further money to?
settle the company’s debts. This is limited liability.
50
Company having a separate legal personality from its owners and managers, can lead to?
unfairness or unintended outcomes.
51
Courts will look behind the veil only in exceptional circumstances such as?
cases of fraud, evasion, or deliberate breach of trust.
52
Form IN01 (application to register a company) must be completed and filed with?
the registrar of companies (registrar) with the memorandum of association and prescribed fee (depending on whether the same day incorporation service, standard service, electronic or web incorporation).
53
Incorporation of a private company limited by shares -
Successful application will result in?
a certificate of incorporation being issued by the registrar.
54
Incorporation of a private company limited by shares -
Company comes into existence on?
the certificate of incorporation being issued and is conclusive evidence the requirements of the CA 2006 have been met.
55
To form a private company limited by shares, the following information must be submitted in the form IN01 - Proposed name:
including whether the name contains any sensitive or restricted words or expressions that require approval (such as name suggesting connection with the government).
56
To form a private company limited by shares, the following information must be submitted in the form IN01 -
Type of company:
must state that the company is a private company limited by shares.
Name must state limited or Ltd.
57
To form a private company limited by shares, the following information must be submitted in the form IN01 - Principal Business Activities:
must state its intended principal business activities.
58
To form a private company limited by shares, the following information must be submitted in the form IN01 - Country of registered office; intended address of the company’s registered office:
must contain a statement of the intended address of the company’s registered office.
If the statutory registers kept at any place other than the registered office, form AD02 (notification of a single alternative inspection location) must be completed.
This address is publicly available.
59
To form a private company limited by shares, the following information must be submitted in the form IN01 - Proposed Articles of Association:
unless Model Articles (MA) are adopted without amendment, a copy of the Articles of Association should be sent.
60
To form a private company limited by shares, the following information must be submitted in the form IN01 -
Details of first directors and secretary (if any):
title, full name, and former names, date of birth, country, or state of residence, nationality, occupation, service, and residential addresses.
61
To form a private company limited by shares, the following information must be submitted in the form IN01 -
A statement of capital and of initial surroundings:
Total number of shares taken by the subscribers on formation.
The aggregate nominal value of those shares, and the aggregate amount (if any) to be unpaid on those shares (whether on account of their nominal value or by way of premium).
Each class of shares in a company.
The number of shares in each class.
The aggregate nominal value of the class.
Details of the rights attaching to each class of shares of the company, namely the voting rights, rights to dividend, rights on a capital distribution (including on a winding up of the company) and any redemption rights.
The statement must include the number, class, and nominal value of the shares each subscriber takes on formation and the amount to be paid up or unpaid on each of the subscriber’s shares.
62
To form a private company limited by shares, the following information must be submitted in the form IN01 - Statement of initial significant control:
Must identify any person who qualifies as a registrable person (or relevant legal entity) with significant control.
Control is deemed significant if the person/entity holds:
More than 25% of the shares in the company
OR more than 25% voting rights in the company
OR the right to appoint or remove the majority of the board of directors.
If there are no persons with significant control, a statement to this effect must be made on Form IN01.
63
To form a private company limited by shares, the following information must be submitted in the form IN01 - Statement of compliance:
as to registration must be included within the form IN01 confirming that the registration requirements of the CA 2006 have been met.
64
To form a private company limited by shares, the following information must be submitted in the form IN01 - Election to keep information on a central registrar (private companies only):
An option to elect to keep information on the public register maintained by the registrar rather than in private statutory registers may be made on incorporation by the subscribers of a private company or at any time following its incorporation by the company itself.
65
Following should be sent to incorporate a private company -
Registrar:
duly completed and signed Form IN01 + applicable fee + memorandum of association + articles of association (unless MA adopted without amendment).
66
Following should be sent to incorporate a private company - HMRC:
registrar for corporation tax, will automatically happen if incorporation done online at registrar, otherwise must make a separate application to HMRC within 3 months.
67
Existence of a partnership depends on?
whether or not the definition in s.1 of the PA 1890 applies.
68
s.1 PA 1890 – partnership is the relation which subsists between?
persons carrying on a business in common with a view to a profit.
69
Partnership doesn’t have?
a separate legal existence.
70
Partners aren’t protected by?
limited liability.
71
Partnership can be created for:
A specific purpose or for a pre-determined period of time
OR so as to continue without reference to duration – a partnership at will.
72
s.1 PA 1890 -
No necessary formality but?
a written agreement is evidence of the relationship and its terms and avoid possible disagreements or disputes.
73
A partnership agreement helps ensure that?
undesired aspects of the PA 1890 could have been avoided.
74
Decisions taken in a partnership are by majority, apart from three exceptions which require unanimity:
Changing the nature of the business.
Introducing a new partner
Changing the terms of the partnership agreement.
75
These provisions apply from the PA 1890 unless the partners have agreed otherwise under a partnership agreement (written or oral):
Management – all partners have the right to take part in the firm’s management.
Remuneration – no partner is entitled to a salary.
New partners – all partners must agree.
Changing the partnership business – all partners must agree.
Disputes about ordinary matters – decided by majority vote.
Expelling a partner – all partners must agree.
Capital and profits – shared equally.
Losses of capital – partners must contribute equally.
Indemnity – claimable for expenses incurred on the firm’s business.
Interest – not payable on capital, but payable on loans.
76
Actual authority is where the firm will be?
liable for actions of individual partners which were actually or expressly authorised.
77
Apparent authority is the firm may be liable for?
action which weren’t actually or expressly authorised, but which appear to an outsider to be authorised (the partners actions bind the firm by the law of agency).
78
Possible defendants – person seeking to enforce a liability against a partnership has a range of options:
The partner with whom the contract was made.
The firm.
Any person who was a partner at the time when the debt or obligation was incurred can be sued individually (known as joint and several liability).
79
A partner is liable for?
debts incurred while they are a partner.
80
A new incoming partner is not liable for?
debts incurred before they became a partner.
81
A retiring partner is not released from debts incurred while?
they were a partner unless they seek a deed of release or novation from creditors or indemnity from continuing partners for liability of existing debts.
82
A retiring partner must give?
actual notice (directly inform clients) and constructive notice (notice in the London Gazette) to third parties on leaving the partnership.
83
A retiring partner must avoid the situation known as holding out.
This is where:
they may do or act as if they are still a partner, with credit going to the firm, and this is relied upon by a person.
They may be held liable for the firm’s debts.
84
A partnership agreement should include:
Commencement date
Name
Capital contributions
Share of profits and loss
Withdrawals of profits
Place/nature of business
Ownership of assets
Workload
Partner roles
Decision making
Duration
85
A partnership agreement should include -
Commencement date?
should specify a date from which the parties agree their mutual rights and responsibilities take effect.
86
A partnership agreement should include -
Name?
the name of the partnership should be agreed upon.
87
A partnership agreement should include -
Capital contributions?
the capital each partner is contributing should be specified and also provide for future increases in contribution.
88
A partnership agreement should include -
Share of profits and loss?
If no contrary agreement, the PA 1890 will imply that profits and losses be shared equally.
If a different division is required, the partnership agreement should set out such arrangements.
89
A partnership agreement should include -
Withdrawals of profits?
to avoid disputes should state a monthly limit on how much each partner can withdraw, subject to regular review.
90
A partnership agreement should include -
Place/nature of business?
should contain clauses which describe the premises where the business is carried on, the nature of the business and the geographical area of its operations.
91
A partnership agreement should include -
Ownership of assets?
should state which assets belong to the partnership and which assets belong to a partner individually (where on the partnership being formed, certain assets used by the partnership belong to one of the partners).
92
A partnership agreement should include -
Workload?
state if a partner is full time or part time and not to be involved in any conflicting business.
93
A partnership agreement should include -
Partner roles?
may have differing functions within the partnership (e.g., senior management) others may even have restrictions on their authority.
94
A partnership agreement should include -
Decision making?
Unless stated to the contrary, all decisions are made on the basis of a simple majority, accept decisions that involve changing the nature of the business or the introduction of a new partner, which require unanimity.
95
A partnership agreement should include -
Duration?
Otherwise agreed, the partnership can be dissolved at any time by any partner giving notice to the other (a partnership at will) causing instability for the partnership.
The agreement should restrict the right of partners to dissolve the partnership.
Example, partnership continue as long as there are two remaining partners, or despite the departure of any partner by reason of retirement, expulsion, death, or bankruptcy.
96
Form LLTN01 (application for the incorporation of a limited liability partnership) must be completed and filed with?
the registrar of companies (registrar) with the prescribed fee.
97
An LLP can be incorporated either?
electronically or by filing paper documents.
98
Incorporation of an LLP -
Two or more members associated for carrying on a lawful business with a view to?
profit must subscribe their names to its incorporation.
99
LLP is created when?
the registrar issues the certificate of incorporation. The LLP is given a company registration number.
100
Incorporation of an LLP -
Certificate of incorporation is conclusive evidence that?
the legal requirements have been complied with and the LLP has been incorporated.
101
An LLP is a body corporate with?
a legal personality separate from that of its members.
102
Changes in the LLP membership doesn’t affect?
its existence.
103
A business can be set up as an LLP or?
an existing business can be incorporated as an LLP.
104
Avoid the default rules of the LLP Regulations 2001, proposed members of the LLP may enter?
a binding LLP agreement between themselves to deal with issues such as capital and profit sharing, management, decision making, and members joining/leaving the LLP. There is no requirement to file the LLP agreement.
105
When a member leaves the LLP, the LLP must notify?
the registrar within 14 days (form LLTM01 individual members) (form LLTM02 corporate members).
106
To form a limited liability partnership, the following information MUST be submitted in the form LLTN01 - Proposed name?
Including whether the name contains any sensitive or restricted words or expressions that require approval, such as a name suggesting connection with the government.
Can't use the name of an existing LLP or company LLPs name must end with LLP or limited liability partnership.
107
To form a limited liability partnership, the following information MUST be submitted in the form LLTN01 - Country of registered office; intended address of the company’s registered office?
The form must state where the registered office of the proposed LLP will be in. England and Wales, Wales, Scotland, Northern Ireland. It must also contain a statement of the intended address of the LLP 's registered office.
108
To form a limited liability partnership, the following information MUST be submitted in the form LLTN01 - Designated members?
It should state whether all the LLP members are to be designated members. If not all, then at least two members must be designated who perform administrative functions.
109
To form a limited liability partnership, the following information MUST be submitted in the form LLTN01 - Members details - Full Individual members, include the following:
title, forenames, surname, any former names that have been used for business purposes in the last 20 years.
Country or state of residence of their usual residential address.
Month and year of birth.
If the person consents to act as a designated member.
Service address, it can be the LLP's registered office.
Usual residential address (not shown on the public record).
For corporate members include the following:
The name of corporate body or firm and its registered or principal address.
Whether it consents to act as a designated member.
For a UK registered limited company, its company registration number.
For other corporate bodies and firms (that are not UK registered limited companies):
Particulars of the legal form of the corporate body or firm.
Its governing law.
Where the company or firm is registered (if applicable)
Its registration number (if applicable).
110
To form a limited liability partnership, the following information MUST be submitted in the form LLTN01 - Statement of initial significant control?
A statement that on incorporation there will be someone who will count as a persons with significant control
(either a registrable person or registrable relevant legal entity) in relation to the LLP,
or a statement that the LLP knows or has reason to believe that there will be no persons with significant control.
111
To form a limited liability partnership, the following information MUST be submitted in the form LLTN01 - Statement of compliance?
A statement that two or more persons named in the form are associated for carrying on a lawful business with a view to profit.
The statement must be signed on behalf of the LLP by solicitor engaged in the LLP’s formation or a proposed member of the LLP.
112
To form a limited liability partnership, the following information MUST be submitted in the form LLTN01 - Election to keep information on a central register?
An option to elect to keep information on the public register maintained by the registrar rather than in private statutory registers.
113
To form a limited liability partnership, the following information MUST be submitted in the form LLTN01 -
In addition, the following should be noted - Tax transparency?
LLPs are generally treated as being carried on in partnership by its members and not by the LLP as a separate entity for corporate tax and income tax purposes.
114
To form a limited liability partnership, the following information MUST be submitted in the form LLTN01 -
In addition, the following should be noted - VAT and PAYE?
arrange for VAT and PAYE registration, if appropriate.
