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Business Law And Practice > Topic 1: Pre Reading Company Law > Flashcards

Topic 1: Pre Reading Company Law Flashcards

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1
Q

What are two advantages of choosing to become a sole trader as a business model?

A

There are no formalities like Companies House Filing or procedural requirements and there is complete privacy as there is no need for accounts to be publicly filed.

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2
Q

What is a disadvantage of becoming a sole trader?

A

A sole trader is not a separate legal entity (not a company just an individual) therefore the trader’s liability is unlimited so their personal assets can be sold to meet the debts of the business.

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3
Q

In what way are partnerships similar to the structure of the business of a sole trader?

A

Liability, formalities requirements and state of entity are the same.

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4
Q

Which Act are Partnerships governed by?

A

The Partnership Act 1890

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5
Q

Does there need to be an intention to form a partnership? (Refer to statute)

A

No: s1(1) states it is sufficient that the relation which subsists between persons carrying on the business in common is to profit.

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6
Q

What are some rules for which can suggest a partnership may exist? (Refer to statute)

A

S2 PA 1890: whether profits/losses are shared, whether a loan is made from one partner to another or whether property is held jointly.

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7
Q

Which case law pointed out that if there is an agreement to share losses as well as profits, it is likely that a partnership exists?

A

Northern Sales Limited v Ministry of National Revenue 1973

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8
Q

Which case law held that if a person is not ‘held out’ as a partner it is unlikely a partnership exists?

A

Walker v Hirsch 1884

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9
Q

What are four examples of default provisions set out by the PA 1890 in the event the partners do not set out their own partnership agreement?

A
  • S24(1): profits and losses to be shared equally regardless of capital contributions
  • S24(6): partners not entitled to a salary
  • S24(8): decisions decided by a majority but for those related to changes in nature of the business which requires unanimity
  • S25: a partner cannot be expelled by majority vote unless all have expressly agreed this is possible
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10
Q

Under which article can the partners’ mutual rights and obligations be varied by their unanimous consent?

A

S19 PA 1890

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11
Q

What is a Limited Partnership?

A

This is a partnership where there is at least one limited partner and at least one general partner.

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12
Q

What is the difference between a limited partner and a general partner?

A

A limited partner is not involved in the management of the business whereas a general partner is and they have unlimited liability.

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13
Q

Which statute govern Limited Partnerships?

A

The Limited Partnership Act 1907

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14
Q

Are there any formality requirements in a Limited Partnership?

A

They must be registered at Companies House but they don’t need to file accounts

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15
Q

What is the key difference between LLPs and sole traders, partnerships or LPs?

A

An LLP has a separate legal personality so it can own property, shares and enter into contracts on its own behalf

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16
Q

What is tax transparency?

A

Each member (partner) is liable to pay tax on their shares of their income or gains of the LLP

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17
Q

Which Act governs LLPs?

A

The Limited Liability Partnership Act 2000

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18
Q

What does it mean that partners in an LLP have limited liability?

A

Their liability to third parties is limited to the amount that they agreed to pay under their partnership agreement.

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19
Q

Which formalities are attached to an LLP?

A

Must be registered and annual accounts must be filed.

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20
Q

Where are the default provisions found for written Members’ Agreements in the absence of agreement between partners?

A

In Regulations 7 and 8 of the Limited Liability Partnerships Regulations 2001

21
Q

What are some examples of these default provisions?

A

Include the provisions for Partnerships and include the requirement of an LLP to indemnify its members for payments made and liabilities incurred in the ordinary and proper conduct of the business and no person can become a member without the consent of all existing members.

22
Q

Which Act governs companies?

A

The Companies Act 2006

23
Q

Who are the shareholders of a company?

A

They are the owners of the company and are also known as Members

24
Q

What is the role of shareholders?

A

They invest money in return for shares and usually have voting rights and control key decision

25
Q

Who are the subscribers of a company?

A

These are the first shareholders who invest in the company

26
Q

Who are the directors of a company?

A

They are involved in the day to day running of the company and are collectively known as the Board

27
Q

Who is deemed to be a Person with significant control (PSC)?

A

Shareholders with over 25% of shares

28
Q

What are the three types of private companies?

A

Private companies limited by shares (Ltd), private companies limited by guarantee and unlimited companies (rare).

29
Q

What are the three requirements of a public company (Plc)?

A

Minimum of two directors, trading certificate (s761 CA 2006) and minimum share capital of £50,000 (s763 CA 2006)

30
Q

What is a listed company?

A

Form of public company which is admitted onto a regulated investment exchange and therefore its shares are listed

31
Q

What is the main difference between a public and a private company?

A

Public companies can offer their shares to the public and are subject to more onerous regulatory requirements

32
Q

What are the differences between a Ltd and Plc in terms of a company secretary?

A

A Plc must have one (s271) and they must have the requisite knowledge, experience and qualifications specified in s273(2), but a Ltd does not require one (s270)

33
Q

What are the differences between a Ltd and Plc in terms of annual general meetings?

A

A Plc is required to have one AGM each year (s336)

34
Q

What is the purpose of AGMs?

A

Provides members who are not directors with an opportunity to question directors e.g. on finances

35
Q

What are the two main constitutional documents of a company for companies incorporated under the CA 1985?

A

The Memorandum and Articles of Association

36
Q

What is the current law regarding the Memorandum of a company?

A

s17 CA 2006: the Memorandum is only a declaration on the part of the company’s subscribers that they wish to form a company and agree to become its members

37
Q

What did the Memorandum contain under the old law?

A

An objects clause setting out the purposes for which the company has been formed as to not act ultra vires

38
Q

How is this different to the current law?

A

Companies under CA 2006 have unrestricted objects unless they are specifically restricted in the company’s Articles

39
Q

How does the current law apply to companies under CA 1985?

A

S28 CA 2006: any provision in a memorandum must be treated as provisions of the company’s Articles and thus can be removed as per usual procedure

40
Q

What is therefore the main constitutional documents for companies under current law and what is its purpose?

A

S18 CA 2006: Articles of association which regulate the relationship between shareholders, directors and the company

41
Q

What is the legality test?

A

This provides that the Articles of a company must comply with the minimum provisions of CA 2006 so can be more onerous than what statute dictates

42
Q

Give an example of a CA 2006 provision which overrides a company’s articles

A

s321 CA 2006: the right to demand a poll vote at a general meeting

43
Q

What are the three forms of Articles a company can adopt?

A

Model Articles, previously known as Table A under CA 1986, under s19 CA 2006, Amended MA or tailor-made Articles

44
Q

How can a company amend its Articles? (Refer to case law)

A

By special resolution (s21 CA 2006) which is a decision of the shareholders and it must be in the interests of the company as a whole (Allen v Gold Reefs 1900)

45
Q

What is an entrenched provision?

A

A provision which can only be amended or repealed if specific conditions are met or if procedures more restrictive than a special resolution are complied with.

46
Q

Can entrenched provisions be amended?

A

Yes by agreement of all of the members or by a court order (s22 CA 2006)

47
Q

What is another case law in relation to the validity of amendment of Articles?

A

Shuttleworth v Cox 1927: court held amendment invalid if no reasonable man could consider it to be for the benefit of the company

48
Q
A

Business Law And Practice (14 decks)

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