Topic 15 Important legal principles

Question 1

1. In terms of liability for business debts, what is the difference between a partnership and shareholders in a limited company?

Answer 1

 Each partner is jointly liable with every other partner for all the debts and other obligations of the firm.
 Shareholders of a limited liability company cannot be held personally responsible for the debts of the company, the limit of their liability being the amount that they have invested in company shares

Question 2

2. What is the main difference between an Lasting Power of Attorney (LPA) and an Enduring Power of Attorney (EPA)?

Answer 2

Both the LPA and the EPA allow the attorney to look after the donor’s financial affairs, but the LPA also allows the donor to appoint one or more people to make decisions regarding their personal health care and welfare.

Question 3

3. Explain the terms ‘apparent authority’ and ‘ratification’ in relation to the law of agency.

Answer 3

 Apparent authority is where something either done or said by the principal leads to the impression that they have authorised the agent’s actions.
 Ratification occurs where the agent does exceed their authority, but the principal agrees after the event to what the agent has done.

Question 4

4. What is ‘realty’?

Answer 4

Realty is ‘real property’. In simple terms, it is property that is fixed or immovable – in other words, land or buildings.

Question 5

5. David and Victoria own their house on a joint tenancy basis, while Nisha and Sam own theirs as tenants in common. Explain how these two arrangements differ.

Answer 5

 David and Victoria (joint-tenancy) each own the whole of the property, and when one dies the principle of the ‘right of survivorship’ applies – the survivor takes over ownership. The transfer under this principle is automatic and cannot be overridden by any provisions made by a joint tenant in a will or the laws of intestacy. During their lifetime neither has a defined share, so cannot sell their ‘part’ separately from the other.

 Nisha and Sam (tenants in common) will each have a defined percentage share of the value of the house – their equitable share. In the event of either dying, the survivor would become the sole legal owner, but the dead person’s equitable share would pass to their chosen heirs or under the laws of intestacy, although they could not force a sale of the property. The survivor would not be able to sell the property without appointing a trustee to replace the deceased owner and registering them as joint legal owner. When the survivor died, or the house was sold, the heirs of the first to die would be entitled to their share of the property value.

Question 6

Martin is subject to a bankruptcy order. Three years before the order, while his business was booming, he sold his holiday cottage to his son John for 50 per cent of its market value. What is the trustee in bankruptcy’s position regarding this transfer?

Answer 6

Martin appears to have been solvent at the time of the transfer.
In that situation the trustee can only ‘attack’ transfers made within two years of the bankruptcy order.

Question 7

6. Creditors representing what percentage of a person’s debts must agree to an application for an individual voluntary arrangement (IVA)?

Answer 7

An IVA can be set up only if creditors who represent at least 75 per cent of the debt represented at the meeting agree to the arrangement.