SQE 1 - Business Law & Practice (copy)
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196 Terms
Sole Traders - Key Characteristics
Cost
Risk
Structure
Liability
Formalities
Privacy
Finance
Tax
No set up costs
Unlimited personal liability
No formal structure
No separate legal entity
No formalities
Complete Privacy
Financed by sole trader personally
Individually taxed
Partnerships - Key Characteristics
Cost
Risk
Structure
Liability
Formalities
Privacy
Finance
Tax
No set up costs
Unlimited liability
Structure: two or more people working together with a view to profit
No separate legal entity
Created without any formalities - no need for any intention
Complete Privacy
Financed by partners
Individually taxed
Default provisions of the Partnership Act 1890
Profit & Losses
Remuneration
Decision making
Expulsion
Dissolution
Profit & Losses shared equally (regardless of unequal capital contribution)
Remuneration - not entitled to a salary
Decision making - decided by majority except for anything that requires unanimity
Expulsion - can only be unanimous unless otherwise agreed
Dissolution - partnership dissolves if one partner leaves
Limited Partnerships - Key Characteristics
Types of partner
Filing requirements
Types of partner: General partner who deals with management (unlimited liability as per traditional partnership) and limited partner who are not involved in management (limited liability)
Filing requirements: must be registered at companies house by have no requirement to file annual accounts
Limited Liability Partnerships - Key Characteristics
Cost
Risk
Structure
Liability
Formalities
Privacy
Finance
Tax
Costs involved in set up
Risk - Limited liability (limited to the amount they have agreed to pay under the terms of their partnership agreement.)
Structure - Flexible Two or more persons associated for carrying on a lawful business with a view to profit.
Liability - Separate legal personality
Formalities - Registered at companies house
Privacy - file annual accounts and other info
Finance - Can borrow on own name & create floating charges
Tax - Partners taxed as individuals on their share of the LLP’s profits and gains
Default position for Limited Liability Partnerships under the LLP Regulations 2001
Profit & Losses
Remuneration
Indemnity
Decision making
Expulsion
Dissolution
Profit & Losses: share equally
Remuneration: no entitlement to salary
Indemnity: must indemnify members
Decision making: made by majority (unanimity for change of nature of business)
Expulsion: no implied power of expulsion
Dissolution: If a partner leaves (1 of 2) the LLP keeps going but they only have 6 months to find another member or they become personally liable.
Will the Partnership Act 1980 apply to verbal partnership agreements?
No, the Partnership Act 1890 applies in the absence of agreement to the contrary by partners. Such agreement may be verbal.
Companies - Key Characteristics
Cost
Risk
Structure
Liability
Formalities
Privacy
Finance
Tax
Set up costs involved
Risk - limited liability (distinct from it’s owners)
Structure -
Liability - limited to amount unpaid on shares
Formalities - minimum of one shareholder, (differences for public vs private). Registered at companies house
Privacy - No privacy
Finance - Ability to borrow an create floating charges
Tax - corporation tax on profits & income tax on dividends
What is the minimum nominal share value for a public company?
at least £50,000 of which ¼ must be paid up
Requirements of a public company:
Share capital
Directors?
Secretary?
AGM?
£50,000 share capital
2 directors
1 company secretary
must have one AGM per year
Provisions typically included in the Articles of a Company
Number of directors (quorum and decision)
Method of appointment
Powers of directors
Conduction of board meetings
Special rights attaching to shares
Conduction of shareholder meetings
Transfer of shares
Can the right to demand a poll vote at a general meeting be removed from the Articles of Association?
No s 321 CA overrides the articles - the right to demand a poll vote cannot be removed from the articles
How do you amend the Articles of Association?
By special resolution.
Any alteration must be made bona fide in the interests of the company as a whole (Allen v Gold Reefs)
What is the position of the restriction of objects for companies formed under the Companies Act 1985
Any restrictions in the Memorandum of companies incorporated under the 1985 Act take effect as if they were contained in the Articles and are binding until the Articles are amended or new Articles adopted.
Companies formed under the 2006 act have unrestricted objects
What is the position of the restriction of objects for companies formed under the Companies Act 2006
Companies formed under CA 2006 have unrestricted objects, unless a specific restriction is inserted into the company's articles.
Documents that must be delivered to the Registrar of Companies for incorporation of a new company from scratch
Copy memorandum
Articles (if not adopting MA)
Fee
Application for registration (form IN01)
What must an application for registration of a company from scratch contain? (Form IN01)
Statement of capital & initial shareholdings
Statement of company’s proposed officers (director / company secretary)
(if limited by guarantee, details of this)
Statement of compliance
When does a company become a legal entity?
From the date of incorporation (set out in certificate of incorporation).
Summary of purchasing a shelf company
Name
Articles
Registered office
Members, directors & company secretary
Name: Special Resolution
Articles: Special Resolution
Registered office: Board Resolution
Members, directors & company secretary: Board Resolution
When does shareholder membership begin?
When the member’s name is entered into the company’s register of members.
Does a shareholder need to be an individual human being?
No, they can be another company.
Difference between allotment and issue of shares?
Allotment: unconditional right to be included in the company’s register of members for those shares
Issue: Once shareholder has been included on the company’s register of members.
What is a PSC?
Owns more than 25% of shares or voting rights
has power to appoint or remove a majority of it’s board of directors
Every country must maintain a register of PSC’s - open to public inspection
Number of directors:
Private Company
Public Company
Private Company: must have at least 1 director
Public Company: must have at least 2 directors
At least 1 director must be a natural person.
Executive Director
Appointed to an executive office e.g finance director
Non-Executive Director
Not an employee of the company - role is to usually give independent guidance to the board
Shadow Director
‘in accordance with those directions or instructions the directors of the company are accustomed to act’
Alternate Directors
appointed to act in place of incapacitated director
De facto Director
not validly appointed but assumes to act as a director
How to appoint a director?
By ordinary resolution of the shareholders or
Board resolution of directors (more common)
Director’s long-term service contracts
If the ‘guaranteed term’ is over two years - ordinary shareholder approval is required.
If shareholder approval is not given, then the term incorporated into the service contract is void. In addition, the service contract will be deemed to contain a term entitling the company to terminate the contract at any time, by the giving of reasonable notice
What is the 'nominal value' of a share?
The minimum subscription price for that share.
What is the 'issued share capital' of a company?
The total amount in value (nominal and premium) of all shares in issue at that time.
Board Resolutions at Board Meetings
Who calls
Notice
Quorum
Voting
Any director may call a BM
Reasonable notice is required
A minimum of 2 directors must be present (MA)
·Board resolutions are passed by majority vote on a show of hands (MA 7(1)).
·Each director has one vote.
·The chair may have a casting vote to prevent deadlock (MA13 provides for this but it is possible for the company to amend this).
Can directors make a decision without a board meeting?
MA 8 - provision for directors to make decisions by unanimous agreement (can be done ‘by any means’ e.g in writing
companies with one director
Ordinary Resolution
more than 50%
Special Resolution
no less than 75% (75% or more)
Voting on a show of hands
Each shareholder has one vote
Voting on a poll vote
Each shareholder has one vote in respect of each share held by them
Resolutions at General Meetings
Who calls
Notice
Quorum
Voting
Board of directors will call
14 clear days notice (private companies)
Two shareholders
Ordinary or Special resolution
Written Resolutions
Only available for private companies
Cannot be used for removal of a director
Cannot be used for removal of an auditor
Are held on ‘one vote per share’
When can a short-notice general meeting be called?
for a private company, a GM may be called on short notice if this is agreed to by:
· a majority in number of the members who,
· together hold shares with a nominal value of not less than 90% (90% or more) of the total nominal value of the shares which give the right to attend and vote at the GM.
Do all special resolutions need to be filed at companies house?
Yes as they form part of the companies constitution. Copy amended articles mist also be filed.
Contractual liability in a partnership
Every partner in a firm is liable jointly with the other partners for all the debts and obligations of the firm incurred whilst they are a partner
Tortious liability in a partnership
In tort the partners’ liability is joint and several
What are heads of terms in commercial contracts?
Heads of terms outline the agreed intentions of the parties before negotiating a formal contract. They are typically non-binding.
What is the "battle of the forms"? (Terms and conditions and agreement of an offer).
The "battle of the forms" occurs when each party attempts to contract on their own standard terms, often resulting in a counter-offer rather than acceptance. The party whose terms are sent last usually prevails.
What are conditions precedent in a contract?
What is ‘assignment’ in a contract?
Transfers only the benefit (rights) of a contract without the burden (obligations), and typically does not require the consent of the other party.
What is ‘novation’ in a contract?
Transfers both the benefit and the burden, effectively substituting one party for another, and requires the consent of all original parties to the contract.
What is the Contracts (Rights of Third Parties) Act 1999?
The Act allows third parties to enforce contractual terms if the contract expressly provides this right. It modifies the doctrine of privity, which previously restricted contract rights and obligations to the original parties.
How is a simple contract/agreement under hand executed?
Company: By a director authorised by a board resolution.
Individual: By the individual's signature without a witness.
Partnership: By one or more partners.
What are the requirements for executing a deed?
Company: Signed by two authorised signatories, using a common seal, or by a single director in the presence of a witness.
Individual: The signature must be witnessed.
Partnership: All partners must execute unless a power of attorney is given to one or more partners.
Can a company be a partner in a partnership?
Yes, the PA 1890 does not distinguish between actual and legal persons, so a company can be a partner.
Is a partnership a separate legal entity from its partners?
No, a partnership is not a legal entity separate from the partners themselves.
What is evidence of a partnership's existence under s 2 PA 1890?
Evidence of profit sharing, joint decision making, and agreement to share losses makes the existence of a partnership more likely.
What is the liability of new partners under s 17 PA 1890?
A new partner is not automatically liable for any debts incurred by the partnership before they joined (s 17(1)).
What happens if a partner retires? (liability for debts)
A partner is still liable for debts incurred while they were a partner unless the liability is relieved by novation with the creditor's consent (s 17(2)).
What is the 'holding out' provision under s 14 PA 1890? (Partnerships)
A non-partner may be liable for partnership debts if they have held themselves out as a partner and a third party has acted on this representation.
What is the taxation principle for partnerships?
Partnerships are tax transparent; each partner pays income tax and capital gains tax on their share of profits and gains.
What is required for a partner to receive a salary? (In a partnership)
There must be an express agreement, as the default position under s 24(6) PA 1890 is that partners are not entitled to a salary.
How can partnerships be dissolved under PA 1890?
By expiry of a fixed term (s 32(a)),
completion of a specific venture (s 32(b)),
death or bankruptcy of any partner (s 33),
notice from any partner (ss 26 and 32(c)),
or if the business becomes unlawful (s 34).
How is an LLP formed?
An LLP is formed by two or more persons associated for carrying on a lawful business with a view to profit. They must register at Companies House by submitting Form LL IN01 and paying the relevant fee.
What must be included in the Form LL IN01 for LLP registration?
The form must include the name of the LLP, its registered office address, and which members are to be designated members.
How are LLPs taxed?
LLPs are tax transparent, meaning the members are taxed individually on their share of the income or gains of the LLP, similar to a partnership.
What corporate characteristics does an LLP have?
LLPs have separate legal personality, limited liability for members, must file accounts at Companies House, can create floating charges, and are subject to certain company law provisions.
What is the 'clawback' rule for LLPs?
LLPs are subject to the ‘clawback’ rule, which means that in certain circumstances money taken out of the LLP by members up to two years before commencement of a winding up of the LLP can be clawed back into the pool of assets available to repay LLP’s creditors
What must an LLP do to maintain its registration?
An LLP must file information such as changes in name, registered office, membership, creation of a charge, annual confirmation statements, and accounts with Companies House.
What was the role of the Memorandum under the Companies Act 1985 (CA 1985)?
Under CA 1985, the Memorandum was a part of the company’s constitution, including an objects clause outlining the company's purpose. Acting outside this purpose was considered ultra vires.
How can a company’s Articles be amended?
Articles can be altered by a special resolution of the shareholders (s 21(1) CA 2006). Specific provisions may be entrenched, requiring more restrictive conditions for amendment.
What is the legal effect of the Articles of Association?
the Articles bind the company and its members as if they were covenants, enforceable by the company and its members in their capacity as members.
What are the requirements for forming a new company from scratch under CA 2006?
To form a new company, you need to submit:
the company’s Memorandum,
Articles (if not using MA),
the required fee, and
Form IN01
to Companies House.
What documents are required for changing a company’s name?
Form NM01 must be filed at Companies House along with the special resolution passed to change the company’s name, and the fee.
Are pre-incorporation contracts enforceable?
Pre-incorporation contracts are enforceable as personal contracts against the promoters, NOT the company, as the company does not exist at the time of the contract.
What decisions are required for appointment of new directors?
Board Resolution or Ordinary Resolution - Board Resolution is most efficient.
How do the old directors resign when converting a shelf company?
Their letter of resignation is accepted at a Board Resolution (directors)
How is a company secretary appointed?
By Board Resolution
How is a Chair appointed?
By Board Resolution
When does a company become a legal entity?
From the date of incorporation as set out in the certificate of incorporation.
What is the contractual affect of the articles?
The articles take effect as a contract between the company and it’s members in respect of their rights and obligations as members s33. Members will only be able to enforce provisions contained in Articles against other members through the company itself.
What is the certificate of incorporation?
The certificate of incorporation confirms the company’s name, registered number, and date of incorporation, making it a legal entity from that date.
What must a company display once its name is registered?
The company must display its name at its registered office, on business letters, and on order forms, invoices, and websites (s 82 CA 2006).
Can the articles of association be limited?
The articles must comply with the minimum provisions of the Companies Act 2006 (the Legality Test), but can be more onerous.
What CA 2006 can override the companies articles?
The right to demand a poll vote at a general meeting cannot be removed from the articles.
How are the Articles of Association altered?
By special resolution of the shareholders. (75% or more of those in attendance and voting)
What are board resolutions?
Board resolutions are decisions taken by directors, passed by a simple majority (over 50%) during board meetings or unanimously as written resolutions if all directors agree.
What is a special resolution?
A resolution made by the shareholders. The threshold is passed by a majority of 75% or more of the votes.
What is an ordinary resolution?
A resolution made by the shareholders. The threshold is passed by a majority of more than 50% of the votes.
How do shareholders vote at General Meetings?
By show of hands (one vote per shareholder)
or
by poll (one vote per share).
Who can demand a poll vote? (1 vote : 1 share)
A poll can be demanded by the chairperson, directors, two or more shareholders, or shareholders representing at least 10% of the voting rights.
What types of resolutions cannot be passed by written resolution?
The removal of a director under s 168
The removal of an auditor under s 510.
How many days’ notice is required for calling a General Meeting in private companies?
14 clear days' notice (from the Board Meeting calling the GM)
the day of the meeting and the day the notice is given are both excluded. Weekends & bank holidays are included - if the notice is posted or e-mailed, it is deemed to be served 48 hours after sending
What is the short notice procedure for the General Meeting in a private company?
If consent given to use short notice, the GM can take place immediately following adjournment of BM1
Short notice can be used by obtaining the consent of:
a majority of shareholders
holding at least 90% (or up to 95% if Articles allow) of the voting rights.
E.g a majority in number of the shareholders (ie 3 out of 5) PLUS they must hold 90% of the total nominal value of the shares (if the company has MA)
What constitutes a quorum for a General Meeting?
Generally, two shareholders (one for single-member companies).
What is the procedure for passing a written resolution?
The resolution is circulated to all eligible members and is passed when the required majority signify their agreement within 28 days (unless Articles specify a different period).
This is only available for private companies.
What are the post-meeting matters (PMMs) following board or shareholder meetings?
Keeping minutes for 10 years,
updating statutory books,
filing necessary documents with Companies House, and
maintaining records at the registered office.
What is the ordinary course for holding shareholder meetings? (The GM sandwich)
Board Meeting to call the General Meeting
General Meeting to pass SR / OR
Board Meeting to implement decision
Post-meeting matters
To whom are directors accountable?
Directors are accountable to the company itself rather than directly to the shareholders.
What authority do directors have?
Directors can make decisions on behalf of the company on all matters not reserved for shareholder approval (e.g change of name etc)
What are the minimum number of directors required? (Private & public)
A private limited company must have at least one director, and a public limited company must have at least two directors.
Note 
Flashcards (52)