Business Law and Practice: Choice of Business Media and Company Law

Vocabulary-style flashcards covering the Choice of Business Media, Company Formation, Directors' Duties, Decision-making, and Insolvency procedures based on UK corporate law.

Sole Trader

A person who owns all assets in a business that is not a separate legal entity from its owner; the owner has complete control, receives all profits, and has unlimited personal liability.

General Partnership

Defined under s.1(1) Partnership Act 1890 as two or more persons carrying on business in common with a view of profit, where partners have unlimited personal liability and the firm has no separate legal identity.

Limited Partnership

A business structure governed by the Limited Partnerships Act 1907 consisting of at least one general partner with unlimited liability and one limited partner whose liability is limited to their capital investment.

Limited Liability Partnership (LLP)

A hybrid entity governed by the Limited Liability Partnerships Act 2000 that has a separate legal personality and limited liability for members, but is treated as a partnership for tax purposes.

Companies House

The official Registrar of Companies in the United Kingdom where business information must be filed and new companies registered.

Separate Legal Personality

The legal concept that a company is an entity distinct from its shareholders, directors, creditors, and employees, allowing it to own property, enter contracts, and sue or be sued in its own name.

Promoter

The person responsible for arranging the incorporation of a company and registering it with Companies House; they are personally liable for pre-incorporation contracts.

Novation Agreement

A contract between a promoter, a contractor, and a newly formed company where the parties agree to substitute the promoter with the company in a contract after incorporation.

Articles of Association

A company’s constitutional document that regulates the relationship between shareholders, directors, and the company.

Model Articles

The standard set of articles for private or public companies that apply automatically under the Companies Act 2006 unless a company chooses to adopt amended or bespoke articles.

Bespoke Articles

Articles of association that have been drafted from scratch and specifically tailored to a company's requirements.

Shareholders (Members)

The owners of a company who invest capital in exchange for shareholdings and typically have the right to vote and receive dividends.

Executive Director

A director who is formally appointed as an officer and is also an employee of the company, involved in day-to-day management.

De Facto Director

A person who acts as a director in practice and performs the functions of the role without having been formally appointed.

Shadow Director

Defined by s.251 CA 2006 as a person with significant influence over the actions of a company without having been appointed to a leadership position.

Ordinary Resolution (OR)

A decision made by shareholders requiring a simple majority of more than $50\%$ of the voting rights to pass.

Special Resolution (SR)

A decision made by shareholders for significant matters (e.g., changing articles) requiring a majority of $75\%$ or more to pass.

Special Notice

A requirement under the Companies Act 2006 for a $28$-day period between the notice of a resolution to remove a director and the general meeting where the resolution is passed.

Substantial Non-cash Asset

An asset that is not cash and is worth more than $\pounds 100,000$, or between $\pounds 5,000$ and $\pounds 100,000$ if it exceeds $10\%$ of the company’s Net Asset Value (NAV).

Distributable Profits

The funds available for dividends, calculated as accumulated realized profits minus accumulated realized losses.

Person with Significant Control (PSC)

An individual who owns more than $25\%$ of shares or voting rights, or has the power to appoint/remove a majority of the board of directors.

Interim Dividend

A dividend that can be declared by directors and cancelled prior to payment without requiring shareholder approval.

Final Dividend

A dividend recommended by the board of directors and declared by shareholders via ordinary resolution following the end of an accounting year.

Derivative Claim

A legal action brought by a shareholder on behalf of a company against a director for breach of duty, where any damages awarded belong to the company.

Unfair Prejudice

A petition made to the court by a minority shareholder who believes the company’s business is being conducted in a manner that is objectivey prejudicial to their interests.

Quorum

The minimum number of people required to attend a meeting for it to be valid; for board meetings under Model Articles, this is typically $2$, and for general meetings, it is also $2$.

Poll Vote

A method of voting where every shareholder has one vote per share held, as opposed to a show of hands where each person has one vote regardless of shareholding.

Pre-emption Rights

The right of existing shareholders to be offered new shares issued for cash on the same terms as the open market in proportion to their existing holdings, typically requiring at least $14$ days to accept.

Floating Charge

A security interest taken over a class of assets that change frequently (e.g., stock), which crystallizes into a fixed charge upon a default event.

Moratorium

A period during which all insolvency or legal proceedings against a company are stopped to allow for negotiations with creditors or restructuring.

Company Voluntary Arrangement (CVA)

An agreement binding all creditors to settle debts by paying only a portion of the money owed, requiring approval by $75\%$ in value of the creditors and an ordinary resolution from shareholders.

Administration

An insolvency procedure where an administrator is appointed to run the company with the goal of saving the business or realizing assets for creditors under a statutory moratorium.

Fraudulent Trading

A civil or criminal claim under the Insolvency Act 1986 against a person party to carrying on business for a fraudulent purpose, requiring a high standard of proof for actual dishonesty.

Wrongful Trading

A civil claim where a director continued trading despite knowing the company had no reasonable prospect of avoiding insolvent liquidation; judged on a balance sheet test.

Every Step Defence

A defense against wrongful trading claims where a director shows they took every possible step to minimize the potential loss to the company’s creditors from the moment they realized insolvency was likely.

Misfeasance

A claim brought during liquidation or administration for the recovery of assets or compensation where an officer has misapplied company money or breached a fiduciary duty.

Transaction at an Undervalue

A voidable transaction involving a gift or sale for significantly less than its value, occurring within $2$ years prior to the onset of insolvency.

Preference

A voidable transaction where a company pays a creditor to put them in a better position than they would have been upon insolvency, influenced by a desire to prefer that creditor.

Statutory Demand

A formal demand for payment of a debt exceeding $\pounds 750$ for companies or $\pounds 5,000$ for individuals; failure to pay within $3$ weeks constitutes evidence of insolvency.

Relevant Time

The specific time period before the onset of insolvency (e.g., $6$ months, $12$ months, or $2$ years) during which certain past transactions can be challenged by a liquidator.