1): Starting a New Business Through the Vehicle of a Company, Partnership, LLP or as a Sole Trader Flashcards
(35 cards)
What are the key features of a Sole Trader?
1.No formalities required for formation.
2.No separate legal personality from the owner.
3.Unlimited liability for debts and obligations.
4.No public disclosure obligations.
5.Self-managed.
6.Only fixed security charges.
7.Cannot transfer ownership rights.
8.Ceases on the trader’s death or decision to stop trading.
8 steps
What are the features of a Partnership under the Partnership Act 1890?
8 steps, 7th step distinctive
1.Formed when 2+ persons carry on business in common with a view to making a profit
2.No separate legal personality.
3.Unlimited liability for partners.
4.No public disclosure obligations.
5.Managed by the partners.
6.Fixed charges only.
7.A partner cannot withdraw/transfer interest without consent.
8.Dissolves if business purpose ends or agreed by partners.
What are the characteristics of a Limited Liability Partnership (LLP)?
- Formed by incorporation with Companies House
- separate legal personality.
- Members’ liability is limited to contributions (if agreed).
- Extensive public disclosure/reporting required.
- Managed by members.
- Fixed and floating charges.
- Transfer of membership interest requires unanimous agreement.
- Dissolves if removed from register.
What are the characteristics of a Private Limited Company (Ltd)?
8 steps
- Formed by registering constitutional documents with Companies House.
- Separate legal personality.
- Members have limited liability for shares held.
- Public disclosure of documents, directors, members, accounts, etc.
- Managed by directors.
- Fixed and floating charges.
- Shares can be transferred but may be restricted in articles.
8.Dissolves if removed from register.
What are the features of a Public Limited Company (PLC)?
5 steps, 2nd always tough
- Formation and reporting same as Ltd company but has stricter rules.
- Must call up unpaid share capital on winding up.
- Public trading of shares allowed.
- Usually no transfer restrictions.
- Dissolves if removed from register.
What does it mean that a company has a separate legal personality?
6 parts
Owns property and can sue/be sued in its name.
Contracts in its own name.
Incurs debts in its own name.
Property is company-owned, not member-owned.
Directors/members not personally liable.
Company is taxed independently.
What does limited liability mean for company members?
4 parts, more number related
Member liability is limited to nominal value they paid for the shares.
No obligation to pay beyond this for company debts.
Shares have nominal (par) value.
Members are not liable for company’s debts from personal assets.
When can courts lift the corporate veil?
in exceptional cases:
Fraud
Evasion
Deliberate breach of trust
Done to prevent misuse of separate legal personality.
When does the company come into existence?
2 steps
When Certificate of Incorporation by the Registrar is issued
Certificate is conclusive evidence that statutory requirements are met
What must the Statement of Capital and Initial Shareholdings include?
4 steps
- Number and class of shares per subscriber
- Nominal and aggregate value of shares
- Amount unpaid on shares
- Rights attached
What is the Statement of Compliance?
2 steps
Confirms that all registration requirements under CA 2006 are met
Must be included in Form IN01
Who has right to Election to Keep Information on a Central Register?
simple
private companies only
What steps must be completed to incorporate a private company?
govt bodies 2 steps
Registrar: Submit Form IN01 + fee + required documents
Memorandum of Association
Articles of Association (if not adopting Model Articles)
HMRC: Register for corporation tax (automatically triggered if online) within 3 months
What are key requirements under the Economic Crime and Corporate Transparency Act 2023 (ECCTA 2023)?
4 steps with 9 total
- Identity Verification:
- Mandatory for all directors and PSCs (existing and new)
- Failure to verify = criminal offence or civil penalty
- Directors who fail to verify are prohibited from acting
- Registered Office & Email Address:
- Must be an “appropriate address”
- Must be where documents can be expected to come to the attention of the company or someone acting on its behalf
- company filings at CH
- confirmation of lawful activities
How may a partnership be formed?
3 steps
For a specific purpose,
a fixed duration,
or indefinitely (‘partnership at will’).
How are partnership decisions made under PA 1890?
2 parts
- By majority
- except for when unanimous decisions are required:
Changing business nature
Introducing/removing a partner
Changing the partnership agreement
Default rules under PA 1890 (unless otherwise agreed):
9, last 2 tricky but start with same letter
- Management: All partners have equal management rights.
- Remuneration: No entitlement to salary.
- Adding New partners: All must agree.
- Changes to business: All must agree.
- Expelling a partner: All must agree.
- Ordinary disputes: Majority vote.
- Capital/profits/losses: Shared equally.
- Indemnity: Partners reimbursed for firm-related expenses.
- Interest: Not payable on capital, only on loans.
When is the firm liable for a partner’s actions?
simple
If the partner had actual/ apparent authority to act.
Who can be sued for partnership debts?
3 parts
1.The partner contracting
2.The firm
3.Any partner at the time debt was incurred — joint and several liability.
For which debts is a partner liable?
simple
Only for debts incurred while they are a partner
New partners not liable unless they agree to accept liability
When is a retiring partner released from liability?
2 parts
Only with:
A deed of release or novation
Indemnity from continuing partners
What notice must a retiring partner give?
simple 2 part
Actual notice (to clients)
Constructive notice (e.g. London Gazette)
What is ‘holding out’?
simple
A retiring partner may still be liable if they are perceived to remain a partner and others rely on that belief.
What is the default rule for Share of Profits and Losses if not stated otherwise?
2 parts simple
Profits and losses are shared equally under PA 1890.
If unequal division is required, it must be expressly stated.
