BLP Flashcards
(32 cards)
Jake and Michael decide to import motorcycles from Europe to undercut expensive official dealers in the UK. Michael, who can speak French, goes to France and orders the bikes. Jake pays the French seller directly. Jake gives Michael 10% of the difference between the ‘official’ UK price and the price Jake actually pays. Jake then sells the bikes in his shop.
Indicate whether the following statement is true or false: Jake and Michael are in partnership together.
Correct Answer: False .
Michael and Jake’s actions do not satisfy the definition of a partnership under s.1 Partnership Act 1890. Michael is acting as Jake’s agent: he does not accept any financial risk and he does not get a share of the profits.
Jamie and Malcolm went into partnership earlier this year. Jamie provided 25% and Malcolm 75% of the capital needed to buy the partnership assets. Jamie works full-time in the business, but it was agreed that Malcolm would not spend any particular number of hours working for the business and simply provide consultancy advice as and when requested by Jamie.
There is no written partnership agreement and nothing else has been agreed. How will Jamie and Malcolm share the profits?
A. Jamie will be entitled to 25% of the profits and Malcolm will be entitled to 75%.
B. Jamie and Malcolm will each be entitled to 50% of the profits.
C. Under the Partnership Act 1890, Jamie is entitled to a reasonable salary, and Jamie and Malcolm will split the remainder of the profits between them equally.
D. Because Malcolm is under no obligation to work for the business, he will not be entitled to a salary but James will be entitled to a reasonable sum for the work he carries out. Malcolm and Jamie will then split the remainder of the profits between them, Malcolm receiving 75% and Jamie 25%.
Correct Answer: B.
Under s.24(1) Partnership Act 1890, both partners are entitled to half of the income profits because there is no agreement to the contrary.
Muriel, Molly and Marilyn have been in partnership since 1990. They all work full-time for the business. They share profits equally and have no relevant express agreement between them.
A. If Molly leaves the business, she could be prevented from setting up a competing business.
B. Each partner is entitled to receive a salary in addition to her share of the profits.
C. Muriel and Molly together could expel Marilyn, even if Marilyn objects.
D. Any of the 3 partners could dissolve the partnership at any time without giving a reason.
Correct Answer: D.
Section 26 Partnership Act 1890 provides that a partnership “at will” may be dissolved by any partner giving notice to the others. Section 30 Partnership Act 1890 only provides for restrictions on competition whilst Molly is still a partner. Section 24(6) Partnership Act 1890 provides that a partner is not entitled to a salary. Section 25 Partnership Act 1890 effectively provides that partners can only be expelled by unanimous consent - including the consent of the partner to be expelled.
John, Andrew and Robert have been in partnership together for 3 years and they have no partnership agreement. John has recently been declared bankrupt.
Indicate whether the following statement is true or false: Andrew and Robert can insist on continuing the business in partnership without John, who will have to retire.
Correct Answer: False.
Bankruptcy automatically dissolves the partnership under s.33 Partnership Act 1890.
Two years ago Adam, Rebecca and Kamal set up a partnership. Their agreement provides for income and capital profits to be shared in the same proportions as their capital contributions which were: Adam - £10,000, Rebecca - £10,000 and Kamal - £20,000. The business has just ceased to trade, having a total realisable value of £24,000 after allowing for payment of all claims on the partnership including the partners’ capital contribution. How much should Kamal receive from this £24,000?
A. £12,000
B. £8,000
C. £20,000
D. £6,000
Correct Answer: A.
The partners have agreed to share profits in the same proportions as their capital contributions so profits will be split £6,000 to Adam, £6,000 to Rebecca and £12,000 to Kamal.
Liam and Daniel have been partners since 1990 in a garage trading as L & D Vehicle Repairs. They have no partnership agreement. They have always purchased their stock from Car Parts (Garages) Co. Liam has just learnt that Daniel has been a sleeping partner in Car Parts (Garages) Co for the last year. When challenged, Daniel replied that Car Parts (Garages) Co wrote to L & D Vehicle Repairs suggesting a merger of the 2 businesses but, as Liam always said it was good to keep their business small, Daniel thought that Liam would not agree to the merger; instead, he negotiated his personal involvement with Car Parts (Garages) Co.
a. Liam is entitled to claim from Daniel an account for his share of the profits of Car Parts (Garages) Co on the basis that Daniel is involved in a competing business without Liam’s knowledge and consent
b. Liam is entitled to expel Daniel from the partnership and to force Daniel to sell to him his share of the business
c. On the basis that the opportunity to invest in Car Parts (Garages) Co was initially offered to L & D Vehicle Repairs, Liam may succeed in claiming that Daniel should now account to Liam for any profit he has received from his involvement with the firm.
d. If Daniel now retires as a partner in L&D Vehicle Repairs, Liam will nevertheless continue as a partner in the firm.
C is the correct answer
Nicola has helped her daughters Antonia and Chelsea establish a beauty therapist business by providing the necessary finance and by visiting the salon regularly to provide business advice. Antonia and Chelsea had a formal partnership agreement drawn up between them. Nicola does not want to be a partner in the firm as she runs her own driving school business. However, as Nicola is often seen at the salon, Antonia has occasionally told product suppliers that Nicola is a partner in the firm.
Nicola wants to know if she could be liable for a debt of the firm to a supplier to whom Antonia had represented that Nicola was a partner.
Which one of the following is INCORRECT?
A. Nicola could possibly be liable, if Nicola knew of and allowed the representations made by Antonia
B. Nicola could possibly be liable, if the contract with the supplier was made after the representation
C. Nicola could possibly be liable, if the supplier thought Nicola was a partner
D. Nicola could not be liable in any circumstances
The incorrect answer is D. Nicola could not be liable in any circumstances
Oliver, Henry and Michelle are in partnership supplying office furniture. On 26 February the firm enters into a contract to supply desks to a customer. On 4 March Henry retires from the partnership and the other two agree to indemnify him against any liability on the contract. On 25 March the partnership defaults on the contract. On 28 March Isobel joins the firm as a partner.
Who is liable for breach of contract?
A. Only Oliver, Michelle and Isobel are liable for the breach of contract
B. Oliver, Henry, Michelle and Isobel are liable for the breach of contract
C. Only Oliver and Michelle are liable for the breach of contract
D. Only Oliver, Henry and Michelle are liable for the breach of contract
D. Only Oliver, Henry and Michelle are liable for the breach of contract
Helen, Judy and Len run a bakery as a partnership. They have no written agreement and the only relevant term they have agreed orally is that they share profits in the ratio 1 (Helen) : 1 (Judy) : 2 (Len).
Which one or more of the following is INCORRECT?
A. Profits of £9,000 from the sale of a recipe book which the bakery has been selling will be split £1,500 to Helen, £1,500 to Judy and £6,000 to Len.
B. Any partner can dissolve the partnership immediately but only if they give notice in writing.
C. Each partner is liable without limit for the debts of the firm.
D. Len can retire from the partnership if Helen and Judy agree.
A. Profits of £9,000 from the sale of a recipe book which the bakery has been selling will be split £1,500 to Helen, £1,500 to Judy and £6,000 to Len.
B. Any partner can dissolve the partnership immediately but only if they give notice in writing.
A and B are correct
Therese, Tim and Scarlet were partners until Therese left the business amicably, leaving Tim and Scarlet to carry on in partnership. There was no partnership agreement and the three partners shared profits equally. After Therese left the firm, the remaining partners ordered goods from Bramhope Limited but the invoice for those goods has not yet been paid. Bramhope had dealt with the firm on several occasions before Therese left the firm. Which one of the following is CORRECT?
A. Therese cannot be liable because the debt was incurred after she left the firm.
B. Therese is not liable for the debt if at the time of her leaving she gave notice in the London Gazette.
C. Bramhope Limited can sue Therese for a maximum of 1/3 of the sum outstanding.
D. Assume that at the time of her leaving Therese gave notice in the London Gazette. She later wrote to Bramhope Limited to give notice that she had left but the company did not receive her letter until after the debt was incurred. Therese could become liable for the full debt.
D is the correct answer
Butterberry Limited is a company making yoghurts and other dairy products. It has been in existence for 12 years and has four shareholders who are also the four directors of the company. It has outgrown its existing premises and needs to move to a larger factory. Nick and Andi, two of the company’s directors, negotiate the purchase of a new factory on the Wrexford Industrial Estate with Wrexford Development Corporation. Nick and Andi sign the contract and transfer document on behalf of Butterberry Limited. Whose name(s) will appear on the registered title of the property?
Which one of the following is CORRECT?
A. Nick and Andi’s
B. All the directors’
C. All the members’
D. Butterberry Limited’s
Correct Answer: D
The company is a separate legal person capable of owning land.
Charles Westron is the purchasing director of Westron Limited. He recently purchased some chemicals from Joe Sullivan, a sales manager for Chems Limited. The chemicals that have been delivered are the wrong concentration and unusable by Westron Limited. Chems Limited is refusing to replace them.
If proceedings are commenced in respect of this dispute, who would be the parties to the action?
Choose one or more of the following.
A. Charles Westron
B. Westron Limited
C. Joe Sullivan
D. Chems Limited
Correct Answer: A,B
The contract is made by Charles and Joe as agents for the two companies and so the companies would be the parties to any legal action.
Nina is the sole shareholder and director of Tarvin Limited. She owns 100 £1 shares, all of which are fully paid. The company goes into insolvent liquidation. It has assets of £50,000 but owes creditors £250,000.
How much will Nina be required to contribute to the company’s funds?
Which one of the following is CORRECT?
A. Nothing
B. £250,000
C. £100
D. £200,000
Correct Answer: A
Shareholders are protected by limited liability and will only be liable to contribute the amount (if any) which is still unpaid on their shares. Nina has fully paid up shares and cannot be asked to contribute further funds.
Tangent Limited operates from premises which it leases. The directors have not personally guaranteed Tangent Limited’s obligations under the lease. Tangent Limited is late paying its rent and the landlord has threatened to sue its directors to recover the rent arrears.
Is the following statement true or false?
Correct Answer: True.
The contractual relationship is between Tangent and the landlord, so the obligation to pay rent rests with the company, not with its directors.
Which of the following business entities does NOT have separate legal personality?
A. Halcyon Holidays plc, a company listed on AIM.
B. Barry Jenkinson Ltd, a private limited company whose sole shareholder is Barry Jenkinson.
C. Acomb Foxwood Solicitors LLP, a firm of solicitors owned and run by Arvind Acomb and Frances Foxwood.
D. Hunca Munca Pets, an unincorporated business carried on by Lucinda Laws and Jane James with a view of profit.
Correct Answer: D
Hunca Munca Pets is not a legal entity separate from its owners, Lucinda Laws and Jane James: it is a partnership between Lucinda and Jane within section 1 of the Partnership Act 1890. Each of the others - Halcyon Holidays plc, Barry Jenkinson Ltd and Acomb Foxwood Solicitors LLP - are recognised by the law as legal entities separate from their owners.
Which ONE of the following CORRECTLY describes the principle of “piercing the veil of incorporation”?
A. The recognition by the law of an entity as having a separate legal existence and therefore being an appropriate subject of legal rights and responsibilities.
B. The recognition by the law that a person or number of persons forming a body corporate with separate legal personality are not liable for the debts and obligations of that body corporate, or are only liable to a specified extent.
C. The disregarding of the separate personality of the company when a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades, or whose enforcement he deliberately frustrates, by interposing a company under his control.
D. The identification of property as owned beneficially by the owner of a company by virtue of the particular circumstances in which the legal title to the properties came to be vested in the company.
Correct answer: A
Answer A describes the principle of separate legal personality. Answer B describes the principle of limited liability. Answer C describes the principle of “piercing the veil of incorporation”. Answer D describes the principle by which the “veil of incorporation” was “circumvented” by application of principles of equity, in the case of Prest v Petrodel. But it did not require the separate legal personality of the company holding the title to the properties to be disregarded.
David, one of the directors in Bourneport Limited, paid £20,000 for 4,000 £1 fully paid ordinary shares in Bourneport Limited. He also signed a personal guarantee, guaranteeing Bourneport’s obligations under the terms of an overdraft agreement, in favour of Barclays Bank plc. Under the terms of the agreement, Bourneport Limited has an agreed overdraft limit of £150,000. The actual overdraft currently stands at £85,000.
Which ONE of the following CORRECTLY describes David’s potential future exposure in relation to the debts of Bourneport Limited?
A. £85,000
B. £150,000
C. £170,000
D. £4,000
Correct Answer: B
Although in his capacity as a shareholder David is protected by limited liability, he has entered into a separate contract guaranteeing that he will pay the overdraft if Bourneport Limited does not do so. If Bourneport Limited uses up the entire overdraft facility of £150,000 and then is unable to pay it off, David can be pursued by the bank under that contract for the entire £150,000.
This question relates to the definition of ‘subsidiary’ under s1159 of the Companies Act 2006. Which ONE of the following is correct?
A. Company A cannot be a wholly-owned subsidiary of company B if company A has more than one shareholder.
B. If company C holds 50% of the voting rights in company D, even though it does not have the right to appoint or remove the majority of its board of directors, company D is company C’s subsidiary.
C. The definition of subsidiary under the Companies Act 2006 extends to companies owned by a general partnership within the definition of the Partnership Act 1890.
D. If Company E has the right to remove the entire board of directors of company D and is a member of company D, then company D is a subsidiary of company E.
Correct Answer: D
Under s1159(1)(b) Companies Act 2006, a company is a subsidiary of another company if that company is a member of it and has the right to appoint or remove a majority of its board of directors. Answer A is incorrect because under s1159(2) Companies Act 2006, a company can still be a wholly-owned subsidiary of another (“the holding company”) even if there is more than one shareholder - as long as the other shareholders are also wholly-owned subsidiaries of the holding company. Answer B is incorrect because for a company to be a subsidiary of another, one company has to hold a majority of the voting rights of the other. Just 50% is not enough (s1159(1)(a) CA06). Answer C is incorrect - see the definition of company in s1159(4).
Grants Limited is a wholly-owned subsidiary of Greenwear plc. Grants Limited is in financial difficulty and owes Barton Limited £100,000.
Indicate whether the following statement is true or false.
Barton Limited can take action against Greenwear plc to recover the £100,000 owed to it by Grants Limited.
Correct Answer: False
Grants Limited is a separate legal person, despite being a wholly-owned subsidiary of Greenwear plc, and so is responsible for its own debts.
Ian Gilford Transport Ltd (“IGT”) is a distribution company whose assets include the remaining term of a 30 year lease of warehouse premises in Kent (“the Lease”). The shares in IGT were recently purchased from its parent company, Portbase Holdings PLC (“Portbase”) by Freeflow Distribution PLC (“FD”) and Calais Convoyage S.A. (“CC”), a French company. FD now holds 60% of the shares in IGT and CC the remaining 40%.
Which ONE of the following statements is CORRECT?
A. IGT will continue to have the full legal and beneficial title to the Lease.
B. IGT will have legal title to the Lease, but will now hold it for FD and CC as joint tenants in equity.
C. IGT will have legal title to the Lease, but will now hold it for FD and CC as tenants in common in equity in proportion to their shareholdings.
D. The legal title to the lease is vested in IGT, but the beneficial title to it is vested in Portbase and will remain so unless there is a separate transfer by Portbase of its equitable interest.
Correct Answer: A
The Lease was held by IGT, and will continue to be held by IGT. Portland had no title to the Lease - only to the shares in the company (IGT) which owns the Lease. FD and CC acquire no title to the Lease - only to the shares in the company (IGT) which owns the Lease. You may wish to refer to the case of Macaura v Northern Assurance Co Ltd [1925] AC 619.
Who is able to purchase shares of the Stock Exchange?
· Private individuals · Other companies · Pension funds · Insurance companies · Investment trusts · Other institutional shareholders · Sovereign wealth funds · Nominees for any of the above · Any others
Why would a business choose to use subsidiaries and holding companies as a way of organising their business?
Ring-fencing of liability arising from activities
Ease of separation of ownership and management (members and directors)
Tax reasons
More easily transferable interest (cf. transfer of business where the interest in the individual assets has to be transferred – in practice, this is a marginal benefit, as it creates some additional problems)
Gouache Arts Limited has three directors. The company’s articles are based on the Model Articles with one amendment reading “Whenever the number of directors is one, a sole director shall have authority to exercise all the powers and discretion’s by the Model Articles and by these Articles expressed to be vested in the directors generally, and, in those circumstances, regulation 11 in the Model Articles shall be modified accordingly.”
Indicate whether the following statement is true or false: One director is sufficient for a quorate board meeting of Gouache Arts Limited.
Correct Answer: False.
Model Article 11 provides that the quorum for board meetings is 2 directors. The amendment (called a “special article”) only applies when there is only one director. There are currently three directors, so Model Article 11 still applies in its unamended form.
Which one or more of the following is CORRECT?
A. Directors are responsible for the day-to-day running of the company.
B. Directors can be employees of the company.
C. Directors are the owners of the company.
D. Directors can delegate their decision making powers to one of their number.
Correct Answer: A,B,D.
In particular, note that it is the members who are the owners of the company.
