BLP Random Flashcards
1
Q
What resolution should a company with unamended model articles pass to change the name of the company?
A
Special resolution - 75% of the votes.
2
Q
When is a company incorporated?
A
When the certificate of incorporation is issued.
3
Q
Who is liable for contracts entered into on behalf of the company before the certificate of incorporation is issued?
A
The person purporting to sign a contract on behalf of a company which has not yet been incorporated will be personally liable for the performance of the contract.
Solely & personally liable if purported to sign on behalf of the company not yet incorporated.
4
Q
Liability for partnerships
A
1) contract - jointly liable
2) tort - jointly & severally liable
Subject to P° Agreement
5
Q
What is the list of documentation to send to Companies House for incorporation of a new company?
A
- The application for registration (Form IN01);
- the Memorandum;
- the incorporation fee;
- (and if amended or tailored articles) Articles of Association
for Companies House.
6
Q
Loan to directors require
A
Ordinary Resolution of SHs
7
Q
Fastest way to obtain SH approval (OR) in a private ltd company
A
WRITTEN RESOLUTION
bcs
If approval is sought at a GM, a written memorandum needs to be displayed at the registered office for 15 days ending with the date of the GM.
A short notice GM is therefore not beneficial since it would only save one day.
The quickest way to obtain the shareholder approval is therefore to use a written resolution, since the memorandum may be attached to the written resolution and the 15-day display requirement is not applicable.
The written resolution will be passed once shareholders representing over 50% of the total voting rights sign it.
8
Q
What is the best claim for a shareholder removed as a director and employee in a quasi-partnership company?
A quasi-partnership exists where a private company operates as a small, closely held entity based on mutual trust and confidence among shareholders (e.g., a company with equal shareholder-directors).
A
The individual should pursue a claim for unfair prejudice under section, as the company is likely to qualify as a quasi-partnership. The removal may violate their legitimate expectation to participate in the company’s management.
9
Q
What is wholly-owned subsidiary exception regarding loans to directors?
A
if the subsidiary (Company A) is wholly owned by the holding company (Company B), the subsidiary itself does not require separate shareholder approval.
Instead, the holding company’s shareholders must pass an ordinary resolution to approve the loan.
10
Q
When will the requirement to disapply pre-emption rights by special resolution be required in allotting new shares?
A
Where (new) class of shares to issue are EQUITY SECURITIES
If the shares both capped as to the dividend and capped as to the capital, they are NOT equity securities, and do not require disapplication.
If shares capped as to one or not capped at all they ARE equity securities and pre-emption rights must be disapplied.
11
Q
What are the approvals to seek when issuing new class of shares in a private company?
A
- An ordinary resolution to give directors authority to allot the shares,
- a special resolution to
disapply pre-emption rights and - a special resolution to amend the articles.
12
Q
How can pre-emption rights be disapplied?
A
Special Resolution ALWAYS
1- general disapplication by SR in the articles
2- Private companies with 1 class of shares can disapply by SR to imply a provision permanently in the Articles.
3- specific disapplication: in relation to a specific allotment issued for a particular person or as consideration for specific purpose by SR
4- Subsidiary private companies by way of provision in the Articles permanently by SR
13
Q
Who resolves to allot the shares and when?
A
Directors by board resolution
(after obtaining authority, disapplying PE if necessary, and after SR amending AoA)
14
Q
When will a GM be NOT needed in advance of Board Meeting to allot new shares?
A
- has no limit in its Articles on the number of shares which can be issued by the company; and
- does not require directors’ authorisation because the company is a private company with only one class of shares and there is no restriction in the company’s Articles OR has already given the DS authority to allot shares; and
- is issuing the shares to existing shareholders in proportion to their existing shareholdings and follows the procedure
or
* has the relevant class rights in its Articles. & 2,3
15
Q
After internal matters (approvals, resolutions, BM) are completed for the allotment of shares;
What documents need to be sent to Companies House and When?
A
1- copies of resolutions and amended articles within 15 days
2- company forms to be sent
- return of allotment (Form SH01) and statement of capital within 1 month
- if PSC changed as a result of the allotment relevant forms PSC01, 02, 04, 07 within 1 month
16
Q
After internal matters (approvals, resolutions, BM) are completed for the allotment of shares;
What are the administrative matters to attend to?
A
1- Copies of resolutions and amended articles to be sent to Companies House within 15 days
2- Company forms to be sent to Companies House within 1 month
o Return of allotment (Form SH01) and statement of capital within one month
o If the persons with significant control have changed as a result of allotment, the relevant forms (PSC01, PSC02, PSC04, PSC07)
3- Updating company registers
o Update register of members within 2 months of the allotment.
o Update PSC register if necessary
4- Share certificates
o must be prepared and sent to new shareholders within 2 months of allotment
17
Q
Legal and equitable ownership of allotted shares
A
1) beneficial title passes on the execution of the stock transfer form
2) legal title passes on the registration of member in the register of members by the company
=> Co must send share certificates in the name of new SHs within 2 months
18
Q
How to disapply the cap on the amount of shares that could be allotted for a company incorporated under CA 1985?
A
Ordinary Resolution
19
Q
Form for allotment of shares sent to Companies House
A
Form SH01
20
Q
Can the director of a private company with only 1 class of shares allot new shares without obtaining authority?
A
YES - ONLY where new shares will be issued of that same class.
For all other companies and classes of shares, D is required to obtain approval by OR by the SHs.
21
Q
When does transmission of shares occur?
A
- death of SH
- bankruptcy of SH
22
Q
Who can recommend dividends to be paid?
(final dividends)
A
ONLY the directors, if Co has sufficient distributable profits.
Declared by OR of SHs.
23
Q
What is the most appropriate form of security interest for a bank to take over vehicles, which are the most valuable assets of the company, held for sale by a company?
A
A floating charge is the most appropriate form of security for the vehicles,
- as they are part of the company’s stock-in-trade (fluctuating assets over time)
- as they are most valuable assets
24
Q
Pledge =/= Lien
A
Pledge - lender takes possession of the asset until the debt is paid
Lien - lender takes possession of the asset until the debt is paid in relation to carrying out a service (eg. mechanic, garages for cars)
25
Capital Loss rule
(Corporate tax)
Capital losses can only be set off against chargeable/capital gains.
- Can be set off against capital gains in the current year;
- They cannot be carried back to a previous year.
- They can be carried forward if they haven't been already used for setting off carried forward trading losses.
---> max 50% of the unrelieved gains can be set off if the capital gains is in excess of the available 'deductions allowance' (£5 m - for trading losses carried forward)
- Capital losses can be carried forward indefinitely - if HMRC notified of losses within 4 years
26
Trading Losses rules
(Corporate Tax)
1) Can be set off against all other profits (both income and capital gains) in the same accounting year (claim made within 2 years).
2) If trading losses cannot be used in whole or part against current profits, they can be carried back against taxable profits (again, both income and capital).
Condition = Co must have been carrying on the same trade in both years
3) if there are still trading losses unused, they are automatically carried forward and set off against TTP.
The Co can use carried forward losses against taxable profits up to £5 million in each accounting period (=DEDUCTIONS ALLOWANCE)
-----> if Co have unrelieved profits in excess of deductions allowance for that period (over £5m), carried forward losses may be used to relieve a max 50% of the unrelieved profits = LOSS RESTRICTION
27
Deductible expenditure can reduce income profits if :
If
- it is incurred wholly and exclusively for the purposes of trade; and
- is not prohibited by statute; and
- is of an income nature
28
Capital allowance can reduce
Income receipts
=> on qualifying expenditure P&M
Main rate:
Main rate 18% on P&M can be deducted on a reducing balance basis for each year.
=> the value of P&M is reduced by 18% for that year
=> that value referred as 'tax written down value'
Annual investment allowance:
Deducts 100% of expenditure on new/used/refurbished P&M up tp £1m
==> the excess over £1m will be subject to 18% allowance
(includes P&M, R&D, long life assets, cost of construction of commercial buildings)
29
A private limited company made a trading profit and a capital loss in its CURRENT accounting period.
In the PREVIOUS accounting period, the company made a chargeable gain.
What best describes how the capital loss can be used to reduce the company’s corporation tax liability in the current accounting period?
The capital loss cannot be set off against the trading profits in the current accounting period and it cannot be set off against the chargeable gain in the previous accounting period.
It can only be set off against chargeable gains in subsequent accounting periods
(- or current AP but it doesn't exist in the Q).
30
What are qualifying loans to reduce income tax for individuals?
When are they deducted?
Interest paid on qualifying loans are deducted from total income to calculate NET INCOME.
(pension contributions also deducted)
qualifying loans:
- loans to buy an interest in a partnership
- loans to contribute capital or make loans to a partnership
- loans to buy shares in/or make a loan to a ‘close’ company
- loans to buy shares in an employee-controlled company or invest in a co-operative
31
Close companies taxation effect for transactions in securities
LOAN TO A DIRECTOR-SH
(debt finance - close companies - tax)
When the loan is written off, the tax paid by the company to HMRC wil be refunded to the company. AND
The shareholder will be deemed to have received a dividend equal to the amount of the loan written off.
SPECIAL TAX AVOIDANCE RULES.
HMRC advance clearance is advised;
32
Loans to participators in a close company - tax effect
Company must pay corporation tax to HMRC on the amount of the loan, calculated at the rate of income tax payable on dividends by higher-rate taxpayers.
Tax must be paid within 9 months and 1 day after the end of the accounting period (that the loan is made).
When the loan is repaid, written off, satisfied or waived, the close company will claim a refund of the tax paid.
If the loan is written off/waived, participator is deemed to receive a dividend equal to the amount of the loan written off/waived.
If paid in full, no tax need to be paid by P.
33
Can annual exemption for individuals be carried forward?
NO - only for the current year
34
Business asset disposal relief
Individuals CGT
Lifetime allowance for each individual up to £1 mil charged at 10% (reduce rate).
Gains beyond £1m will be charged depending on the rate at which the individual pays CGT.
Applies to qualifying disposal of:
1- all/part of a trading business
* a trading business
* owned for min 2 years prior to disposal
2- assets in a business that used to trade
* owned for min 2 years before ceasing to trade.
* assets used in business when it ceased to trade
* be disposed of within 3 years of the business ceasing to trade
3- shares in a trading company
* shares owned for min 2 years before disposal
* Co must be a trading company for at least 2 years before disposal
* officer or employee of the Co, holds 5% of ordinary voting shares & entitled to at least 5% of profits available for distribution & 5% of the net assets on a winding up, at least for 2 years before disposal
4- shares in a company that used to trade
* shares owned for min 2 years before Co ceased to trade
* shares must be disposed of within 3 years of the company ceasing to trade
* officer or employee of the Co, holds 5% of ordinary voting shares & entitled to at least 5% of profits available for distribution & 5% of the net assets on a winding up, at least for 2 years before it ceased to trade
Not automatic, must apply on or before 31 jan following year of disposal.
35
Effect of CVA
If CVA proposal is approved by the requisite majority of unsecured creditors, it will bind all UNSECURED creditors.
CVA cannot bind secured creditors unless they consent.
CVA does NOT give rise to an automatic moratorium.
36
DESIRE TO PREFER
Rule
Voidable preference action
- Desire to prefer is presumed if the creditor is a connected person or associate of the Director.
- Defence to the voidable preference claim is the absence of a desire to prefer. Or, genuine commercial pressure may negate desire to prefer.
37
Best advice to directors as to what they should do to protect themselves from any personal liability if the company goes into insolvent liquidation.
(To ensure that the director does not incur liability for wrongful trading)
The director should ensure that they take every step to minimise losses to creditors.
This would include:
- raising concerns at board meetings,
- putting in place cost cutting measures,
- ensuring adequate up to date financial information is available, and
- seeking financial and legal advice.
38
Investor's Relief - effect & conditions
Individual CGT
IR reduces the higher rate of CGT from 20% to 10% for gains arising on disposals of qualifying shares, subject to a lifetime limit of £10 mil.
Shares will be qualifying shares if the conditions are met:
1- shares are fully paid ordinary shares issued for cash consideration (issued after March 2016)
2- Company is (and has been since the issue of shares) a trading company or a holding company of a trading group.
3- At the time of issue, none of the company's shares were listed on a recognised stock exchange.
4- shares held by the individual for at least 3 years continuously since issue (from April 2016)
5- the individual is not and have never been an officer or an employee of the company
39
What are the rights every SH have irrespective to their shareholding %?
1- receive a notice of GM
2- appoint a proxy to attend a GL in their place
3- vote at a GM
4- receive a dividend (if declared)
5- receive a copy of company's accounts
6- inspect minutes and company registers
7- ask the court to prevent breach of D's duties
8- commence a derivative claim
9- bring a petition for unfair prejudice
10- bring a petition for just and equitable winding up
40
5% or more
SH's rights
1) require directors to call a GM (s303)
2) require the circulation of written statements of proposed resolutions to be considered at a GM
3) circulate written resolutions
41
Demand a poll vote -
shareholding
10% or more
SH's rights
42
Over 25% shareholding gives right to
Block a special resolution
BUT note that s SR is passed by 75% or more of the votes.
By demanding a poll vote, they can block the SR.
43
Over 50% of shareholding gives right to
Block or Pass an OR
If SH has exactly 50%, they can block the OR but cannot pass OR alone.
However, if they have over 50% they can block and/or pass OR alone.
44
Impact of s303 notice given at the same time with the special notice by the SH for director's removal
QUICKEST WAY - at the same time with giving special notice, SH will also serve s303 to the board and the board will have from then on 21 days to decide, if decided favourably GM must be held in 28 days from the date of calling the GM; if not, SH can call themselves within 3 months of the s303 request.
45
Special notice for removal of directors
For a removal resolution to be passed, 'special notice' must be given at least 28 clear days before the GM.
WR cannot be used to remove a director (or an auditor).
46
Directors' obligation on receipt of a s303 request.
What will be the timeline in case of cooperation with notice convening GM?
On receipt of the s303 notice, Ds must:
- within 21 days decide whether to call a GM
- to be held on a date not more than 28 days after the notice convening the GM
TIMELINE
DAY 1 - unhappy SH serve notice (and already served special notice)
°
°
°
DAY 22 - Board had 21 days to decide whether or not to call GM
°
°
°
DAY 50 (latest!): GM takes place - if the Board decides to call a GM, it must be held within 28 days from date of calling the meeting
47
If the directors fail to call a GM, all of the shareholders who can call the GM?
SHs who submitted the request or any of them representing over 1/2 of the voting rights of those submitting s303 notice.
IF they call themselves the GM, it must be called no fewer than 14 clear days' notice AND held within 3 months of the date the directors received a s303 request.
48
Timeline where the Board does NOT co-operate with s303 notice
(assuming special notice have already be served)
TIMELINE
DAY 1 - unhappy SH serve notice (and already served special notice)
°
°
°
DAY 22 (Latest) - Board had 21 days to decide whether or not to call GM
°
DAY 23 - Board loses control of the process
(Loses control BCS decided to not to co-operate or didn't decide)
°
°
°
DAY 38 - (earliest) SHs will call GM on normal notice (14 clear days').
GM must be held within 3 months of s303 request.
------------------------------------------------------if the SHs are forced to call the GM themselves, they can recover their reasonable expenses for doing so from the company, and the Co in return then recoups the expenses from Ds (or their remuneration).
49
Changes to a Shareholders’ Agreement will require
the unanimous approval of all parties to the agreement.
50
If the LLP's situation resulted in an insolvent state and unpaid debts.
And during a member's meeting, it has been decided that the future of LLP is not financially viable and it is necessary to wind up its affairs.
What is the method by which LLP brings its business activities to an end?
CREDITORS VOLUNTARY LIQUIDATION
Bcs the company is insolvent.
51
How can a Company vary the rights of a class of shares?
If AoA of a company alters/amends the existing class rights, rights are varied, and the resolution to alter will not be effective unless:
1- varied accordingly to provisions in Articles for variation of those rights
OR
2- if articles do not contain such provisions by consent in writing of holders at least %75 of the issued shares of that class
OR
3- by means of a special resolution passed at a GM of holders of that class.
52
PROCESS FOR LLP'S CVL
(CREDITORS' VOLUNTARY LIQUIDATION)
GM will pass a SR to place company in CVL and an OR to appoint a liquidator.
Within 14 days of passing the SR, creditors will be asked to approve the appointed liquidator or put forward their own. Creditors' nomination prevails.
Director will draw up a statement of company's affairs and send it to creditors.
FOR LLP
To initiate this process,
2- the LLP must publish a notice announcing the resolution to wind up the LLP in the London Gazette,
3- submit a copy to Companies House, and
4- then hold a creditors' meeting
5- The appointment of a liquidator is made either by the LLP's members or by the creditors during the creditors' meeting.
6- The liquidator assumes control over the LLP and its assets to facilitate the winding up of the LLP's affairs. Proceeds are used to satisfy creditors' claims and the remaining funds are distributed amongst the members of LLP.
53
What should the solicitor representing the buyer do after receiving executed stock transfer form from the seller?
The solicitor then must:
1- send the form, along with cheque for due stamp duty tax to HMRC within 30 days of the effective date of transfer.
2- after the form returns stamped, the buyer's solicitor must send the stick transfer form to the company.
This is BCS buyer of shares by returning the form will ask for registration of the shares.
54
When a transfer of shares has been lodged with the company, it must either:
(assume that stock transfer form is duly completed, executed and stamped)
- register the transfer
or
- give the transferee notice of refusal to register the transfer, together with its reasons for the refusal, as soon as practicable and in any event within 2 months after the date on which the transfer is lodged with it.
The company must complete and have ready for delivery the new share certificate within the same period (2 months).
The transfer of shares (or where a new shareholder joins the company) must also be reported on the next annual confirmation statement to Companies House.
BUT no need to send a copy of the share certificate to CH or HMRC.
If there is a change in the PSC, then update the PSC register and send the form to the CH. (for the change 25% or more of shares must be transferred)
55
The directors of a private company cannot exercise the power to allot shares, UNLESS:
- the company only has one class of shares (s. 550, CA 2006);
or
- where a company has multiple classes of share or an allotment would create multiple classes, the directors are authorised to do so by the articles of association or a members’ resolution
56
A private ltd company -with multiple classes of shares- will allot a new class of shares and this will result in prejudice of a minority SH and dilute the existing shareholding.
Can Directors allot shares in this case?
What can minority SH do?
The directors can allot the shares if authorised by an ordinary resolution.
Minority SH cannot stop D from alloting new shares.
But later if there is a prejudice, might bring a claim against the company after.
Again this doesn't change the fact that D can issue the shares provided that D is authorised by OR.
57
Bushell v Faith clauses - weighted voting rights
to exercise their right:
To Trigger Weighted Voting Rights: A poll vote must be demanded.
SH would demand a poll vote to exercise the weighted voting rights provided under the clause.
It does not apply in a vote by show of hands.
58
An individual, owning 4% of the shares in a private limited company, approaches the company requesting a copy of its register of members. The managing director is hesitant to disclose this information.
Is the shareholder entitled to a copy of the register of members?
The person has the right to receive a copy of the register of members.
To refuse the request, the company must show that the request is not made for a proper purpose (ss. 115–117 CA 2006.
59
Rollover Relief for Replacement of Business Assets
Chargeable gain - corporate
Defers tax on gains from the sale of qualifying assets by reducing the acquisition cost of replacement assets.
* Replacement Asset Purchase Period: Must be within 12 months before or after 3 years of the sale of the original asset.
-* qualifying assets: land, buildings, fixed plant, machinery, ships and hovercraft, aircraft, Lloyd’s syndicate capacity and goodwill.
Tax is postponed until the replacement asset is sold and no new qualifying replacement asset is purchased.
60
CGT liability for individuals
What & how CGT rate applies if taxable income is lower than basic rate band but with the chargeable gains it exceeds basic rate?
Subtract the taxable income from the upper limit of the basic rate band.
Remaining basic rate band = Basic rate band upper limit - Taxable income.
This remaining basic rate charged at 10%
Above the basic rate band: Any remaining gains are taxed at the higher CGT rate (20%).
61
EFFECT OF ROLLOVER RELIEF IN COMPANIES
operates in practical terms by treating the purchase price of the replacement asset as having been reduced by the amount of the deferred gain so as to increase any gain made on the sale of the replacement asset.
62
Investors suffered financial loss after they bought a company that subsequently proved to be worth less than they had expected.
They sued the company’s accountants for negligently preparing the annual financial reports upon which they relied when acquiring the company’s shares.
In such circumstances, did the accountants owe a duty of care to the investors?
NO - because in preparing the financial statements the defendants owed a duty to the company and not to the general public.
63
Investors suffered financial loss after they bought a company that subsequently proved to be worth less than they had expected.
They sued the company’s accountants for negligently preparing the annual financial reports upon which they relied when acquiring the company’s shares.
WHAT WOULD MAKE ACCOUNTANTS LIABLE TO INVESTORS?
NEGLIGENT MISSTATEMENT - Hedley Byrne must be satisfied.
Either
- special relationship
- voluntary assumption of responsability
- reasonable relience
In this scenario, reasonable reliance would be more appropriate.
1. Communication: Advice must be communicated to an identifiable claimant or class. [investors here]
2. Purpose: Defendant must know the purpose of the advice. [ie. knew the nature of the transaction contemplated]
3. Reliance: Defendant must know or reasonably believe that the claimant will rely on the advice without independent inquiry for that purpose.
4. Detriment: Claimant must act upon the advice to their detriment.
64
When should the stock transfer form be sent to HMRC?
After the execution, together with the payment of the stamp duty within 30 days of effective date of transfer.
This is normally the date on which the form is signed.
Stamp duty typically paid by the purchaser.
65
When & who can refuse to register the transfer of shares?
Directors, when a transfer of shares has been lodged with the company.
They must give notice of refusal to register the transfer, together with its reasons for refusal; as soon as practicable and in any event within 2 months afte rthe date on which the transfer is lodged with it.
66
What conditions should be met for member to be classified as a 'salaried member' of a LLP?
The individual's contribution to the LLP is less than 25% of the expected disguised salary payable by the LLP.
67
LLP taxation
Its members are individually liable for taxation purposes based on their respective shares of the LLP's income or gains, similar to a general partnership.
An LLP is not subject to corporation tax.
BUT Corporate members, on the other hand, are subject to corporation tax.
68
taxation of a 'salaried member' of a LLP
A salaried member is an individual who is a member of an LLP and treated as an employee for income tax purposes if the conditions are met:
- capacity as member is to perform services to LLP
- disguised salary
- mutual rights and duties of the members and the LLP and its members do not give the individual significant influence over the affairs
- individual’s contribution to the LLP is less than 25% of the disguised salary which it is reasonable to expect will be payable by the LLP for the performance
69
On what ground an alteration/amendment to an article can be challenged by a minority shareholder?
(eg. to introduce new class of shares, or to dilute SH rights due to deterioration of relations, or minority SH's shares to be forcibly purchased at their discretion)
The alteration can be challenged because it is not in the best interests of the company.
Alteration of articles must be in the best interests of the company as a whole, which will be proven if the reasonable person would believe the amendment to be in the best interests of the company as a whole.
70
The actions restricted by the moratorium include:
* no creditor can enforce its security against the company’s assets;
* there is a stay of legal proceedings;
* no winding up procedures can be commenced in respect of the company (unless commenced by D) and
* no shareholder resolution can be passed to wind up the company (unless approved by the directors); and
* no administration procedure can be commenced in respect of the company (other than by the directors).
71
Procedure for obtaining the pre-insolvency moratorium:
by filing docs at court
* A statement that the company is, or is likely to become, unable to pay its debts as they fall due.
* A statement from a licensed insolvency practitioner (usually an accountant), known as a Monitor for these purposes, stating that in their view, it is likely that a moratorium will result in the rescue of the company as a going concern. - supervisory function during-
72
How long does a pre-insolvency moratorium lasts?
- lasts for 20 business days but can be extended by the directors for a further 20 business days. (40 b'd')
- further extensions are possible with the consent of a requisite majority of creditors and/or court order.
- maximum period is 1 year subject to a court order to extend further.
- terminates automatically if the company enters liquidation or administration, or at the point that a CVA is approved, or a court sanctions a restructuring plan or a scheme of arrangement.
73
Unfair prejudice claim will be brought against (___)
Company
[must be against Co]
-----------------------------------
Not directors
73
What companies need to obtain OR by SHs for
-loans
-guarantees and securities
to directors?
ALL companies
74
What companies need to obtain OR by SHs for LOANS to CONNECTED PERSONS to the directors?
OR only for:
- Public companies
and
- Companies associated with Public companies [plc or ltd as long as connected]
75
What companies need to obtain OR by SHs for
- quasi-loans
- credit transactions
to directors and to their connected persons?
OR required only for:
- Public companies
and
- Companies associated with Public companies
76
When does exception to limited liability for partners/members of LLP apply?
Where business carried on for 6 months after LLP is down to 1 member left.
This sole member is jointly and severally liable for debts incurred after 6 months 'grace period'.
77
LLP incorporation
Advantages & incorporation files :
Advantages:
- flexible management
- requires only 2 designated partners
- minimum set-up costs and formalities
- limited liability
- separate legal entity
Disadvantages:
- tax transparency (individual liability of members)
- must file annual accounts
- no partner is entitled to remuneration (exception: 'salaried member')
- cannot provide floating charge
incorporation files:
- incorporated at Companies House
- 2 designated partners
- Form LL IN01
- PSC (more than 25%)
Incorporated when:
- certificate of incorporation is issued
78
For LLPs, a member will cease to be a member upon;
- Their death
- Agreement with other members of LLP
- Giving notice to the other members of LLP
- Dissolution
79
Prohibition of financial assistance is imposed upon (___)
Target company
[and their subsidiaries if Plc]
--> NOT on the buyer!
80
What forms should be filed at Companies House for appointment AND resignation of directors and company secretary (legal representatives) ?
Directors;
o appointment of directors Form AP01 and
o resignation TM01
Secretary
o company secretary Form AP03]
o resignation TM02
(by legal representatives) – filed at Companies House
81
What documents will the company need to complete/register at Companies House if new subsidiary from scratch will be incorporated?
- Form IN01
- AoA (only if MA is not adapted)
- memorandum
(Fee to be paid too.)
82
Convenience:
Shelf company or incorporation?
- Shelf company has already been incorporated so ready to trade. Time wise it is convenient. But it requires more adaptation process and therefore more work on the firm’s side.
- Filing at Companies house from scratch: less filings. Takes more time. Legal entity doesn’t exist yet. Less costs as you don’t need legal representatives to file all these docs.
83
What resolutions will be passed if company is formed as shelf company?
1- company name (GM - SR)
2- Appointment of Directors (BM - BR)
3- Resignation of Ds (BM - BR)
4- Appointment company secretary (BM - BR)
5- Resignation of CO' secretary (BM - BR)
6- Registered office (BM - BR)
7- Transfer of shares (BM - BR)
8- Appointment of shares (BM - BR)
9- Amendment of AoA (GM - SR)
84
SHORT NOTICE PERIOD
TO CONVENE GM
It is a two-stage test:
- majority of shareholders (eg. 4 shareholders at least 3 must agree)
- 90% of shareholdings in nominal value (90% at least)
[Can be upgraded to 95% via provision in articles]
WR is faster bcs short notice only shortens by 1 day...
85
Individual's total chargeable gain
Net sale proceeds
(NSP= [sale proceeds] - [disposal expenditure])
LESS
Initial expenditure
LESS
Subsequent expenditure
LESS
Annual exemption
Then
Apply ratios
86
Individual's taxable chargeable gain
Total chargeable gains
LESS
Annual exemption
87
When does a charge need to be registered?
Within 21 days starting the day after the day of creation of the charge.
Register at Companies House.
88
CSQ of failure to register a charge?
- charge is void
- against liquidator/administrator/creditor
- charge immediately payable
89
A private limited company has been put into insolvent liquidation.
At the time of the liquidation, the company had a number of unsecured creditors and 3 employees who are owed £1000 each in respect of wages for work carried out in the two months prior to the liquidation.
From where could the employees recover the wages they are owed?
From funds for the preferential and unsecured creditors incorporating the 'prescribed part fund'.
90
Against who a TUV will be claimed relating to gift/sale at undervalue of a company asset to Director's Connected Person?
CP
Against the Connected Person
[person received the asset]
91
When would an appointment of a fixed charge receiver be convenient?
Easier, faster option for fixed charge holder.
Appropriate when Co has assets and able to realise the value of the assets subject to fixed charge which are sufficient to discgarge liabilities.
Only realises for that fixed charged holder.
92
Effect of the loan and use of these funds to buy new capital assets
EFFECT ON BALANCE SHEET
TAKING THE LOAN
1- increase of non-current liabilities
2- increase of cash
USING THE LOAN
1- increase of non-current assets
2- reduce cash
93
How are accruals recorded in a company’s accounts?
1- Balance Sheet: increase current liabilities
2- Profit and Loss Statement: reduces net profit
94
How are prepayments recorded in a company’s accounts?
1- Balance Sheet: increase current assets
2- Profit and Loss Statement: reduces expenses
95
statutory order of priority for liquidation
1) liquidator's fees & expenses
2) fixed charge creditors (proceeds of sale of charged fixed asset)
3) Liquidator's remuneration, costs and expenses
4) preferential creditors (1st tier - employees' wages/ 2nd tier - HMRC, Crown debts)
5) prescribed part fund (for unsecured creditors & secured creditor with floating charge also for the remaining debt- if available)
6) floating charge creditors (including payment of prescrubed part fund)
7) unsecured creditor (including prescribed part fund & remaining part of fixed charge creditors which doesn't have floating charge)
8) interest owed to unsecured creditor
9) SHs
96
What is the difference between secured and unsecured creditors in insolvency?
Secured: security over specific assets. Paid first.
Unsecured: Have no security over the debtor’s assets. Paid last after secured creditors, preferential creditors, and prescribed parts.
97
Dividends are recorded in (____)
BALANCE SHEET (bottom half)
Under statement of changes in equity ('SoCiE')
also records equity (shares, share premium account)
98
CAPITAL RESERVES
BALANCE SHEET
- share premium account
- shares
- revaluation reserve
-capital redemption reserve
99
NET BOOK VALUE
= estimate of the current value of the business assets. Fixed assets.
[Costs] LESS [Accumulated depreciation]
100
Halves of the balance sheet
- Net asset Value
(fixed asset + net current assets - long term liabilities)
- Capital (bottom)
101
Unfair prejudice
GROUNDS
the shareholder sues for themselves.
Member applies to the court by petition for an order on the ground:
* company’s affairs are being/have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of the members (at least that shareholder), or
* that an actual or proposed act/omission of the company (including Co’s own behalf) is or would be so prejudicial.
102
Unfairly prejudicial conduct: negligent or inept management of a company
will not amount to UP conduct unless that conduct amounts to serious and/or repeated mismanagement which puts at risk the value of the minority shareholders’ interest
103
Unfairly prejudicial conduct: disagreements as to company policy
NOT sufficient to bring a claim
104
VALUATION: unfair prejudice - purchase of shares
Valuation date is that on which the court order was made in respect of the sale of the shares.
-> the behaviour of the petitioner may be relevant
105
do private ltd need to have a fixed nominal value?
YES
o Shares in a limited company having a share capital must have a fixed nominal value.
o Any allotment of a share that does not have a fixed nominal value is void.
106
When are shares told to be 'allotted'?
allotted when a person acquires the unconditional right to be included in the company’s register of the members in respect of those shares.
107
Cumulative preference shares
= if a dividend is not declared for a particular year, the right to the preferred amount on the share is carried forward and will be paid, together with other dividends due, when there are available profits.
It is presumed that a preference share is ‘cumulative’ unless otherwise stated.
107
Participating preference shares
shareholders may participate, together with the holders of ordinary shares,
(1) in surplus profits available for distribution after they have received their own fixed preferred dividend; and/or
(2) in surplus assets of the company on a winding up.
108
‘fixed rate participating cumulative preference shares’
participating preference shares are issued with a fixed dividend and can be cumulative if stated as such in the articles of association.
109
If the holder of preference shares has no right to any other payment other than preference amount, they are (___)
NOT participating
110
SH acquires full legal title to new shares that the company has issued to the SH when (___)
their name is entered in the company’s register of members.
111
Prospectus must contain:
all the information necessary to enable investors to:
- make an informed assessment of the financial status of the company; and
- be informed of the rights attaching to the shares
112
Who can refuse to register a new SH, and how?
DIRECTOR’s power to refuse to register –
D may refuse to register a transfer of share, and if they do so, the instrument of transfer must be returned to the transferee with notice of refusal unless there are suspicious of fraudulent transfer. A company must give reasons for its refusal.
113
Legal and equitable ownership of alloted shares passes when:
o Beneficial title passes on the execution of the stock transfer form.
o Legal title passes on the registration of the member as the new owner of the shares in the register of members.
o The company will also send the new SH a new share certificate in their name within 2 months.
114
STAMP DUTY
FOR ALLOTMENT OF SHARES
o stock transfer form must be stamped before the new owner can be registered as the holder.
o Stamp duty is payable by the buyer and is currently payable at 0.5% of the consideration rounded up to the nearest £5.
o No stamp duty is payable where consideration is £1000 or less; but where the consideration is more than £1k, a min fee of £5 is payable.
115
ranking pari passu
means equally carrying uncapped right to participate
116
Will NOT be equity securities, if:
- shares capped as to dividend
AND
- shares capped as to capital
117
Resolution for alloting new class of shares
SPECIAL RESOLUTION
118
Maintenance of Share Capital
Company cannot release the sums represented in the equity account and the share premium account to return value to SHs.
- Dividends may only be paid out of distributable profits, not capital
- Companies generally must not purchase their own shares
[exceptions: buyback and redeemable of shares from existing SH]
119
Funding for buyback of shares
- distributable profits,
- proceeds of a fresh issue of shares made for the purpose to finance the buyback, or
- capital.
120
Buyback from capital , when is it possible?
- option to use capital is only available to PRIVATE CO
- Companies must first use any money available either in the form of distributable profits or the proceeds of a fresh issue of shares to fund the purchase BEFORE using capital.
- Any redemption or purchase out of capital must comply with the restrictions
121
Buyback out of profits/proceeds of a fresh issue
PRE-CONDITIONS
1- The purchase of own shares is not restricted or prohibited in the company’s Articles
2- The shares being purchased by the company are fully paid up
3- AFTER the purchase, the company must continue to have issued shares other than redeemable and treasury shares.
ALSO
- A CONTRACT to purchase own shares is required: terms must be approved by OR.
- Contract must be available for inspection at registered office for 15 days before GM.
122
Buyback out of profits/proceeds of a fresh issue
PROCEDURE
Initial steps:
1) Check there is no limit in Articles on s 690 power to buyback shares
2) Prepare accounts to check there are sufficient distributable profits
3) Confirm shares are fully paid
Board Meeting
4) BR to approve the draft contract
5) BR to call a GM and approve form of notice / propose a WR
6) Contract to be made available to shareholders:
- If GM: contract must be available for inspection at the company’s registered office for at least 15 days prior to and at GM
- If WR: circulate contract with WR
GM / WR
7) Shareholders pass OR to approve contract.
8) Holders of shares being bought are not eligible to vote.
Board Meeting
9) BR to enter into the contract
10) BR to appoint a director(s) to sign the contract
Post meeting matters
11) File return, notice of cancellation & statement of capital within 28 days
12) Keep copy of contract for 10 years
13) Cancel shares, update register of members (and PSC register if applicable)
123
Buyback out of profits/proceeds of a fresh issue
DOCS TO FILE
- at Companies House: file return, notice of cancellation of shares, and statement of capital within 28 DAYS
- keep a copy of the contract for 10 years
- cancel shares, update register of members and PSC registers (if necessary)
124
Buyback of shares out of capital (Private companies ONLY)
[PRE]+CONDITIONS
1- The purchase of own shares is not restricted or prohibited in the company’s Articles
2- The shares being purchased by the company are fully paid up
3- AFTER the purchase, the company must continue to have issued shares other than redeemable and treasury shares.
4- NO distributable prifits available.
5- directors’ statement of solvency must be prepared together with an auditors’ report
6- Co* accounts were prepared MAX than 3 months before the directors’ statement
7- within 1 week of directors signing the statement SR will be passed.
125
Buyback of shares SH resolutions:
1- out of distributable profits/proceeds of issue= OR to approve contract
(15 days notice applies)
2- out of capital = SR
within a week after the directors sign the written statement of solvency
126
Buyback out of capital – notification requirements
Within 7days of the passing of the special resolution approving the payment out of capital, the company must give notice to its creditors by:
1- Publishing a notice in the Gazette.
2- Publishing a notice in the same form as the Gazette notice in an appropriate national newspaper, or give notice in writing to each of its creditors.
3- Filing copies of the directors’ statement and auditors’ report at Companies House
Creditors can, within the 5 weeks immediately following the date of the resolution, apply to the court to prevent payment.
127
Buyback out of capital – timing
The share purchase can take place no earlier than 5 weeks, and no later than 7 weeks, after the date of the special resolution.
After the purchase:
Within 28 days of the date on which the shares that are bought back are delivered to the company,
- the company must send a return to Companies House AND
- a notice of cancellation under , together with a statement of capital
128
Buyback out of capital resume of procedure:
1- check AoA for any prohibition on buyback AND
verify inexistence of distributable profits
AND shares are fully paid up
AND other shares available
2- terms of buyback must be set out in the contract (15 day display/send out in WR)
3- DSS and AR accounts (<3 months old)
(DSS made no earlier than 1 week before GM)
4- SHs approve the contract by OR
(GM - s*r* must be passed within 1 week after D's signature)
5- SH approve the payment out of capital by SR (within 1 week of DSS)
6- Detailed notification requirement for creditors (London Gazette etc gives 5 weeks for creditors to act against) within 7 days of SR.
7- File SR within 15 days of SR at Companies House.
7- Purchase of shares (min 5 max 7 weeks of the SR)
8- Within 28 days of the date of purchase, filings at Companies House + statement of capital
ALSO keep copy of contract for 10 years. Cancel shares, update registers and PSC.
129
Should there be a contract to buy back redeemable shares?
NO
Rights already in AoA.
130
To overturn a board decision, the SHs must pass (____)
SR
131
SH's informal decision making
Duomatic principle
Informal resolutions agreed by all SHs outside of a formal GM will be valid and binding.
To apply, there must be an unqualified agreement of ALL SHs, express or implied, verbal or by conduct.
132
Any provision in the AoA restricting/prohibiting SHs right to remove a Director by passing an OR would be (__)
VOID
133
Deductible Expenditure CONDITIONS for income receipt
o Wholly and exclusively incurred for business purposes.
o Not prohibited by statute (e.g., no deductions for business entertainment).
o Of an income nature (ie. recurring, e.g., rent, wages, repairs, trading, interest, dividend).
134
Interest payments are deductible expenditure for companies IF:
o Deductible if related to business loans.
o Where a company has net interest expense over £2 million in the UK, the amount of interest it may deduct is restricted 30% of its income receipts. = CIR
135
Capital allowance from income recipts for corporate tax:
(P&M, long life assets, research and development expenditure, and certain costs of construction and renovation of commercial buildings)
Main Rate Allowance:
* Deducts 18% annually on a reducing balance basis for plant and machinery (P&M), with the remaining value. Known as Tax Written Down Value (TWDV) of P&M.
Annual Investment Allowance (AIA):
* 100% deduction on qualifying P&M (new, used or refurbished) expenditure up to £1 million.
* Excess over £1 million qualifies for the standard 18% allowance.
136
Full expensing for companies income receipts deduction
* 100% deduction on new [and unused] P&M, with no cap, in the year the expense is incurred. – claim must be made in the year it’s bought
* Apr 2023- March2026
137
Chargeable gains calculation: corporate
* Sale proceeds arising from disposal of capital asset LESS
* allowable expenditure LESS
* Indexation Allowances LESS
* capital/trading losses
= Chargeable Gain
138
Substantial Shareholding Exemption [SSE]
Corporate chargeable gains
Full exemption on chargeable gains from share sales if holding is 10% or more of ordinary share capital more for at least 12 months in the last 6 years of the company whose shares are disposed of.
139
close companies' tax will be due
nine months and one day after the end of the accounting period.
140
Close companies tax effect for loans are caught except in 3 circumstances.
These are:
1. A loan provided for goods/services, repaid within six months.
2. A loan made in the ordinary course of business, including money lending.
3. Small loans:
Total loans under £15,000 if the borrower works full-time for the company and lacks a “material interest” (more than 5% ownership).
141
Corporation tax due:
o Companies with TTP ≤£1,500,000: nine months and one day
[submission within 12 months]
o Companies with TTP > £1,500,000: four instalments
142
bad debts on business accounts
bad debts expense account in the trial balance
shown as an expense in P&L
143
GR = assets, liability and capital entries from the trial balance are transferred into [___]
balance sheet
144
financial year corporate
1 april - 31 march
145
Examples of non-deductible expenses
corporate income receipts
- improvement to offices (capital expenditure)
- purchase of new machinery (capital expenditure)
- interim dividend (bcs paid after tax)
146
Examples of deductible expenses
corporate income receipts
- wages, salaries
- heating
- trade expenses
- advertising costs
- interests to bank for business loans
- capital allowances
147
Business account effect:
DISPOSAL OF FREEHOLD PREMISES
balance sheet (bcs capital)
o fixed asset will decrease (building is a fixed asset) by the sale proceeds
o current asset will increase (because the cash comes in which is a current asset)
o both changes refer to the top part of the balance sheet
148
Bottom half of balance sheet
equity
and declared dividends
149
Business account effect: Depreciation
1- expense on P&L account
2- retained earnings will decrease balance sheet
3- total capital will be decreased in the bottom half in balance sheet
150
Business account effect: Issuance of shares at a premium
balance sheet
* share premium account will be created, which is a capital reserve. And increased.
* bottom halve – capital reserve will increase
* share capital increases
* current assets increase (cash) – top halve increases
151
Balance sheet halves
TOP HALF = NAV meaning net worth or net asset value (value less liabilities) – fixed assets are on the top + debtors/receivables
BOTTOM HALF = capital invested to achieve this net worth – capital at the start. Liabilities and total equity.
Both halves will always balance.
152
Loan on balance sheet
- current assets (cash) increases in balance sheet to the amount of the loan – top halve
- liability increases in balance sheet, this is a fixed/non-current liability (depending on the term until maturity) – top halve
153
Doubtful debts on business accounts
- P&L: expense
- balance sheet: liability
154
PARTNERSHIP ACCOUNTS
Each partner has two accounts:
1- capital account: investment of the partner, long-term capital. Cannot be withdrawn.
2- current account: can be withdrawn at P's decision. Ongoing business profits.
155
Notional salaries
PARTNERSHIP ACCOUNTS
- treated as appropriation of benefit (not an expense); and
- treated as drawings
156
Gearing - loan
- if company takes out a loan, gearing increases.
- EPS depends on the csq of use of the loan:
* increases if profit> loan debts
* decreases if profit < debt
157
DEBENTURE
(security doc)
The debenture is a separate document from the loan agreement.
- loan agreement sets out the terms of the loan, and
- debenture sets out the details of the security.
The debenture is sent to Companies House for registration purposes.
158
Fixed charges creditors
Creditor can control what the security provider can do with the fixed charge assets.
If the charge becomes enforceable, the creditor will have the ability to appoint a receiver of that asset or to exercise a power of sale of the asset.
More favourable to lender as it gives stability on the asset and gives control, on the fixed asset secured.
159
When taking a loan (for working capital purposes), the bank takes a debenture over the company’s assets and a personal guarantee from the company’s managing director.
Documentation that needs to be sent are:
- Form MR01
- certified copy of the debenture
- and the relevant fee
160
REGISTRATION OF CHARGE/LOAN
Company needs to register the charge within 21 days (starts running on the day after the day making the loan).
Co obtains certificate of registration by the Registrar.
Must keep all records of the charge (at the registered office, or any other place but must inform Registrar).
– if not registered, charge is void and debts become immediately payable.
DOCS TO FILE:
- Form MR01
- certified copy of the charge
- fee
The loan agreement will contain commercially sensitive information so will not be registered at Companies House. (Neither as personal guarantee of directors, also sensitive)
161
A property transacted is not a substantial property if:
* An asset worth £5,000 or less is not a substantial asset.
* An asset worth more than £100,000 is a substantial asset.
* An asset worth more than £5,000, but not more than £100,000 is a substantial asset only if it is worth more than 10% of the company’s net asset value.
162
Substantial property transactions will require OR if entered with Ds or connected persons with D.
WHO ARE CONNECTED PERSONS IN SPT?
1. Members of the director's family: spouse or civil partner, parents, children or step-children (s 253(2)). BUT brothers, sisters, grandparents, grandchildren, uncles and aunts are NOT connected persons under CA 2006.
2. Companies in which the director (and others connected with them) hold 20% or more of the shares.
3. A business partner of the director or those connected with them.
4. Trustees of a trust the beneficiaries of which include the director or those connected with them.
163
SUBSTANTIAL PROPERTY TRANSACTION IS VOIDABLE, UNLESS:
(a) restitution is no longer possible,
(b) the company has been indemnified for the loss or damage suffered by it, or
(c) rights acquired in good faith by third party would be affected by the avoidance.
D involved is liable to account to the company for any profits made and to indemnify the company for any loss incurred.
Transaction can be affirmed.
164
IF it is a private company NOT associated with a PLC, only transactions which SHs approval is required:
- for all loans, guarantees & securities you would need SHs approval for all companies
- for loans to CP: only approval for PLCs and Co associated to PLC
- for quasi loans and credit transactions: approval needed for PLCs and co associated with PLC
Companies are associated if one is a subsidiary of the other or both are subsidiaries of the same body corporate. [more than 50% of its voting rights or controls its board of directors]
165
quasi-loans
company pays off an outstanding account owed by a director to a 3rd party on the understanding that the director (D) would later reimburse the company
166
credit transactions
includes any transaction entered into between the company and the D where the company provides goods or services on a credit basis which will be paid for at a later date.
Only the company and the D will be parties to this agreement
167
Exceptions to the requirement for SHs approval:
FOR PLC AND CO ASSOCIATED WITH PLC
* Expenditure on company business (max £50k)
* loans for defending proceedings brought against a D
* Loans for defending regulatory actions or investigations
* Minor business transaction – loans or quasi-loans max £10k and credit transactions max £15k
* intra-group transactions [ALL]
* money lending companies (if made in the ordinary course of the business of the company) [ALL]
168
DEFENCES FOR TRANSACTIONS WITH DIRECTORS
(or their CP)
1- D took all reasonable steps to ensure the company complied with sections.
2- no knowledge of the circumstances constituting the contravention
169
pre-insolvency moratorium Confers a statutory repayment holidays allowing the Co not to pay pre-moratorium debts (incurred before the moratorium)
BUT it does not allow such relief for the following debts:
- monitor’s remuneration or expenses
- goods & services supplied during moratorium
- rent in respect of a period during the moratorium
- wages & salary or redundancy payments of employees
- loans under a contract involving financial services
- Moratorium debts should still be paid.
170
Restructuring plan
KEY RULES
* can be initiated by the company, creditors, a member, liquidator or administrated
* must be sanctioned by the court
* requires approval of 75% in value of EACH affected class of creditors/SHs
* binds all creditors
* binds all creditors including dissenting creditors and potentially classes of creditors who did not approve the plan
* court can approve the plan even if one or more classes don’t.
* requires court sanction so the process might be time consuming and be more costly
171
Creditors can challenge a CVA within (____) days of the CVA’s approval being reported to the court by the nominee on the grounds of unfair prejudice.
within 28 days!
CVA becomes binding for all unsecured creditors at the end of the 28 day challenge period.
172
CVA is approved if
1. 75% in value of the debts owed of those voting vote in favour
but withou more than ½ unconnected creditors.
2. a simple majority of SHs must vote in favour
173
Who does restructuring plan bind?
Who initiates?
BINDS: all creditors {secured, unsecured} and SHs
Initiated by: member, creditor, liquidator, administrator
174
What resolutions to pass for CVL and MVL?
When does the winding up commence?
SR - approve CVL
OR - appoint a liquidator
STARTS
for MVL - starts when SR is passed
for CVL - starts after SR passed and (within 14 days) appointment is confirmed
