Business Flashcards
(229 cards)
1
Q
What are the four main business organisations?
A
- Sole Proprietorship
- Partnership
Incorporated Entities
3. LLPs
4. Companies (Private & Public)
Includes sole trade, limited liability partnerships, and various types of companies.
2
Q
What is a sole proprietorship?
Also known as sole trader.
A
• Complete control
• Entirely personally liable
• Can grant fixed charges only
The owner is the business and holds full responsibility for liabilities.
3
Q
What is a Limited Liability Partnership?
A
Must have at least two designated members
• Incorporated separate legal entity
• Disclosure requirements (companies house)
• Can grant floating and fixed charges
Limited Liability Partnerships are less recongised internationally
4
Q
What does ‘limited’ denote in a company context?
A
Members are not personally liable for company debts beyond their investment.
5
Q
What happens if a limited company becomes insolvent?
A
Members’ liability is limited
to any unpaid amount on their shares or sum they have guaranteed.
This protects personal assets from business debts.
6
Q
True or False: A private company can offer its shares to the public.
A
False
7
Q
What are some factors influencing the choice of business organisation?
A
• Ease of setting up the business
• Level of formality and regulation (privacy/ standing internationally)
• Whether liability is limited (not required if low liabilities)
8
Q
What is the practical effect of a company being a separate legal entity?
A
• A company can enter into a contract in its own right and sue and be sued.
• A company owns its assets and is responsible for its debts and liabilities.
This establishes the company as its own legal personality.
9
Q
Partnership
- no registration no requirement for a written agreement
**Partnership Agreement advised
A
• All partners are entitled to take part in the management of the business
• Income profits will be shared equally, irrespective of partner capital contribution
• Capital distribution in proportion to capital contribution.
10
Q
Partnership (without PA)
what decisions require agreement by all partners?
A
• make changes to the nature of the business
• introduce a new partner
• expel a partner
Where a partnership agreement is in effect, all partners need to agree to change it.
11
Q
Partnership Act
Key default rules - can be excluded by PA
A
• (s24) all partners are entitled to take part in the management of business
• (s25) no majority may expel a partner - even a rogue partner
• (s26) a partner can retire at anytime giving notice of his intention
12
Q
Partnership Act
provisions to protect third parties can not be excluded by partnership agreement.
A
• (s5) acts of partners for the purpose of the business bind the partnership
• (s9) every partner is jointly and severally liable third-party can peruse one partner for entirety of debt.
• (s14) holding out (suggestion still a partner, third-party relied upon and a credit agreed) after retirement may still be liable
• (s17) a new partner is not liable for existing debts
• (s36) a retiring partner must give notice to 3rd parties of their leaving
13
Q
What is the implication of joint liability in a partnership?
A
Every partner is jointly and severely liable, and a third party can pursue one partner for the entirety of the debt.
14
Q
What happens if a partner holds out as a partner after retirement?
A
They may still be liable if third parties relied upon them as a partner and gave credit on this basis.
15
Q
Is a new partner liable for debts incurred by the partnership prior to joining?
A
A new partner is not liable for debts incurred by the partnership prior to their existence.
16
Q
What must a retiring partner do regarding existing debts?
A
A retiring partner is not released from existing debt unless they serve notice.
• informed them directly, e.g. send out standard letters
• Novation agreement with creditors
• deed of release with creditors
• indemnity from Continuing partners
17
Q
What are the two types of release from liability for a retiring partner?
A
Actual release (from past debt) and constructive release (from future debt)
18
Q
What is an example of an actual release from liability for a retiring partner?
A
• Novation agreement with creditors
• Deed of release with creditors.
• Indemnity from continuing partners
19
Q
What is an example of constructive release (from future debts) from liability?
A
Placing an advertisement in the London Gazette.
20
Q
What can cause a partnership to immediately dissolve?
A
• Death
• Bankruptcy
• Notice
• Retirement
• Expulsion of a rogue partner
Subject to partnership agreement, these events lead to immediate dissolution.
21
Q
Under what circumstances can retirement and expulsion of a rogue partner occur in a partnership?
A
Only if the partnership agreement allows
22
Q
True or False: A rouger partner can be expelled from a partnership by a majority vote.
A
False
A rouger partner cannot be expelled even by a majority unless specified in partnership agreement
23
Q
What fiduciary duties do partners owe to each other?
A
Partners owe each other fiduciary duties and a duty of utmost good faith, including:
* To promote the success of the firm
* To avoid conflicts of interest and not compete with the partnership business without consent
* To provide true accounts and pay over any profits made in a competing business
* To disclose any information that could adversely affect the partnership
Fiduciary duties are obligations to act in the best interest of the partnership.
24
Q
What are partners required to do regarding profits from competing businesses?
A
Partners are required to provide true accounts and pay over to the partnership any profits made in a competing business
This ensures fairness and accountability among partners.
25
What information must partners disclose to one another?
Partners must disclose any information that could adversely affect the partnership
## Footnote
Transparency is essential for informed decision-making within the partnership.
26
What does the agency principle imply for partners in a firm?
Each partner is an agent of the firm and of their fellow partners, and may bind the firm and fellow partners by their actions.
## Footnote
This principle means that actions taken by one partner can affect all partners.
27
What determines if a partner had actual authority in a transaction?
It will be a question of fact based on previous dealings and the conduct of the partnership.
## Footnote
Actual authority can vary depending on the specific circumstances of each case.
28
What is the liability of a partner who leaves a firm?
Remains liable for existing debts and must provide notice of their departure to avoid liability for any debt incurred after their departure.
## Footnote
This is crucial to limit future obligations.
29
What can happen if a person pretends to be a partner in a firm?
They will be personally liable for the liabilities arising under contracts entered into as a result.
## Footnote
This includes any debts incurred during the period of misrepresentation.
30
How can a departing partner avoid liability for future debts?
By giving constructive notice to potential creditors.
## Footnote
Constructive notice involves informing creditors of the partner's departure to limit exposure.
31
What is the main constitutional document of a company?
A company's articles of association
A company may choose to:
• use unamended Model Articles
• amend the Model Articles
• draft bespoke articles
32
How can a company amend its articles at a later date?
A company can amend its articles of association later by passing a special resolution, which requires the consent of at least 75% of its members.
33
What is required to incorporate a company?
Completing and filing various documents and forms (IN01) with Companies House
IN01
* shareholders
* directors
* company secretary (if any)
* registered office
* name of the company
* number of shares, their type, and nominal value
34
What document is issued once a company is registered?
A certificate of incorporation
35
What details are included in the certificate of incorporation?
Full details of:
• the company’s full name
• the company’s unique registration number
• the date of incorporation
• the Registrar’s seal
36
Fill in the blank: A company may choose to draft _____ articles.
[bespoke]
37
What is a Private Limited Company?
• A type of business entity that limits the liability of its shareholders
• companies have their own legal personality separate from their owners (members) and directors
38
What governs decision making in a Private Limited Company?
The Articles of Association and the Companies Act 2006
39
What are the two types of Articles of Association?
Model Articles and Bespoke Articles
40
What is a Board Resolution?
A decision made by the Board of Directors
- made in board meeting at reasonable notice by any director
• changing accounting
• changing the registered office
• calling general meeting
Each director has one vote each when tied, chair has casting vote.
41
What is the threshold for a Special Resolution?
**75% or more** of the votes cast show of hands is the default position
Polls vote (where each shareholder's vote is determined by the number of shares they own) can be demanded by
• the chair
• at least two voting members
• any member(s) holding at least 10% of the voting shares
42
What can be changed through a Special Resolution?
* Changing company name
* Amending articles
43
How is a Shareholders' decision made?
By a General Meeting 14 days notice required
- or can be held at short notice if majority of shareholders 90% of voting shares agree
44
What is the default voting method in a General Meeting?
Show of hands is the default position
Polls vote (where each shareholder's vote is determined by the number of shares they own) can be demanded by
• the chair
• at least two voting members
• any member(s) holding at least 10% of the voting shares
45
What percentage of shareholders is needed to appoint a director by Ordinary Resolution?
**More than 50%** of the votes cast show of hands is the default position
Polls vote (where each shareholder's vote is determined by the number of shares they own) can be demanded by
• the chair
• at least two voting members
• any member(s) holding at least 10% of the voting shares
46
What resolutions must be filed at Companies House?
* All Special Resolutions
* Ordinary Resolutions that change company constitution
47
What is the role of the Chairperson during voting?
To count votes and ensure proper procedure
cast the the deciding vote of there is a deadlock
48
Fill in the blank: A decision to amend the Articles must be made by a _______.
Special Resolution
49
True or False: A majority of shareholders can remove a director.
True
By ordinary resolution (more than 50%)
• special notice required 28 days
• Check service contract
• Check shareholders agreement
50
What is a close company?
A company where all shares are owned by its directors.
51
What is a **non-director** shareholder's obligation regarding disclosing interest in a transaction?
They do not have to declare their interest.
52
What is the requirement for shareholders to approve company borrowing under model articles
No requirement for shareholders to approve company borrowing
53
Key rights of shareholders
• (s21) keep tabs on directors
• (s168) removal of director (by ordinary resolution)
• (s188) director service contracts (by OR)
• (s190) substantial property transaction (by OR)
• (s197) loans to directors exceeding £10,000 (by OR)
54
What is the purpose of an effective Bushell 'Faith Clause'?
To give shareholder-directors weighted voting rights on a resolution to remove them.
One vote as a director and one whole vote as a shareholder voting with two hats in increasing rights
55
What is a remedy for minority shareholders facing unfairly prejudicial conduct?
The companies affairs have been, or are proposed to be conducted in a way that is both prejudicial and unfair to them.
Petition for unfairly prejudicial conduct - Personal Remedy
• the usual remedy for unfair prejudice is the shareholders shares to be purchased at a reasonable price.
56
What does a derivative action involve?
• If there’s been a breach of directors duties
• If there’s been negligence breach of trust by directors
*as long as act/omission hasn’t been ratified by Shareholders
Claimant is the company
A derivative claim is made on behalf of the company by minority shareholders to enforce liability for a breach by one of the directors of their duties to the company.
A successful claim will cause the dissolution of the company
57
What must occur for a derivative action to be valid?
There must be a breach of directors' duties
58
What types of breaches can lead to a derivative action?
* Negligence
* Breach of trust by directors
59
What is the minimum number of directors required for a private company?
At least one director
60
What is the minimum number of directors required for a public company?
At least two directors
61
What events can lead to the termination of a director's appointment?
Resignation, retirement, or death
62
How can directors be removed from office?
By relying on the power in the company's articles or following the Companies Act ss 168 and 169 (by shareholder resolution)
63
True or False: The court can disqualify a person from acting as a director.
True
For a director of an insolvent company, the courts may consider of various factors determine whether the director is unfit.
There are serious criminal and personal liabilities for a person who acts in contravention of a disqualification order made against them
64
Fill in the blank: Every private company must have at least _______ director.
[one]
65
Fill in the blank: A director may resign, retire, or _______ which will terminate their appointment.
[die]
66
What are the statutory duties that a director owes to the company?
Directors owe several statutory duties to the company.
• (S170) - owes duties to the company
• (s171) - to act within powers (companies article/model articles) and exercise their powers in the best interest of the company
• (s172) - to promote the success of their company (subjective test)
• (s173) - exercise independence
• (s174) - exercise skill and diligence (reasonable diligent person)
• (s175) - avoid conflict of interest
• (s177) declare interest in any company dealings
67
Can a breach of the duty to avoid conflicts of interest be authorised by directors?
Yes, a breach can be authorise by directors if the interested party declares their interest before the transaction, decided by a **Board Resolution** the interested party vote will not count
68
What can shareholders do if a director breaches their duty?
Shareholders may ratify a director's negligence or breach of duty by passing an ordinary resolution.
69
What happens if shareholder approval is not given for a transaction?
The transaction can be rescinded, and the director may be liable for breach of duties.
70
What must a director do if found liable for breach of duty?
The director may be made to account to the company for any losses sustained.
71
What is the threshold for substantial property transactions and requires shareholders’ approval?
A property transaction is substantial if
it exceeds £100,000.
is between £5,000 - £100,000 **AND** exceeds 10% of company’s net assets
72
What is the threshold for non-substantial property transactions?
Transactions of £5,000 or less are not substantial.
73
What do directors owe duties to?
The company itself
## Footnote
This is outlined in section s170.
74
According to the Companies Act, what documents define the powers of directors?
Articles of Association or Model Articles
## Footnote
This is referenced in section s171.
75
What should directors consider to promote the success of the company?
Should consider (subjective test)
• the likely long-term consequence
• employees interests
• the need to foster a good business
• impact on the community and environment
• the desirability of maintaining a reputation for high standards of business conduct
• the need to act fairly between members
76
What must directors do to avoid conflicts of interest?
Declare interest before any transaction in any company dealings
## Footnote
This is specified in section s177.
77
When must directors declare their interests in company dealings?
Before any transaction
## Footnote
This ensures transparency and accountability.
78
What must directors exercise according to S173?
Independence - they make take independent financial advice
## Footnote
They should not act as puppets to others.
79
What standard of skill and diligence must directors exercise according to S174?
Reasonably diligent person standard
## Footnote
This sets a benchmark for performance.
80
True or False: A private company may authorize a breach by a director if the interested parties vote will not count.
True
81
When can a director be excluded from a vote?
If a director has a personal interest, they are unable to vote.
## Footnote
A director should not have a personal interest in the decision
82
How are decisions generally made by directors?
At board meetings (by simply majority) or by all directors signing written resolutions (by requiring unanimity)
83
What happens in the case of a deadlock during a board meeting?
The chairperson decides
## Footnote
A deadlock occurs when there is an equal number of votes for and against.
84
How do shareholders make decisions in a company?
By passing resolutions (OR & SR) at general meetings
or through written resolutions (one vote per share)
## Footnote
Each shareholder has one vote per share.
85
What are the two principal forms of shareholder resolutions?
Ordinary and special resolutions
## Footnote
Ordinary requires more than 50% agreement, while special requires at least 75%.
86
What is the requirement for passing a special resolution?
Approval of not less than 75% of the shareholders
## Footnote
A name change and change of articles are examples of a special resolutions.
87
What is the minimum notice period for a general meeting?
At least 14 clear days
## Footnote
Can be called at short notice with 90% of voting shares
88
What must be kept for 10 years?
Minutes of board meetings
Purchase contract of shares
## Footnote
This refers to the requirement for maintaining records of board meetings.
89
What is required for a quorum in board meetings?
At least 2 directors
## Footnote
This is unless the Memorandum and Articles (MA) have been amended.
90
Who can call a board meeting?
Any director with reasonable notice
## Footnote
Directors have the authority to convene board meetings under certain conditions.
91
What is the voting requirement for a simple majority for decisions at board meetings?
50% or more
## Footnote
This is the basic threshold for passing board resolutions.
92
What is the voting requirement for a special resolution (SR)?
75% or more
## Footnote
Special resolutions require a higher percentage of votes for approval.
93
What is the voting requirement for an ordinary resolution (OR)?
More than 50%
## Footnote
Ordinary resolutions require a simple majority for approval.
94
Members owning at least 5% of share capital can requisition directors to call a board meeting.
Directors have 21 days to do so
## Footnote
This gives minority shareholders a voice in governance.
95
What is the notice period for calling a general meeting?
14 days clear notice
## Footnote
This is the standard notice period unless short notice is agreed upon, which can be done with agreement of 90% of boring shares.
96
What is required for a board resolution to be passed in writing?
Must be unanimous
## Footnote
Written resolutions require agreement from all directors.
97
What is required for voting in a board meeting?
A simple majority 50% or more - if deadlock chair will have the casting vote
Show of hands, this is the default method of voting unless otherwise specified.
98
What decisions require a special resolution?
* Change of name
* Change of Articles
## Footnote
These are key corporate decisions that typically require a higher voting threshold.
99
What percentage of shares can demand a poll vote?
Member(s) holding 10% of voting shares
Poll Vote - Shareholder's vote is determined by the number of shares they own, rather than a simple show of hands
## Footnote
This allows minority shareholders to request a more formal voting process.
100
What is the threshold share capital threshold for requesting a general meeting?
Members who own 5% of the share capital can request the directors call a general meeting .
101
What are the two main types of finance companies raise?
* Share capital (by selling shares)
* Debt finance (by borrowing)
## Footnote
These are essential methods for companies to secure funds.
102
Who must ensure they have the authority to issue shares?
Directors
## Footnote
Authority must be obtained by passing an ordinary resolution.
103
What must happen before new share issues are offered to others?
They must first be offered to existing shareholders
## Footnote
This is under the rule of statutory pre-emption rights unless disapplied.
104
Can companies allot shares for less than their nominal value?
No
## Footnote
Companies cannot sell shares at a discount.
105
What governs share transfer in a company?
The company's articles
## Footnote
In absence of provisions, Model Article 26 applies.
106
What is required for share transfer in the absence of company provisions?
* Directors approval
* Stock transfer form
* Pay stamp duty
## Footnote
These steps are necessary for the transfer process.
107
What is crystallisation in the context of floating charges?
Crystallisation occurs when a floating charge becomes fixed on the assets of the class at that time, usually when a company becomes insolvent or another event occurs.
108
What is a floating charge?
• A floating charge is a form of security taken over a class of assets, typically tangible assets like stock,
• which can only be granted to company or LLP
• Assets can be dealt without the consent of the lender until crystallisation.
109
What is a fixed charge?
A fixed charge is a type of security taken over a particular asset, requiring the consent of the lender to deal with the asset.
110
What are the advantages of debt finance?
Debt finance (borrowing) is a way for a company to raise money and is often used in conjunction with equity finance (allotting shares).
111
What is the priority of charges granted?
The priority of charges is:
* Fixed over floating, even if floating was created first (unless there is a negative pledge).
* If more than one fixed charge over the same asset, then by order of creation.
* If more than one floating charge over the same asset, then also by order of creation.
112
What is a debenture?
A debenture is a document that includes details about the charges granted and their priority.
113
What is a negative pledge?
A negative pledge is a clause that prevents a company from creating later charges with priority over a fixed or floating charge without the permission of the floating-charge holder.
114
What happens if a charge is not properly registered?
Failure to properly register a charge will make the charge void against the liquidator/administrator and other creditors.
115
How long does a company have to register a charge?
A company must register a charge within 21 days at Companies House.
116
True or False: A subsequent lender with actual notice of a negative pledge ranks behind the original charge holder.
True
117
What type of finance requires member consent?
Only the equity finance would need member consent.
118
Does debt finance require member consent?
No, debt finance does not require member consent.
119
What is a key principle regarding dividends?
A company can only pay dividends out of its realisable profits.
120
Is it lawful for a company to pay a dividend out of its capital?
No, a dividend paid out of a company's capital is unlawful.
121
What must directors ensure when recommending and paying dividends?
Directors must ensure that they do not breach their common law or statutory duties.
122
What can shareholders do regarding dividends?
Shareholders can only approve, reduce, or reject a dividend but not increase it.
123
For what purposes can profits be used?
Profits can be used for various purposes such as investing in assets, research and development, or buying back shares.
124
What are the main buy back options for private companies?
Private companies have three main buy back options depending on the amount and availability of profits.
125
What is the simplest buy back option for private companies?
A buy back using cash (strict limits apply on the amount).
126
Under what condition can capital be used for a buy back?
Capital can be used only if there are no profits/proceeds of a fresh share issue available for buy back and stringent conditions are met.
127
What are the consequences of breaching conditions for capital buy back?
Breach of these conditions can have serious consequences for the directors personally, including criminal sanctions.
128
What resolutions must members pass for certain actions?
Members must pass an ordinary and special resolution.
129
What statement must directors make concerning insolvency?
The directors must make a statement of insolvency.
130
What type of finance requires member consent?
Only the equity finance (selling shares) would need member consent.
131
Does debt finance require member consent?
No, debt finance does not require member consent.
132
What is a key principle regarding dividends?
A company can only pay dividends out of its realisable profits.
133
Is it lawful for a company to pay a dividend out of its capital?
No, a dividend paid out of a company's capital is unlawful.
134
What must directors ensure when recommending and paying dividends?
Directors must ensure that they do not breach their common law or statutory duties.
135
What can shareholders do regarding dividends?
Shareholders can only approve, reduce, or reject a dividend but not increase it.
136
For what purposes can profits be used?
Profits can be used for various purposes such as investing in assets, research and development, or buying back shares.
137
What is the simplest buy back option for private companies?
A buy back using cash (strict limits apply on the amount).
138
Under what condition can capital be used for a buy back?
Capital can be used only if there are no profits/proceeds of a fresh share issue available for buy back and stringent conditions are met.
139
What are the consequences of breaching conditions for capital buy back?
Breach of these conditions can have serious consequences for the directors personally, including criminal sanctions.
140
What resolutions must members pass for certain actions?
Members must pass an ordinary and special resolution.
141
What statement must directors make concerning insolvency?
The directors must make a statement of insolvency.
142
What is required for the distribution of dividends?
The distribution must be made in cash.
143
What can shareholders do regarding the proposed dividend?
Shareholders can decrease the amount proposed by ordinary resolution.
144
What must directors believe when proposing a dividend?
Directors proposing the dividend must believe it will promote the success of the company.
145
What does the profit and loss account show?
The profit and loss account shows revenues, costs, and how much profit the business made.
146
What is a balance sheet?
A balance sheet is an accounting document that provides a snapshot of the company's financial health on the day it is produced.
147
What must small companies prepare regarding financial records?
Small companies must prepare financial records but are not required to file at Companies House.
148
What are the consequences of failing to deliver accounts?
Civil and criminal penalties apply for failure to deliver accounts.
149
What are the two types of liquidation?
The two types of liquidation are compulsory and voluntary.
150
What initiates compulsory liquidation?
Compulsory liquidation is commenced by a creditor presenting a winding-up petition.
151
What must a creditor show to prove inability to pay?
A creditor must show that a statutory demand has been unsatisfied for 21 days.
152
What is Members Voluntary Liquidation (MVL)?
MVL is a process for solvent companies to restructure or close down.
## Footnote
MVLs are only available for solvent companies.
153
What is required for a creditor to petition for a company's liquidation?
A creditor must prove to the court that the company is insolvent in at least one of four ways.
## Footnote
The process involves a liquidator taking over the company.
154
What powers does the Insolvency Act provide to a liquidator?
The liquidator has substantial powers to:
* Collect the company's assets
* Scrutinise past transactions to clawback assets
* Distribute the proceeds to creditors in a specific statutory order.
155
What is the principal aim of administration?
The principal aim is to rescue the company as a going concern.
156
What is a Company Voluntary Arrangement (CVA)?
A CVA is a binding written agreement between the company and its unsecured creditors regarding arrangements to pay its creditors as a going concern.
157
What is fixed-asset receivership?
Fixed-asset receivership is when a secured creditor appoints a receiver to realise the company's assets over which that creditor has security.
158
What is the primary duty of a receiver in fixed-asset receivership?
The primary duty is to the creditor who appointed them, not to the company's creditors as a whole.
159
What does the term 'transactions at undervalue' refer to?
Transactions where assets are sold for less than their value, with specific timeframes and conditions for presumption based on the relationship with the parties involved.
160
What are preference transactions?
Preference transactions occur when a company pays a creditor more than others within a certain timeframe, with presumptions based on the relationship with the parties involved.
161
What are the primary debts prioritized in the order of distribution during liquidation?
The primary debts include:
* Wages owed up to 4 months
* Accrued holiday pay.
162
What are the secondary debts prioritized in the order of distribution during liquidation?
The secondary debts include sums owed to HMRC.
163
What is the order of distribution in a winding-up scenario?
The order of distribution is:
* Fixed charge holders
* Winding-up expenses
* Preferential debts
* Floating charge holders
* Unsecured creditors.
164
What is the 'ring fence' provision for floating charge holders?
50% of the first £10,000 and 20% of the balance is set aside for unsecured creditors.
165
What is Members Voluntary Liquidation (MVL)?
MVL is a process for solvent companies to restructure or close down.
## Footnote
MVLs are only available for solvent companies.
166
What is required for a creditor to petition for a company's liquidation?
A creditor must prove to the court that the company is insolvent in at least one of four ways.
## Footnote
The process involves a liquidator taking over the company.
167
What powers does the Insolvency Act provide to a liquidator?
The liquidator has substantial powers to:
* Collect the company's assets
* Scrutinise past transactions to clawback assets
* Distribute the proceeds to creditors in a specific statutory order.
168
What is the principal aim of administration?
The principal aim is to rescue the company as a going concern.
169
What is a Company Voluntary Arrangement (CVA)?
A CVA is a binding written agreement between the company and its unsecured creditors regarding arrangements to pay its creditors as a going concern.
170
What is fixed-asset receivership?
Fixed-asset receivership is when a secured creditor appoints a receiver to realise the company's assets over which that creditor has security.
171
What is the primary duty of a receiver in fixed-asset receivership?
The primary duty is to the creditor who appointed them, not to the company's creditors as a whole.
172
What does the term 'transactions at undervalue' refer to?
Transactions where assets are sold for less than their value, with specific timeframes and conditions for presumption based on the relationship with the parties involved.
173
What are preference transactions?
Preference transactions occur when a company pays a creditor more than others within a certain timeframe, with presumptions based on the relationship with the parties involved.
174
What are the primary debts prioritized in the order of distribution during liquidation?
The primary debts include:
* Wages owed up to 4 months
* Accrued holiday pay.
175
What are the secondary debts prioritized in the order of distribution during liquidation?
The secondary debts include sums owed to HMRC.
176
What is the order of distribution in a winding-up scenario?
The order of distribution is:
* Fixed charge holders
* Winding-up expenses
* Preferential debts
* Floating charge holders
* Unsecured creditors.
177
What is the 'ring fence' provision for unsecured creditors?
50% of the first £10,000 and 20% of the balance is set aside for unsecured creditors.
178
What is a general partnership?
• More than one person (two or more people carrying on a business in common with a view to profit)
• Both/All personally liable (jointly and severally)
179
What is the first step in the ordinary resolution procedure?
Call general meeting
## Footnote
This is necessary to discuss the terms of the contract.
180
What must be circulated to shareholders in the ordinary resolution procedure?
The written resolution
## Footnote
It ensures that all eligible members are informed.
181
How must shareholders be made aware of the contract terms?
They must be made aware of the terms of the contract
## Footnote
This is crucial for informed decision-making.
182
Where must the contract be available during the general meeting?
At the registered office for inspection
## Footnote
It must be available for not less than 15 days and at the meeting.
183
For how long must the contract be available at the registered office?
Not less than 15 days
## Footnote
This allows shareholders sufficient time to review the contract.
184
What must be done with the written resolution before or with its circulation?
Circulated to every eligible member
## Footnote
This ensures all members have the opportunity to participate.
185
What conditions must be met for a Rivate Limited Company to purchase its own shares by way of a buy-back?
The shares must be fully paid up, the purchase must be from an existing shareholder, and there must be no prohibition or restriction on purchase in its articles.
186
Do Model Articles prohibit buy-backs?
No, Model Articles do not prohibit buy-backs.
187
What are two ways a company can fund a buy-back?
* Using distributable profits
* The proceeds of any fresh issue of shares
188
Who cannot vote in a buy-back approved by the shareholders?
The shareholder selling shares cannot vote.
189
For how long must the purchase contract for a buy-back be kept?
The purchase contract must be kept for 10 years.
190
Where must the purchase of own shares be registered?
The purchase of own shares must be registered at Companies House.
191
Within how many days must the purchase of own shares be registered at Companies House?
Within 28 days.
192
What conditions must be met for a Rivate Limited Company to purchase its own shares by way of a buy-back?
The shares must be fully paid up, the purchase must be from an existing shareholder, and there must be no prohibition or restriction on purchase in its articles.
193
Do Model Articles prohibit buy-backs?
No, Model Articles do not prohibit buy-backs.
194
What are two ways a company can fund a buy-back?
* Using distributable profits
* The proceeds of any fresh issue of shares
195
Who cannot vote in a buy-back approved by the shareholders?
The shareholder selling shares cannot vote.
196
For how long must the purchase contract for a buy-back be kept?
The purchase contract must be kept for 10 years.
197
Where must the purchase of own shares be registered?
The purchase of own shares must be registered at Companies House.
198
Within how many days must the purchase of own shares be registered at Companies House?
Within 28 days.
199
What is a company considered if it is in creditors voluntary liquidation?
Insolvent
## Footnote
This indicates that the company is unable to pay its debts.
200
What does a liquidator do in the case of insolvency?
Release assets according to order of priority
## Footnote
The liquidator is responsible for managing the distribution of the company's assets.
201
What percentage of the first £10,000 of assets is set aside for unsecured creditors?
50%
## Footnote
This is part of the order of priority in asset distribution.
202
What percentage of the remainder up to £260,000 is allocated to unsecured creditors?
20%
## Footnote
This allocation is part of the asset distribution process.
203
What must be deducted from the assets before paying creditors?
Liquidator's fees and costs of liquidation
## Footnote
These costs are prioritized before any payments to creditors.
204
Who are considered preferential creditors?
Employees and HMRC
## Footnote
Preferential creditors have a higher claim in the distribution of assets.
205
In the order of asset distribution, which group is paid after preferential creditors?
Floating chargeholders
## Footnote
Floating chargeholders have a claim on specific assets.
206
Who receives payment pro rata from the remaining assets?
Unsecured creditors
## Footnote
Unsecured creditors are paid based on the proportion of their claims.
207
What are preferential payments?
Payments made to certain creditors before insolvency
## Footnote
These payments can be challenged by the liquidator if they meet specific criteria.
208
What conditions allow a liquidator to challenge preferential payments?
If made within 6 months prior to insolvency, company was insolvent at the time, and influenced by desire to favor creditor
## Footnote
These conditions help prevent unfair advantage to certain creditors.
209
True or False: A company can be considered insolvent if it becomes insolvent as a result of a payment.
True
## Footnote
This indicates that the timing and context of payments are critical in determining insolvency.
210
What is a key financial benefit for a business in its first year?
Reduced corporation tax due to start-up expenses and capital allowances can be set against income.
211
What are dividends paid out of?
Company profits.
212
What happens if dividends are reinvested?
Increase in shareholding.
213
What can different classes of shares be assigned?
Different rights, such as payment of dividends and voting rights.
214
True or False: A profit threshold can be included for the payment of dividends.
True.
215
Fill in the blank: Dividends are paid out of _______.
company profits.
216
What can be set against income in a business's first year?
Start-up expenses and capital allowances.
217
What is the impact of reinvesting dividends?
It results in an increase in shareholding.
218
List two rights that can be assigned to different classes of shares.
* Payment of dividends
* Voting rights
219
What is an ordinary resolution?
A resolution passed by a simple majority.
220
What percentage is required for a special resolution?
75% at least.
221
How are votes at general meetings typically taken?
On a show of hands, one vote per shareholder.
222
Who can demand a poll vote?
A shareholder with at least 10% ownership.
223
What case provides enhanced voting rights on any resolution to remove a director?
Bushell v Faith.
224
In a board meeting, how many votes does each director have?
One vote each.
225
What happens in the event of a tie during a board meeting vote?
The chair has the casting vote.
226
What is a shareholder agreement?
An agreement among shareholders outlining their rights and responsibilities.
227
What are Model Articles?
Standard articles of association for companies.
228
Fill in the blank: A company decision-making process often involves resolutions, such as _______ and special resolutions.
[ordinary resolution]
229
True or False: A special resolution requires a simple majority to pass.
False.
