Business Law and Practice

Question 1

What are the key features of an incorporated business?

Answer 1

• exists as a separate legal entity from owners / managers
• has to comply with various legal requirements
• owners are liable for business debts

Question 2

What are the key features of a private company limited by shares?

Answer 2

• company decisions are usually made by directors / shareholders
• directors will collectively make decisions at board meetings or in writing
• shareholders will make decisions at general meetings (or in writing)

Question 3

What are the key features of an unincorporated business?

Answer 3

• not set up as a separate legal entity
• owners have full personal liability for debts

Question 4

What are the key features of limited partnerships?

Answer 4

• must be at least one general partner who has unlimited liability for partnership debts
• can have a limited partner whose liability is limited to the amount invested in the business
• limited partner must not:
  
  • control / manage the LP
  • take binding decisions on behalf of the LP
  • remove contribution to the LP for as long as it is in the business

*if limited partner breaks any of these rules they will be treated as a general partner with unlimited liability

Question 5

What are they key features of a public company?

Answer 5

• constitution must state that it is a public company
• public limited company must be included at the end of the company’s name
• owners must invest a specified minimum amount of money for use by the company (£50,000)

Question 6

Why operate as a public limited company?

Answer 6

• can raise money by offering shares to the public
• can apply to join the UK stock market
• private companies are subject to loss regulation as they do not offer shares to the public
• can only offer shares to someone already connected to the company or certain targeted individuals

Question 7

What are the key features of a limited liability partnership?

Answer 7

• cross between a partnership and limited company
• have a separate legal personality / offers owners protection from LLP debts
• run with informality of a partnership
• LLP Regs 1970 - provides default contract for partners who have not agreed all / any of partnership terms
• individual members of partnership must register with HMRC as self-employed

Question 8

What other types of business medium are there?

Answer 8

companies limited by guarantee
- not seeking to make a profit
- shareholders guarantee company’s debts up to a specified amount

unlimited companies
- have unlimited liability for debts

community interest companies
- like an LLP but business uses profits / losses for public good not profit

Question 9

Key considerations in choosing the type of business medium

Answer 9

• liability
• tax
• formalities
• publicity of information
• cost
• status
• finance

Question 10

Formalities in choosing a type of business medium

Answer 10

Unincorporated businesses
* no formal requirements need to be complied with once set up

Companies
* will need to complete minutes of meetings
* will need to maintain certain statutory registers
* will need to file certain documents with Companies House

Question 11

Publicity of information

Answer 11

• sole traders / partnerships only need to disclose identity of sole trader and address for service of documents
• companies / LLPs must reveal certain information to public at large including certain financial information
• companies / LLPs must make public information regarding directors, shareholders and significant decisions it has made
• must keep various company registers open for inspection

Question 12

Cost considerations in choosing a type of business medium

Answer 12

• sole traders / partnerships can be set up without legal / administrative costs
• to set up a company / LLP there is a charge
• individuals may also need legal advice

Question 13

Finance considerations in choosing a type of business medium

Answer 13

• companies are more desirable to lenders
• companies / LLPs can offer additional form of security for loans (floating charges)
• companies / LLPS can offer floating charges over business’s assets

Question 14

What steps are needed to form a new company?

Answer 14

Applicant must complete:
* form IN01

Must file to Companies House:
* memorandum of association
* articles of association
* applicable fee

• company comes into existence upon certificate of incorporation being issued

Question 15

What is included on certificate of incorporation?

Answer 15

Certificate of incorporation must state:

• name / registered number of company
• date of incorporation
• whether limited / unlimied
• if company is limited whether it is limited by shares
• whether company is private / public
• ## whether company is in England / Wales or in Scotland or Northern Ireland

Question 16

What decisions need to be made on incorporation of a company?

Answer 16

• what company name will be used?
• where will the registered office be?
• who will the first directors be?
• what will be the** directors’ service address** for documents?
• who will be the company secretary?
• who will be the first shareholders?

Question 17

What are the key considerations for the company name?

Answer 17

• company cannot use a name which constitutes a criminal offence
• approval of Secretary of State is needed to register a company which suggests a government or geographical connection (ie. Mike’s British Eggs Ltd.)
• company name cannot exceed 100 characters
• words which denote professions must be approved by relevant body

Question 17

Key considerations for the company’s registered office

Answer 17

• registered office must be on IN01
• board resolution required to change company’s registered office
• if registered office changes company must file form A101 at Companies House
• change of registered office** takes place when registrar changes it**

Question 18

Key considerations for first directors

Answer 18

• names / dates of birth must be included on IN01
• every company must have at least one director
• director must be a human being
• must be at least 16 or over

Question 19

Key considerastions for first shareholders

Answer 19

• names / addresses / details of shareholdings need to be entered on IN01
• normal for companies to be incorporated with two shareholders who own one £1 ordinary share each

Question 20

What is the statement of capital?

Answer 20

must provide information about shares on IN01 which will include:
* number of shares of each type that the company has
* total nominal value of the shares
* names / addresses of all shareholders

Question 21

What is nominal and par value?

Answer 21

nominal value: the amount originally paid for the shares

par value: if share is sold for nominal value then it is sold at par value

Question 22

What is the company’s constitution made up of?

Answer 22

Company constitution is made up of:
* articles of association / memorandum of association
* certificate of incorporation
* current statement of capital
* copies of any court orders
* legislation affecting company’s constitution
* shareholder resolutions

Question 23

What is the importance of the Companies Act and Table A?

Answer 23

• Companies Act came into force on 1 October 2009
• companies incoporated before October 2009 will have Table A articles

new companies can:
* adopt model articles in entirety
* adopt model articles with some amendments
* apply bespoke articles

Question 23

What is the memorandum of association?

Answer 23

consists of a statement that: * subscribers wish to form a company and agree to become a shareholder * subscribers take at least one share each * must be signed by subscribers

Question 23

Who is a person with significant control?

Answer 23

Control is significant if person: * holds **more than 25% of shares** in the company * holds **more than 25% of voting rights** * holds the **right to appoint / remove a majority of the board of directors** of the company * must state whether there will be a PSC on IN01

Question 24

What is a shareholder special resolution?

Answer 24

* decision of shareholders which must be passed by majoirty **of at least 75% of shareholders**

Question 24

When does a partnership come into existence?

Answer 24

When a partnership comes into existence is dictated by s1 Partnership Act 1890 * partnership comes into existence when **one or more persons carrying on a business in common with a view of profit** * must be **carrying on a business in common** What are the key considerations? * do individuals a**ll take part in decision making** * which **names are on the title deeds** of any property? * **how are profits shared**?

Question 24

Why operate as a partnership?

Answer 24

partners **do not**: * **enjoy limited liability** for the partnership debts * have to adhere to **extensive administrative / accounting requirements** * have to make much **informatin public** * have to enter into a **written agreement** if they do not want to

Question 25

What is included in the partnership agreement?

Answer 25

* name of the partnership * place / nature of business * commencement and duration * work input * roles * decision-making * financial input * shares in income / capital profit and losses * drawings and salaries

Question 26

How is a partnership dissolved under the Partnership Act 1980?

Answer 26

partnership is dissolved when: * partner retires (s 26) * on expiry of a fixed term (s 32) * by death / bankruptcy of any of the partners (s 33) * something happens which makes it unlawful for the business of the firm to carry on (s 34)

Question 26

What is the effect of dissolution?

Answer 26

* automatic dissolution means that partnership must end and all assets must be sold * outgoing partner will receive their share * partnership agreement should state what shold happen in the event a partner leaves and whether the remaining partners will continue in partnership