Business Law and Practice MCQS Flashcards

Question 1

Q

Which ONE of the following is correct?

A) A partnership can be described as two or more people forming an intention to work together with a view to profit.

B) LLPs are required to file annual accounts at Companies House.

C) A limited partnership can be formed without any required formalities.

D) A sole trader requires a certificate of incorporation to start trading.

Answer

A

B) LLPs are required to file annual accounts at Companies House.

Question 2

Q

Which ONE of the following correctly represents the characteristics of an LLP?

A) The LLP is a separate legal entity and enters into contracts on its own behalf. All partners have limited liability. Only professional firms such as law firms and accountancy firms may become LLPs.

B) The LLP is a separate legal entity and enters into contracts on its own behalf. All partners have limited liability. Although LLPs must be registered at Companies House there are no further filing requirements for LLPs.

C) The LLP is a separate legal entity and enters into contracts on its own behalf. Certain partners can have limited liability, but these partners must not be involved in the management of the business and are known as sleeping partners.

D) The LLP is a separate legal entity and enters into contracts on its own behalf. All partners have limited liability. LLPs must be registered at Companies House and must submit annual accounts.

E) The LLP is a separate legal entity and enters into contracts on its own behalf. All partners have limited liability. An LLP is a better structure for investment than a traditional partnership as it can issue shares and therefore attract investment.

Answer

A

D) The LLP is a separate legal entity and enters into contracts on its own behalf. All partners have limited liability. LLPs must be registered at Companies House and must submit annual accounts.

Question 3

Q

Which ONE of the following is correct in relation to a traditional partnership?

A) A partnership is formed when two or more persons sign a Partnership Agreement.

B) In the absence of an express written Partnership Agreement, the Partnership Act 1890 provides that all profits are shared equally, partners are jointly and severally liable for debts of the partnership and all partners can participate in management.

C) In the absence of express agreement, the Partnership Act 1890 provides that all profits are shared equally, partners are jointly and severally liable for debts of the partnership and all partners can participate in management.

D) Under the Partnership Act 1890, in the absence of express agreement, partners will cease to be liable for debts incurred by the partnership at a time when they were partners once they leave the partnership.

E) Partnerships must be registered at Companies House but there is no requirement to file annual accounts.
Correct
Correct. Although any express agreement will override the default provisions of the Partnership Act 1890 (written or oral), partners should ensure that they draw up a written express Partnership Agreement to regulate their partnership as they require which will provide for certainty. The default provisions of the Partnership Act 1890 are rarely appropriate for modern businesses.

Answer

A

C) In the absence of express agreement, the Partnership Act 1890 provides that all profits are shared equally, partners are jointly and severally liable for debts of the partnership and all partners can participate in management.

Question 4

Q

Which ONE of the following is correct?

A) Directors of a company can also be shareholders in the same company.

B) All companies are required to have one annual general meeting each year.

C) A private company can raise equity finance by offering to sell its shares to the public.

D) Private limited companies are required to have at least two directors.
Correct

Answer

A

A) Directors of a company can also be shareholders in the same company

(Correct. In private limited companies it is very common for the directors and shareholders to be the same people)

Question 5

Q

Jason, Kim and Sophia have set up a brand consultancy business (Branded). The business is doing well and they now are looking to expand. They have a number of family members and friends who are willing to invest in the business. They seek your advice as to whether to incorporate the business as a private limited company. Which of the following is correct?

A) A key advantage of incorporation is that the directors of the company are able to run the company without any input from the shareholders.

B) A key advantage of incorporation is that shareholders are able to invest in shares in the company with their liability being limited to the amount unpaid on their shares (if any).

C) An advantage of incorporating the business as a private limited company is that Branded will be able to offer shares to the public in order to increase the capital available to the business.

D) Branded can only be incorporated as a private limited company if it has at least £50,000 of share capital.

Answer

A

B) A key advantage of incorporation is that shareholders are able to invest in shares in the company with their liability being limited to the amount unpaid on their shares (if any).

Question 6

Q

Which ONE of the following is correct in relation to a listed company?

A) Any company can list its shares on the London Stock Exchange.

B) A listed company is a public limited company whose shares are listed on a regulated investment exchange such as the London Stock Exchange.

C) The requirements of CA 2006 do not apply to listed companies.

D) All public companies are listed.

Answer

A

B) A listed company is a public limited company whose shares are listed on a regulated investment exchange such as the London Stock Exchange.

Question 7

Q

Which ONE of the following is correct in relation to the company’s articles of association?

A) The articles take effect as a contract between the members themselves only.

B) The articles will always override the provisions of CA 2006.

C) The articles take effect as a contract between the directors and the shareholders.

D) The articles take effect as a contract between the company and its members and between the members themselves.

Answer

A

D) The articles take effect as a contract between the company and its members and between the members themselves.

Question 8

Q

Which one of the following correctly states the position with regards to provisions in the Memorandum restricting the objects of companies formed under the Companies Act 1985?

A) Any restrictions in the Memorandum of companies incorporated under the 1985 Act are no longer binding, since under the CA 2006, the Memorandum has no constitutional significance.

B) Any restrictions in the Memorandum of companies incorporated under the 1985 Act take effect as if they were contained in the Articles and are binding until the Articles are amended or new Articles adopted.

C) Any restrictions in the Memorandum of companies incorporated under the 1985 Act continue to bind the company and cannot be removed.

Answer

A

B) Any restrictions in the Memorandum of companies incorporated under the 1985 Act take effect as if they were contained in the Articles and are binding until the Articles are amended or new Articles adopted.

Question 9

Q

Which one of the following correctly describes the position of the objects clause (the clause setting out the purposes for which the company was formed) of companies incorporated under the Companies Act 2006?

A) Companies formed under CA 2006 have unrestricted objects, unless a specific restriction is inserted into the company’s articles.

B) Companies formed under CA 2006 have unrestricted objects. It is not possible to restrict the objects of a company formed under CA 2006.

C) All companies formed under CA 2006 will contain a provision in the Memorandum setting out the purposes for which the company was formed. This is known as an “objects clause”.

Answer

A

A) Companies formed under CA 2006 have unrestricted objects, unless a specific restriction is inserted into the company’s articles

(Correct. Section 31 CA 2006 confirms this)

Question 10

Q

Your client has purchased a shelf company which has been incorporated with Model Articles and seeks your advice as to how to effect a change of name of the company. Which one of the following is correct in relation to the procedure required to change the name of the company?

A) A special resolution of the shareholders is required.

B) The name may be changed by a board resolution of the directors.

C) An ordinary resolution of the shareholders is required.

D) It is not possible to change the name of a company.

Answer

A

A) A special resolution of the shareholders is required.

(Correct. See s 77(1) CA 2006)

Question 11

Q

When incorporating a company from scratch, which one of the following correctly states the documents that must be filed at Companies House?

A) The Memorandum, Articles of Association (unless Model Articles are used without amendment), fee and form IN01.

B) The Memorandum, Articles of Association (unless Model Articles are used without amendment), Certificate of Incorporation and fee.

C) The Articles of Association (unless Model Articles are used without amendment), fee and form IN01.

D) The Articles of Association (unless Model Articles are used without amendment), fee, Share Certificates and form IN01.

Answer

A

A) The Memorandum, Articles of Association (unless Model Articles are used without amendment), fee and form IN01.

Question 12

Q

When does a company become a legal entity?

A) From the date of incorporation as set out on the certificate of incorporation.

B) From the date on which the incorporation documents are filed at Companies House.

C) From the date on which the incorporation documents are received by Companies House (if this is different from the date of filing).

D) From the date on which the company is allocated a registered number.

Answer

A

A) From the date of incorporation as set out on the certificate of incorporation.

Question 13

Q

What is the ‘nominal value’ of a share?

A) The maximum subscription price for that share.

B) The minimum subscription price for that share.

C) The amount over and above £1 that the shareholder pays for the share on subscription.

D) The amount paid by the shareholder for the share at the time of purchase.

Answer

A

B) The minimum subscription price for that share.

Question 14

Q

Which one of the following would be a Person with Significant Control in relation to a company?

A) A shareholder who holds 25% of the voting share capital in the company, who is also a director.

B) A shareholder who holds 30% of the voting share capital of the company.

C) Any director.

Answer

A

B) A shareholder who holds 30% of the voting share capital of the company.

Question 15

Q

What is the ‘issued share capital’ of a company?

A) The total amount in value (nominal and premium) of all shares in issue at that time.

B) The total number of shares in issue at that time.

C) The total number of shares that the company is permitted to allot.

D) The total amount in value that has been paid up on all shares in issue at that time.

Answer

A

A) The total amount in value (nominal and premium) of all shares in issue at that time.

Question 16

Q

What is the meaning of “quorum” for a board or general meeting?

A) The minimum number of people that must be present for the meeting to be valid.

B) The notice period required for the meeting to be valid.

C) A representative of a shareholder who is unable to attend the meeting.

D) The number of attendees at a meeting of the board or shareholders.

Answer

A

A) The minimum number of people that must be present for the meeting to be valid.

Question 17

Q

Which ONE of the following is correct?

A) The chairman has a casting vote under MA 13, but this may be removed. The chairman is chosen by the shareholders.

B) All private limited companies must appoint a chairman.

C) The chairman has a casting vote under MA 13, but this may be removed. The chairman is chosen by the board of directors.

Answer

A

C) The chairman has a casting vote under MA 13, but this may be removed. The chairman is chosen by the board of directors.

Question 18

Q

Which of the following correctly sets out the thresholds for ordinary and special resolutions of the shareholders?

A) An ordinary resolution is passed by more than 50% of the votes. A special resolution is passed by more than 75% of the votes.

B) An ordinary resolution is passed by more than 50% of the votes. A special resolution is passed by 75% or more of the votes.

C) An ordinary resolution is passed by 50% or more of the votes. A special resolution is passed by 75% or more of the votes.

D) An ordinary resolution is passed by 75% or more of the votes. A special resolution is passed by more than 50% of the votes.

Answer

A

B) An ordinary resolution is passed by more than 50% of the votes. A special resolution is passed by 75% or more of the votes.

Question 19

Q

Major decisions affecting the company (such as the power to remove a director and the power to change the company’s name) will be taken by which ONE of the following?

A) The partners

B) The board of directors

C) A committee of directors.

D) The shareholders

Answer

A

D) The shareholders

(This is the correct answer. The shareholders take the important decisions and the examples given are reserved for them by CA 2006)

Question 20

Q

Bill, Paul, Simon and Ben are all shareholders of Magic Music Limited (‘Magic’). They have recently decided to rebrand Magic as they feel that the company’s name is outdated. As part of the rebranding they will need to change Magic’s name. They each hold the following number of shares in Magic:

Bill - 28 shares

Paul - 48 shares

Simon - 20 shares

Ben - 4 shares

Magic’s Articles of Association do not deal with changes to Magic’s name and Magic intends to deal with the change of name at a forthcoming GM. Which ONE of the following statements is correct?

A) On a poll the resolution could be passed if only Bill and Paul voted in favour of it.

B) On a poll the resolution could be passed if Bill, Simon and Ben all voted in favour of it.

C) On a show of hands all of the shareholders would need to vote in favour of the resolution in order for it to be passed.

D) If only Bill and Paul voted in favour of the resolution on a show of hands then it could be passed.

Answer

A

A) On a poll the resolution could be passed if only Bill and Paul voted in favour of it.

(This is the correct answer. Changing the name of the company requires a special resolution (s 77 CA 2006). A special resolution requires the approval of 75% or more of the votes. Bill and Paul together hold 76% of the shares so on a poll vote they can pass a special resolution)

Question 21

Q

Which of the following correctly represents the documents that must be filed at Companies House when a company votes to amend its articles?

A) Copy of the amended articles, copy of the GM and BM minutes.

B) Copy of the amended articles, copy of the GM minutes.

C) Copy of a special resolution, copy of the amended articles.

D) Copy of an ordinary resolution, copy of the amended articles.

Answer

A

C) Copy of a special resolution, copy of the amended articles.

(This is the correct answer. A special resolution is required in order to amend a company’s articles of association pursuant to s 21(1) CA 2006, not an ordinary resolution. All special resolutions must be filed at Companies House, together with the amended articles)

Question 22

Q

Which of the following best describes the key advantages of the company business model?

A) A company is a separate legal entity and the shareholders have limited liability.

B) Companies have more flexibility in raising finance since they may issue shares to raise money and can also provide security to lenders.

C) A company is a separate legal entity, shareholders have limited liability and there is more flexibility in raising finance since companies may issue shares to raise money and can also provide security to lenders.

D) A company is a separate legal entity and the shareholders have limited liability. There is no requirement for publicly filed accounts.

Answer

A

C) A company is a separate legal entity, shareholders have limited liability and there is more flexibility in raising finance since companies may issue shares to raise money and can also provide security to lenders.

Question 23

Q

Which of the following correctly sets out the business models in which participants are not generally liable for the debts or liabilities of the business?

A) Companies only

B) LLPs, partnerships and companies.

C) Partnerships and sole traders.

D) LLPs and companies

E) LLPs only.

Answer

A

D) LLPs and companies

Question 24

Q

Two women are setting up a business together. They are primarily concerned with their ability to raise finance and limiting their own personal liabilities as investors. They also do not want to spend lots of money setting up the business.

Which of the following is the best advice to the women in terms of the most suitable business model to use for their new business?

A) They should incorporate a private limited company. Whilst there are costs involved in setting up the company, they will enjoy limited personal liability and have a choice of finance options.

B) The women should incorporate an LLP. They will enjoy limited personal liability.

C) They should incorporate an LLP. Whilst there are costs involved in setting up the company, they will enjoy limited personal liability and be able to issue shares and take out bank loans in the LLP’s name.

D) They should trade as a traditional partnership. It is free to set up and the partnership has the ability to take out loans.

Answer

A

A) They should incorporate a private limited company. Whilst there are costs involved in setting up the company, they will enjoy limited personal liability and have a choice of finance options.

Question 25

Q

Which of the following correctly describes the structure and tax position of an LLP?

A) An LLP has a separate legal personality. The LLP pays income tax on its profits and capital gains tax on its gains.

B) An LLP has a separate legal personality. The partners are taxed as individuals on their shares of the profits and gains.

C) An LLP is not a separate entity from its partners. The LLP pays corporation tax on the partnership profits.

D) An LLP is not a separate entity from its partners. The partners are taxed as individuals on their shares of the profits and gains.

E) An LLP has a separate legal personality. The partners pay corporation tax on the partnership profits.

Answer

A

B) An LLP has a separate legal personality. The partners are taxed as individuals on their shares of the profits and gains.

Question 26

Q

Which one of the following correctly describes the structure and tax position of a traditional partnership?

A) A partnership is not a separate entity from its partners and the partners are taxed as individuals.

B) A partnership has a separate legal personality. The partnership pays corporation tax on the partnership profits.

C) A partnership has a separate legal personality and the partners are taxed as individuals.

D) A partnership has a separate legal personality. The partnership pays income tax on the partnership profits.

Answer

A

A) A partnership is not a separate entity from its partners and the partners are taxed as individuals.

(Correct. A partnership is not a separate entity from its partners. The partners are taxed as individuals and pay income tax on their share of the profits and capital gains tax on their share of the gains)

Question 27

Q

What is meant by “double taxation of profits” in the context of a company?

A) The company pays income tax on its profits before the payment of dividends to its shareholders. The individual shareholders who receive the dividends will pay income tax on the amount of the dividend.

B) The company pays corporation tax on its profits before the payment of dividends to its shareholders. The individual shareholders who receive the dividends will pay capital gains tax on the amount of the dividend.

C) The company pays capital gains tax on its profits before the payment of dividends to its shareholders. The individual shareholders who receive the dividends will pay income tax on the amount of the dividend.

D) The company pays corporation tax on its profits before the payment of dividends to its shareholders. The individual shareholders who receive the dividends will pay income tax on the amount of the dividend.

Answer

A

D) The company pays corporation tax on its profits before the payment of dividends to its shareholders. The individual shareholders who receive the dividends will pay income tax on the amount of the dividend.

Question 28

Q

X Ltd is converting to a Plc. Which one of the following correctly sets out when X Plc may commence trading as a Plc?

A) Once the trading certificate has been issued by the Registrar of companies.

B) Once the new certificate of incorporation has been issued by the Registrar of companies.

C) Once the directors have changed the name of the company at its registered office and on its stationery.

D) Once the new certificate of incorporation and trading certificate showing that the company’s allotted share capital is not less than the minimum has been issued by the Registrar of companies.

Answer

A

D) Once the new certificate of incorporation and trading certificate showing that the company’s allotted share capital is not less than the minimum has been issued by the Registrar of companies.

Question 29

Q

X Ltd is a private limited company. The board would like to re-register the company as a public limited company.

X Ltd currently has 1 director and 2 shareholders but does not have a company secretary. The company has an issued share capital of £100.

Which of the following statements about the structure of the re-registered PLC is correct?

A) The company will need at least one more shareholder.

B) Once re-registered as a PLC the company can continue to use written resolutions to make shareholder decisions.

C) The company will not need to appoint a company secretary but may do so if it wishes.

D) The company will not need to increase its share capital to be re-registered as a PLC.

E) The company will need to appoint at least one more director to the board.

Answer

A

E) The company will need to appoint at least one more director to the board.

Question 30

Q

ABC Plc is a public limited company. It has decided to seek listing on the London Stock Exchange. ABC Plc has a private limited subsidiary called DEF Ltd.

Which one of the following statements is correct?

A) DEF Ltd should apply for listing once ABC Plc has listed its shares.

B) ABC Plc will only be able to offer shares to the public once it is a listed company.

C) It is not the company ABC Plc that will be listed, but its shares.

D) As a Plc, ABC Plc must apply to have its shares listed.

E) The shares of DEF Ltd will also be listed once ABC Plc is listed.

Answer

A

C) It is not the company ABC Plc that will be listed, but its shares.

Question 31

Q

A shareholder of a private limited company has bought 1000 £1 shares in the company but has only paid the company £100 so far.

The company has become insolvent but owes a creditor £25,000. The creditor is threatening to bring proceedings for the whole amount against the shareholder.

Which one of the following statements is correct?

A) The company has limited liability to the amount invested by the shareholders.

B) The shareholder is jointly and severally liable with all the other shareholders to the creditor for the total sum of the claim.

C) The shareholder’s liability will be limited to a proportion of the amount claimed depending on the proportion of their shareholding.

D) The extent of the shareholder’s liability is a further payment of £1000 into the company. The shareholder will not be liable to the creditor for any further sums.

E) The extent of the shareholder’s liability is a further payment of £900 into the company. The shareholder will not be liable to the creditor for any further sums.

Answer

A

E) The extent of the shareholder’s liability is a further payment of £900 into the company. The shareholder will not be liable to the creditor for any further sums.

Question 32

Q

A man applied to Companies House two days ago to incorporate a company. The certificate of incorporation was issued today by Companies House. The man is the sole shareholder and director of the company.

Which one of the following statements about the legal personality of the company is correct?

A) If the director of the company changes the company is automatically wound up.

B) The company has a separate legal personality from today.

C) It is not possible for the company to have separate legal personality from the sole shareholder and director because they will always be seen as one entity.

D) The company has a separate legal personality from the date that the man applied to incorporate the company.

E) It will be possible for the company to own its own property or enter into contracts from the date of the man applied to incorporate the company.

Answer

A

B) The company has a separate legal personality from today.

Question 33

Q

The significance of limited liability to shareholders in a company may be overridden to some extent by which one of the following?

A) Contractual means such as banks requiring a guarantee from the shareholder(s) of the company as part of lending money to the company.

B) Where the company’s shareholder is itself a company, the parent or holding company will have unlimited liability for the debts of its subsidiary company.

C) Where the shareholders are also directors, they will have personal liability for debts of the company.

D) Where the company has only one shareholder, that shareholder will have unlimited liability.

Answer

A

A) Contractual means such as banks requiring a guarantee from the shareholder(s) of the company as part of lending money to the company.

Question 34

Q

A and B entered a contract 2 months ago. B has breached a term of the contract. The term was stated in the contract expressly to be a condition. What remedies are available to A?

A) It will be up to the Court to decide what remedy A has.

B) A must repudiate the contract since the term breached was a condition.

C) A can only sue for damages as the term breached was a condition not a warranty.

D) A can repudiate the contract and/or sue for damages.

E) A can claim liquidated damages because it is a breach of condition.

Answer

A

D) A can repudiate the contract and/or sue for damages.

Question 35

Q

X has made an offer to Y to enter into a contract on X’s standard terms of business.

Y sent a letter in the post two weeks ago accepting X’s offer in full. It was sent to the correct address. X has not yet received the acceptance. Can X revoke the offer?

A) Yes. X can revoke the offer because they have not yet received acceptance.

B) Yes. X can revoke the offer as long as Y receives the revocation letter before X receives the acceptance.

C) No. X cannot revoke the offer because it has been validly accepted by Y under the postal rule.

D) Yes. X can revoke the offer because the acceptance will lapse after a passage of time.

E) No. X cannot revoke the letter because it is not possible to revoke a written offer.

Answer

A

C) No. X cannot revoke the offer because it has been validly accepted by Y under the postal rule.

Question 36

Q

A company is preparing to execute a document as a deed. The company has four directors.

Which of the following statements represents the correct form of execution?

A) The document can be validly executed by one of the directors alone.

B) All of the directors will need to sign the document for it to be validly executed as a deed.

C) The document will only be validly executed if the company seal is attached.

D) The document can be validly executed if two directors sign.

E) The company will need a independent witness to sign the document alongside the signatories for it to be validly executed as a deed.

Answer

A

D) The document can be validly executed if two directors sign.

Question 37

Q

Ten partners are in a partnership without a written agreement. The partnership is a firm of accountants.

The partnership is not doing very well financially and is two months late with rent. The finance partner signed the lease agreement with the landlord five years ago on behalf of the partnership.

The senior partner will retire in two months’ time.

Which one of the following statements represents the correct position with regards to the liability of the partners for the overdue rent?

A) All ten of the partners are jointly liable for the rent.

B) The senior partner will not be liable for the overdue rent once they retire in two months.

C) The partnership is liable for the overdue rent.

D) Only the finance partner will be liable as they signed the lease.

E) All ten of the partners are jointly and severally liable for the rent.

Answer

A

A) All ten of the partners are jointly liable for the rent.

Question 38

Q

Which one of the following is correct in relation to the tax treatment of partnerships?

A) Partners in a partnership are liable to pay income tax and capital gains tax on their share of the income and capital gains of the partnership. The partnership itself is not liable to pay tax.

B) Partners in a partnership are not liable to any tax in relation to the profits and gains of the partnership. The partnership itself is liable to pay corporation tax.

C) Partners in a partnership are liable to pay income tax and capital gains tax on their share of the income and capital gains of the partnership. The partnership itself is also liable to pay income and capital gains tax.

D) Partners in a partnership are liable to pay income tax and capital gains tax on their share of the income and capital gains of the partnership. The partnership itself is also liable to pay corporation tax.

E) Partners in a partnership are liable to pay income tax and capital gains tax on their share of the income and capital gains of the partnership. Only the partners therefore need to submit tax returns.

Answer

A

A) Partners in a partnership are liable to pay income tax and capital gains tax on their share of the income and capital gains of the partnership. The partnership itself is not liable to pay tax

(Correct. A partnership is not a separate legal entity and therefore does not pay tax)

Question 39

Q

A firm of surveyors is seeking your advice in relation to a contract entered into by one of the partners. The contract was for a building project and the managing partner had agreed that the partners would do the work for £5,000. The remaining partners are upset as they believe that the managing partner significantly under-quoted for this project and that in fact they should be charging at least £7,000.

Work has not yet started on this contract since the remaining partners are seeking to avoid the contract on the basis that the managing partner was not authorised to enter into it. The written partnership agreement requires that all quotes for work should be signed off by at least two partners.

Which one of the following is the best advice to the partnership?

A) The partnership will be bound by the contract since the act is for carrying on business of the kind carried on by the firm, in the usual way. There does not appear to be anything on the facts to indicate that the customer knew that the managing partner was not authorised to enter into the contract on behalf of the firm.

B) The partnership will not be bound by the contract since the written partnership agreement requires that all quotes for work should be signed off by at least two partners. The managing partner was therefore acting in breach of the partnership agreement.

C) The partnership will be bound by the contract since the other partners, in allowing the managing partner to give the quote, will be said to have ratified the partner’s act.

Answer

A

A) The partnership will be bound by the contract since the act is for carrying on business of the kind carried on by the firm, in the usual way. There does not appear to be anything on the facts to indicate that the customer knew that the managing partner was not authorised to enter into the contract on behalf of the firm.

Question 40

Q

Three individuals (Partner X, Partner Y, and Partner Z) began trading together as a partnership 12 months ago. The partners have never signed a partnership agreement.

Partner X contributed 55% of the start up capital; partner Y contributed 40% of the start up capital and Partner C contributed 5% of the start up capital.

Which of the following statements represents the correct position with regards to the rights to the profits of the partnership and a salary for each partner under the default provisions of the Partnership Act 1890?

A) None of the partners are entitled to a share of the profits; all of the partners are entitled to a an equal salary.

B) All three partners are entitled to an equal share of the profits; none of the partners are entitled to a salary.

C) The three partners are entitled to a profit share in the proportion to their capital investments; and a salary in the proportion to their capital investments.

D) All three partners are entitled to an equal share of the profits; all three partners are entitled to receive a salary in the proportion of their capital investments.

E) The three partners are entitled to a profit share in the proportion to their capital investments; none of the partners are entitled to a salary.

Answer

A

B) All three partners are entitled to an equal share of the profits; none of the partners are entitled to a salary.

Question 41

Q

Three individuals have started a business together and have been working in partnership for six months. They have not entered into any formal partnership agreement. Two of the individuals would like to introduce a new partner to the business, but the third individual has reservations about the new proposed partner.

Which of the following is the correct advice as to the appointment of the new partner?

A) In the absence of agreement, the appointment of a new partner requires a majority vote therefore two of the partners can appoint the proposed new partner without the agreement of the third partner.

B) In the absence of agreement, the appointment of a new partner requires unanimity therefore two of the partners cannot appoint the proposed new partner without the agreement of the third existing partner.

C) In the absence of agreement, it is not possible to introduce a new partner to an existing partnership. The effect of this will be that the existing partnership is dissolved, and a new partnership will arise automatically once the new individual commences working with the other partners.

Answer

A

B) In the absence of agreement, the appointment of a new partner requires unanimity therefore two of the partners cannot appoint the proposed new partner without the agreement of the third existing partner.

Question 42

Q

Five partners are in a partnership with no formal partnership agreement. Four of the partners are unhappy with the fifth partner and wish to remove the partner.

Which of the following statements represents the correct advice to the partners about removal of the fifth partner?

A) It will be possible for the four partners to remove the fifth partner because they represent a majority.

B) Once removed, the partnership will continue without the fifth partner.

C) It will not be possible to remove the fifth partner without unanimous consent.

D) Once removed, the partnership will continue without the fifth partner, provided that the partners appoint a fifth partner to take the place of the expelled partner.

E) Once the partner leaves, they will have no claim on the partnership assets.

Answer

A

C) It will not be possible to remove the fifth partner without unanimous consent.

Question 43

Q

Two months ago a couple set up an LLP through which to operate their business. They had been trading as a traditional partnership before the incorporation of the LLP.

Which of the following best describes the change in taxation?

A) The LLP will pay corporation tax and the partners will continue to pay income tax.

B) The partners will pay income tax on their dividends from the LLP instead of their earning from the partnership.

C) There is no change in taxation; the LLP is treated as a partnership for taxation purposes.

D) The partners will now need to pay corporation tax, instead of income tax.

E) Both the LLP and the partners will pay income tax.

Answer

A

C) There is no change in taxation; the LLP is treated as a partnership for taxation purposes.

Question 44

Q

Two individuals want to start a business together and their main concern is to limit their personal liability. They are choosing between a traditional partnership and an LLP. They are both going to be active in the running of the business. They do not want to spend a lot of money in the set up of the business but they need the ability to raise some finance in the future.

Which of the following represents the best advice to this client for their business?

A) The individuals should incorporate an LLP because they will enjoy limited liability.

B) The individuals should incorporate an LLP because it is not necessary to have a partnership agreement, which will save costs.

C) The individuals should incorporate an LLP because it will be cheaper than starting a traditional partnership.

D) The individuals should trade as a partnership because it will be cheaper.

E) The individuals should trade as a partnership as they will have limited liability for debts.

Answer

A

A) The individuals should incorporate an LLP because they will enjoy limited liability.

Question 45

Q

Which one of the following is generally seen as an advantage of an LLP when compared to a private limited company?

A) LLPs are capable of creating a floating charge over the assets of the LLP.

B) Partners in an LLP have limited liability.

C) There is little set statutory procedure to follow for an LLP when the partners are making decisions and in day to day management.

D) LLPs are not required to file accounts at Companies House.

E) An LLP has a separate legal personality from its members.

Answer

A

C) There is little set statutory procedure to follow for an LLP when the partners are making decisions and in day to day management.

Question 46

Q

Two individuals (Partner A and Partner B) began trading together as a partnership five years ago. Two years ago a third partner, (Partner C) joined the partnership.

Partner A put in 75% of the start up capital and partner B put in the remaining 25%. Partner C has never contributed any capital but the partnership uses a warehouse owned by Partner C. The partners have never entered into any formal agreement.

Which of the following statements represents the correct position with regards to the rights to the profits of the partnership and a salary for each partner under the default provisions of the Partnership Act 1890?

A) Partner A and Partner B are entitled to an equal share of the profits, but Partner C is not entitled to any profits. None of the partners are entitled to a salary.

B) The three partners are entitled to a share of the profits equal to the percentage of their original capital investment and no salary.

C) Partner A and Partner B are entitled to an equal share of the profits, but Partner C is not entitled to any profits. All three partners are entitled to an equal salary.

D) The three partners are entitled to an equal share of the profits and a salary in equal proportions to their original capital investment.

E) The three partners are entitled to an equal share of the profits but none of the Partners are entitled to a salary

Answer

A

E) The three partners are entitled to an equal share of the profits but none of the Partners are entitled to a salary

(Correct. Under the Partnership Act 1890 all partners are entitled to an equal share of the profits, regardless of their original investment and the PA 1890 states that unless it is agreed to the contrary no partner shall take a salary)

Question 47

Q

Two individuals want to start a business together and are keen to limit their liability. They are both going to be active in the running of the business. They do not want to spend a lot of money in the set up of the business, but they need the ability to raise some finance in the future in the business name.

Which of the following would be the best vehicle for their business?

A) A partnership

B) A sole trader

C) A public limited company

D) A limited liability partnership

E) A private limited company

Answer

A

E) A private limited company

(Correct. This option has the ability to raise finance and limit the personal liability of the individuals)

Question 48

Q

You act for a partnership which is made up of 8 partners. There is no written partnership agreement. Profits have always been shared equally between the partners.

Three years ago, the partners all agreed to take out a loan to renovate their main office. The partners all contributed equally to repaying the loan. Unfortunately, the partnership has not been profitable, and they have recently defaulted on the loan repayments.

One of the partners is about to retire. No documentation has been drafted to confirm the details of her retirement. Can the partner who is about to retire be liable for repaying any of the loan?

A) Yes, because there is no written partnership agreement therefore under the default provisions of the Partnership Act 1890, all those persons who were partners at the time that the loan agreement was entered into will be jointly liable for repaying the loan regardless of retirement.

B) No, because there is no written partnership agreement therefore under the default provisions of the Partnership Act 1890, only the current partners will be jointly liable for debts of the partnership.

C) No, because the partners have not entered into a written partnership agreement which deals with liability on retirement therefore once the partner retires, she is no longer a partner and therefore has no liability for any debts of the partnership.

D) No, because there is no written partnership agreement therefore under the default provisions of the Partnership Act 1890, only the current partners will be jointly and severally liable for debts of the partnership.

E) Yes, because there is no written partnership agreement therefore under the default provisions of the Partnership Act 1890, all those persons who were partners at the time that the loan agreement was entered into will be be jointly and severally liable for repaying the loan regardless of retirement.

Answer

A

A) Yes, because there is no written partnership agreement therefore under the default provisions of the Partnership Act 1890, all those persons who were partners at the time that the loan agreement was entered into will be jointly liable for repaying the loan regardless of retirement.

(Correct. Under the Partnership Act 1890 every partner is jointly liable for contractual debts and a partner will still be liable even though they have retired)

Question 49

Q

Client A and client B are looking to start up a new business offering commercial cleaning services locally. The only requirements of the clients are that (i) the profits and capital of the business are split equally between them and (ii) their liability is limited to their investment in the business (the ‘Agreed Terms’). Provided that these requirements are met, the clients want as little formality and documentation as possible.

What type of partnership would be most appropriate for the clients?

A) A partnership because although it requires a written agreement to operate on the Agreed Terms and is not a separate legal entity, it does offer limited liability.

B) A limited liability partnership because although it requires a written agreement to operate on the Agreed Terms, it is a separate legal entity offering limited liability.

C) A limited liability partnership because although it is not a separate legal entity it does offer limited liability and does not require a written agreement to operate on the Agreed Terms.

D) A limited liability partnership because it is a separate legal entity offering limited liability and does not require a written agreement to operate on the Agreed Terms.

E) A partnership because although it is not a separate legal entity, it offers limited liability and does not require a written agreement to operate on the Agreed Terms.

Answer

A

D) A limited liability partnership because it is a separate legal entity offering limited liability and does not require a written agreement to operate on the Agreed Terms

(Correct. Whilst the other answer options might sound plausible, they are each incorrect. A partnership is not a separate legal entity and does not offer limited liability for the partners whereas the opposite is true for a limited liability partnership. Additionally, a partnership agreement is not legally required to set up a partnership or limited liability partnership and would not strictly be needed if the terms agreed matched the statutory default provisions)

Question 50

Q

Your client is in the process of setting up an online recruitment business. In the future, it is hoped that staff will be employed to undertake a variety of tasks within the business, but for now, all work is carried out by your client who has secured investment from a family member. It has been agreed verbally that the family member will not be entitled salary and will not have any involvement in the day-to-day running of the business. Your client intends to take a salary from the business, but he has not discussed this with the family investor.

You have advised your client on the choice of business medium for this venture and your client has decided that a partnership would be the best option. Your client is keen to keep legal work and formality to a minimum at this stage and has asked you to explain the implications of continuing without a partnership agreement until the business has a regular turnover.

Which of the following statements best describes the impact of your client accepting the investment and continuing without a partnership agreement?

A) Neither partner would be entitled to any salary, both partners would be entitled to equal shares in the profits of the partnership and decisions would require the consent of both partners.

B) Both partners would be entitled to equal salaries, equal shares in the profits of the partnership and decisions would require the consent of both partners.

C) Neither partner would be entitled to any salary, your client would be entitled to all of the profits of the partnership and decisions would be made by your client alone.

D) Neither partner would be entitled to any salary, both partners would be entitled to equal shares in the profits of the partnership and decisions would be made by your client alone.

E) Both partners would be entitled to equal salaries and equal shares in the profits of the partnership, but decisions would be made by your client alone.

Answer

A

D) Neither partner would be entitled to any salary, both partners would be entitled to equal shares in the profits of the partnership and decisions would be made by your client alone

(Correct. The Partnership Act 1890 contains a default code, which applies to relations between the partners themselves in the absence of any contrary agreement. Here, there is a contrary agreement which provides that the family member will not be entitled to a salary and will not participate in decisions of the partnership. The default provisions will apply in respect of your client’s salary (no entitlement) and profit share (equal shares))

Question 51

Q

You are advising a client about incorporating a limited company.

Which of the following statement about the constitution of the company is correct?

A) The client will not need a memorandum of association to incorporate a company.

B) The newly incorporated company will have unrestricted objects unless the client chooses to restrict them.

C) The main constitutional documents will be the memorandum.

D) If there is a conflict between the Articles of Association and the CA 2006, the Articles of Association will prevail.

Answer

A

B) The newly incorporated company will have unrestricted objects unless the client chooses to restrict them.

Question 52

Q

A company was incorporated in 2010. Which of the following statements about the company’s memorandum is correct?

A) The memorandum has no constitutional significance but it is required to be filed on incorporation. It simply amounts to a declaration on the part of the company’s subscribers that they wish to form a company and agree to become members of that company.

B) The memorandum is a constitutional document. It will include an objects clause setting out the purposes for which the company has been formed. Any acts outside the scope of the objects clause are said to be ultra vires.

C) Since this company was incorporated in 2010, it would not have required a memorandum.

Answer

A

A) The memorandum has no constitutional significance but it is required to be filed on incorporation. It simply amounts to a declaration on the part of the company’s subscribers that they wish to form a company and agree to become members of that company.

Question 53

Q

Which of the following statements correctly describes the legal effect of the articles of a company?

A) The Articles take effect as a contract between the members themselves in their personal capacities and therefore members may enforce provisions contained in the Articles directly against other members.

B) The Articles take effect as a contract between the members themselves in their personal capacities. Members are able to enforce the provisions of the Articles both against the company and directly against other members.

C) The Articles take effect as a contract between the company and its members. Members are able to enforce the provisions of the Articles both against the company and directly against other members.

D) The Articles take effect as a contract between the company and its members. Members will only be able to enforce provisions contained in Articles against other members through the company itself.

Answer

A

D) The Articles take effect as a contract between the company and its members. Members will only be able to enforce provisions contained in Articles against other members through the company itself.

Question 54

Q

You are advising a client on a shelf company conversion. As part of the conversion, the client wishes to change the name of the company. The company has unamended Model Articles.

Which one of the following statements about the company name is correct?

A) The new name will be effective once the Registrar of Companies issues a new certificate of incorporation.

B) The company requires an ordinary resolution to change the name of the company.

C) The new name will be effective once the Company votes to change the name.

D) The new name will be effective once the correct form has been submitted to Companies House.

E) The Directors can change the name themselves once they are appointed to the Board.

Answer

A

A) The new name will be effective once the Registrar of Companies issues a new certificate of incorporation.

Question 55

Q

You are instructed to convert a shelf company PP123 Limited for your client. The one issued share will be transferred to your client WYX Plc and your client plans to appoint 2 directors from its own board to the board of the shelf company.

Which one of the following statements about the conversion is correct?

A) Your client will control PP123 Limited once it is entered on the register of members.

B) PP123 Limited will be a separate legal entity after the conversion.

C) Your client will control PP123 Limited once its shareholding is paid for.

D) The current directors should resign before the new directors are appointed to ensure a clean break.

E) Your client will control PP123 Limited once the share transfer is registered at Companies House.

Answer

A

A) Your client will control PP123 Limited once it is entered on the register of members.

Question 56

Q

Your client wishes to incorporate from scratch a new company, which will have unamended Model Articles. Which one of the following correctly describes the documents that will need to be filed at Companies House?

A) The memorandum, fee, the company’s Articles and Form IN01.

B) The memorandum, fee and Form IN01.

C) The fee, Model Articles and Form IN01.

D) The memorandum, fee, Model Articles and Form IN01.

E) The fee and Form IN01.

Answer

A

B) The memorandum, fee and Form IN01.

Question 57

Q

A company has unamended model articles and 4 shareholders with the following shareholdings:

A - 500 (50%)

B - 250 (25%)

C - 150 (15%)

D - 100 (10%)

The company wishes to shareholders to pass a special resolution using the written resolution procedure.

Which of the following statements is correct advice regarding the procedure?

A) A and B can pass the special resolution alone.

B) If C and D abstain, their votes won’t count.

C) All shareholders must unanimously consent to the written resolution.

D) If one of the shareholders doesn’t vote for 21 days because they miss the email, it will be too late to vote for the resolution as the written resolution will have lapsed.

E) The special resolution can only be passed if 3 of the 4 shareholders vote in favour.

Answer

A

A) A and B can pass the special resolution alone.

Question 58

Q

A company has unamended model articles and 4 shareholders with the following shareholdings:

A - 500 (50%)

B - 250 (25%)

C - 150 (15%)

D - 100 (10%)

The company wishes to shareholders to pass an ordinary resolution at a General Meeting. All shareholders will attend the meeting and vote.

Which of the following statements is correct advice regarding the procedure?

A) A can pass the ordinary resolution alone.

B) If A is not in favour of the resolution, it cannot be passed.

C) The ordinary resolution can only be passed if 3 of the 4 shareholders vote in favour.

D) If B, C and D all vote in favour of the ordinary resolution, it will be passed despite A voting against it.

Answer

A

B) If A is not in favour of the resolution, it cannot be passed

(Correct. A holds 50% of the shares therefore can call a poll vote and is able to block the ordinary resolution (since more than 50% is required to pass))

Question 59

Q

A company has unamended model articles and 4 shareholders with the following shareholdings:

A - 500 (50%)

B - 250 (25%)

C - 150 (15%)

D - 100 (10%)

The company wishes to shareholders to pass a special resolution at a General Meeting. All shareholders will attend the meeting and vote.

Which of the following statements is the correct advice regarding the procedure?

A) If B votes against the special resolution, it cannot be passed.

B) A, B and either C or D will need to vote in favour for the special resolution to be passed.

C) The special resolution may be passed by A and B alone.

D) The special resolution can be passed if any 3 of the 4 shareholders vote in favour.

Answer

A

C) The special resolution may be passed by A and B alone

(Correct. A majority of 75% or more is required to pass a special resolution)

Question 60

Q

A company has unamended Model Articles and an issued share capital of 100,000 ordinary shares which is held by the following shareholders:

A 5,000 (5%)

B 20,000 (20%)

C 70,000 (70%)

D 2,000 (2%)

E 3,000 (3%)

Which one of the following combinations of shareholders would be able to consent to the meeting being held on short notice?

A) C, D and E

B) A, D and E

C) B and C

D) B, C and D

E) A, B, and D

Answer

A

D) B, C and D

Question 61

Q

A company with unamended Model Articles wishes to change its articles by special resolution. The company has four shareholders, two of whom are also directors. The company does not use the written resolution procedure and therefore a General Meeting will need to be held. Which of the following correctly sets out the requirements for a valid General Meeting?

A) The Board must call the General Meeting, giving 14 clear days’ notice. The quorum for the meeting is 2 shareholders.

B) The Board must call the General Meeting on reasonable notice. The quorum for the meeting is 2 shareholders.

C) The Board must call the General Meeting, giving 14 days’ notice. The quorum for the meeting is 2 shareholders.

D) The Board must call the General Meeting, giving 14 clear days’ notice. The quorum for the meeting is 1 shareholder. Voting takes place on a show of hands unless a poll vote is demanded.

E) The shareholders must call the General Meeting, giving 14 clear days’ notice. The quorum for the meeting is 2 shareholders. Voting takes place on a show of hands unless a poll vote is demanded.

Answer

A

A) The Board must call the General Meeting, giving 14 clear days’ notice. The quorum for the meeting is 2 shareholders.

Question 62

Q

A company has held a general meeting to:

Amend its articles by special resolution and
Authorise a loan to a director by ordinary resolution
Which one of the following options represents the correct pair of documents that must be filed at Companies House?

A) Copy of the special resolution and a copy of the ordinary resolution.

B) Copy of the amended articles and the general meeting minutes where the approval for the loan occurred.

C) Copy of the amended articles and a copy of the ordinary resolution.

D) Copy of special resolution and a copy of the loan agreement.

E) Copy of the amended articles and a copy of the special resolution.

Answer

A

E) Copy of the amended articles and a copy of the special resolution.

Question 63

Q

A corporate client of your law firm has bought a shelf company named Shelfco 123 Ltd (‘Shelfco Ltd’) on your recommendation. Shelfco Ltd has unamended Model Articles for a private company limited by shares. The Board of Directors of Shelfco Ltd wishes to change the name of the company to a more suitable commercial name. What is the correct procedure for changing the company name of Shelfco Ltd under the Companies Act 2006? (Assume the name chosen by the client is available and not subject to any objections by another party.)

A) To change the name of Shelfco Ltd under the Companies Act 2006, Shelfco Ltd’s shareholders must pass an Ordinary Resolution.

B) To change the name of Shelfco Ltd under the Companies Act 2006, Shelfco Ltd’s shareholders may pass an Ordinary Resolution. Alternatively, the Board may pass a Board Resolution.

C) To change the name of Shelfco Ltd under the Companies Act 2006, Shelfco Ltd’s shareholders may pass a special resolution. Alternatively, the Board may pass a Board Resolution.

D) To change the name of Shelfco Ltd under the Companies Act 2006, Shelfco Ltd’s Board merely needs to pass a Board Resolution.

E) To change the name of Shelfco Ltd under the Companies Act 2006, Shelfco Ltd’s shareholders must pass a special resolution.

Answer

A

E) To change the name of Shelfco Ltd under the Companies Act 2006, Shelfco Ltd’s shareholders must pass a special resolution.

(Correct. Section 77(1)(a) Companies Act 2006 requires the shareholders of Shelfco Ltd to pass a Special Resolution. Section 77(1)(b) does allow for the company to determine another method for changing the name in its articles but since Shelfco Ltd has unamended Model Articles, the only option is to use the special resolution procedure)

Question 64

Q

A company entered into a contract with an office equipment supplier to purchase 3 projectors. The contract was signed by the sole director on behalf of the company. The director and his wife are the shareholders of the company. The supplier delivered the projectors as agreed but the company failed to pay the purchase price.

Which statement best describes what legal action the supplier can take?

A) The supplier can sue the sole director for the purchase price.

B) The supplier can sue the company for the purchase price.

C) The supplier can sue the company and the shareholders for the purchase price.

D) The supplier can sue the shareholders for the purchase price.

E) The supplier can sue the company and the director for the purchase price.

Answer

A

B) The supplier can sue the company for the purchase price

(This is correct. The doctrine of separate legal liability means that the company is liable for its own debts)

Answer 65

A

C) A

(Correct. Under s 51(1) Companies Act 2006, the person signing the purported agreement between the unincorporated company and C would be personally liable)

Answer 66

A

A) A special resolution to change the Company’s name, board resolutions to appoint the New Directors, board resolutions to accept the resignations of the Existing Directors and a board resolution to change the Company’s registered office

(Correct. This answer reflects the most expeditious and correct way of implementing the client’s required changes. While the other answer options might sound plausible, they are each incorrect. Since the Company has unamended Model Articles of Association for Private Companies Limited by Shares, a special resolution is required to change its name. Although it is possible to appoint directors by board resolution or by ordinary resolution, the most expeditious way of appointing the New Directors (and what is generally done in practice) is by board resolution. The Existing Directors would resign as directors and a board resolution would be passed accepting their letters of resignation. Changing the registered office of the Company would be effected by the passing of a board resolution, followed by the filing of the relevant form at Companies House)

Answer 67

A

D) The change of name will be effective once the Registrar of Companies has issued the certificate of incorporation on a change of name

(Correct. A change of name will be effective once the Registrar of Companies has issued the certificate of incorporation on a change of name (s 16 CA 2006). The company registration number will not change)

Answer 68

A

C) The insolvency practitioner is unlikely to be considered a shadow director.

Answer 69

A

E) The brother is likely to be considered a shadow director.

(Correct. Section 251(1) CA 2006 defines a shadow director as ‘a person in accordance with whose directions or instructions the directors of the company are accustomed to act’)

Answer 70

A

E) A private limited company must have a minimum of one director. A secretary is not required. A public limited company must have a minimum of two directors and a company secretary.

Answer 71

A

D) The company must file form AP01 at Companies House in relation to the director’s appointment. The directors’ service contract must be kept for inspection at the company’s registered office.

Answer 72

A

A) Information concerning directors’ salaries, bonus payments and pension entitlements and any compensation paid to directors and past directors for loss of office.

Answer 73

A

D) The directors can appoint the new director to the board with a board resolution.

Answer 74

A

C) One of the factors for the directors to consider in deciding whether to go ahead with the proposal will be the environmental impact of the plant.

Answer 75

A

A) Directors must act within the company’s constitution and must exercise their powers for the purposes for which they are conferred.

Answer 76

A

E) The company.

Answer 77

A

C) The company will likely be entitled to damages for the breach.

Answer 78

A

E) The director should declare their interest in the proposed transaction to the board of ABC Ltd at the earliest opportunity and before the transaction is interested into.

Answer 79

A

B) Where the board is voting on the terms of the director’s service contract

(Correct. There is an exception under s 177(6)(c ) that applies here)

Answer 80

A

B) The company is a wholly owned subsidiary so is exempt from obtaining approval.

Answer 81

A

C) A contract with an initial term of 18 months, where the director has an option to extend the contract for a further year, provided they give notice to the company six months before the expiry of the initial period. The company does not have the same right to renew. During the period of the agreement the company can only terminate the employment if the director breaches the disciplinary policy.

(Not 3yrs as company can terminate contract on 6mos notice)

Answer 82

A

B) Shareholder approval will be required by ordinary resolution because this contract fits within the definition of a guaranteed term of more than two years.

Answer 83

A

B) Shareholder approval is not required because “aunt” is not a person connected to a director and therefore the acquisition does not fall within the legislation.

Answer 84

A

D) Shareholder approval by ordinary resolution will be required from the shareholders of DEF Ltd only

(Correct. This is a substantial property transaction with a director of the company and the holding company, therefore shareholder approval will be needed. Since ABC Ltd is a wholly owned subsidiary, no approval is required from its members)

Answer 85

A

A) The disposal of some equipment worth £75,000 by Company A to another company in which one of Company’s A’s directors has a 25% shareholding

(Correct. The value of the equipment exceeds 10% of the net asset value of the company and the disposal is to a connected person of one of the directors)

Answer 86

A

B) Shareholder approval will be required from Parent Plc but not Subsidiary Ltd.

Answer 87

A

C) Shareholder approval by ordinary resolution will be required. ABC Ltd should prepare a memorandum setting out the terms of the proposed transaction and submit this to the shareholders together with a written resolution to approve the loan. The ordinary resolution will be passed as soon as over 50% of the shareholders sign the written resolution

(Correct. Shareholder approval will be required since this is a loan to one of the company’s directors and it does not fall within any of the exceptions. Since ABC Ltd wishes to provide the loan as quickly as possible, a written resolution should be used to avoid the 15-day notice requirement for the memorandum)

Answer 88

A

E) ABC Ltd wishes to provide a guarantee for a bank loan for £15,000 to one of its directors.

(Correct. This falls within s 197 therefore shareholder approval is required)

Answer 89

A

A) The company should use the written resolution procedure as this should allow the process to be shortened significantly

(Correct. The written resolution procedure is the only procedure that can be used to potentially bring down the time period significantly. The fact pattern indicates that all shareholders are expected to be available and responsive so there is no reason to suggest that a written resolution would take longer than a general meeting whether on short notice or not. The company will need to comply with the provisions of s 188(5)(a) Companies Act 2006 and with the general rules on the written resolution procedure – see s 288 Companies Act 2006 onwards. Use of the short notice procedure for the sake of time is incorrect given that, in the case of directors’ long term service contracts, s 188(5)(b) Companies Act 2006 requires a memorandum setting out the proposed contract to be made available to the members (i) at the company’s registered office for not less than 15 days ending with the date of the meeting and (ii) at the meeting itself. In reality, therefore, this would only shorten the ‘normal’ procedure by one day – i.e. 15 days instead of 14 clear days. Use of the written resolution procedure for the reasoning that it will allow all shareholders to have an opportunity to participate in the voting is incorrect as the scenario states that all shareholders are due to be available and responsive over the coming weeks)

Answer 90

A

D) The MD should declare their interest in the proposed contract with Company B at the board meeting of Company A. The MD will not be allowed to vote on the proposed contract at the board meeting

(This is correct. This is the effect of Model Article 14 and s 177 of the Companies Act 2006)

Answer 91

A

A) Company B must seek shareholder approval for the Contract by ordinary resolution. If it fails to do so, clause 11 of the Contract would be void and deemed replaced with a clause allowing Company B to terminate the Contract on reasonable notice.

(Correct. This answer reflects the correct position. While the other answer option might sound plausible, they are each incorrect. Clause 11 of the Contract constitutes a “guaranteed term” of more than two years. As such, Company B cannot agree to such a provision unless it has been approved by the shareholders by ordinary resolution. If Company B enters into the Contract without the Term being approved by the shareholders as described, the contravening clause (clause 11) would be void to the extent of the contravention and the Contract would be deemed to contain a term entitling Company B to terminate it at any time by giving reasonable notice)

Answer 92

A

C) Shareholder resolution: Ordinary resolution to approve the loan.
Board resolutions: (1) Approve notice of general meeting, (2) convene general meeting, (3) instruct company secretary to make available to the shareholders a memorandum setting out the nature, amount and purpose of the Loan, (4) approve entry into the loan agreement, (5) authorise a director to sign the Loan agreement on behalf of the Company, (6) instruct company secretary to deal with post meeting matters

(Correct. This answer reflects the correct position. While the other answer options might sound plausible, they are each incorrect. A company may not make a loan to its director unless the transaction has been approved by the shareholders passing an ordinary resolution. This is the only shareholder resolution required to implement the Loan. Since the Company does not use the written resolution procedure for such matters, a general meeting will need to be convened. A board meeting will therefore be required and board resolutions passed to convene the general meeting and approve the form of notice for the meeting. The ordinary resolution approving the Loan may not be passed unless a memorandum setting out the nature and amount of the Loan and the purpose for which it is required is made available for inspection by the shareholders for at least 15 days ending with the date of the general meeting at which it is voted on and at the general meeting itself. Once the ordinary resolution approving the Loan is passed by the shareholders, a second board meeting is required to implement the Loan. This will entail passing board resolutions to approve entering into the loan agreement and appointing a director to sign the document on behalf of the Company. A board resolution requiring the company secretary to deal with post meeting matters is also required)

Answer 93

A

B) No shareholder resolution is necessary because the Companies Act 2006 does not require approval of this transaction

(Correct. No shareholder resolution is necessary. The transaction described is a quasi-loan, as defined in s 199 Companies Act 2006. The requirement in s 198 (2) for shareholders to approve a quasi-loan to a director of a company applies only if such company is either (i) a public company or (ii) a private company associated with a public company. The company in this case is a private limited company. Because it is owned by individuals and has no subsidiaries, we can conclude that it is not associated with a public company (s 256))

Answer 94

A

C) 5%

(Correct. Shareholders together holding not less than 5% of the paid-up voting share capital of the company can require a general meeting, by serving a request on the company.)

Answer 95

A

B) The shareholders should enter a shareholders’ agreement requiring unanimity to remove a director.

Answer 96

A

B) They would not have a claim under the articles as rights which do not relate to their membership are not enforceable under s 33 CA 2006.

Answer 97

A

E) If the resolution is passed to remove the director, they will likely have a claim for breach of the shareholders’ agreement against the shareholders that voted for the resolution.

Answer 98

A

D) The board does not need to put this on the agenda of a GM to be considered.

Answer 99

A

B) Day 50

Answer 100

A

D) A claim brought by a member in respect of a cause of action vested in the company seeking relief on behalf of the company.

Answer 101

A

D) The shareholder can bring a claim against the defaulting director and his wife.

Answer 102

A

B) The complaining shareholder will not be able to bring a derivative claim because they are no longer a member.

Answer 103

A

C) Unfair prejudice under s 994 CA 2006.

Answer 104

A

A) An order that the company or the other shareholders purchase the petitioner’s shares.

Answer 105

A

A) The petitioner must show that the company’s affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of its members generally or of some part of its members.

Answer 106

A

C) Your client can be removed as a director of the company by the shareholders passing an ordinary resolution. However, if removed, your client could bring a claim for breach of contract against the other shareholders who voted in favour of his removal.

(Correct. The shareholder’s vote would still be effective under s 168(1) CA 2006, but your client would be able to bring an action for breach of contract (i.e. the shareholders’ agreement). Remember that this agreement was a private agreement amongst the shareholders and does not bind the company.)

Answer 107

A

C) Your client should pursue an unfair prejudice claim. The company is likely to qualify as a quasi-partnership. If successful, it is likely that the court would order the purchase of your client’s shares by the other shareholders or by the company

(Correct. This will provide your client with a mechanism to recover their investment in the company without the difficulty of having to find an external investor to buy their shares. Based on the information you have been provided this action is most likely to be successful)

Answer 108

A

B) A special notice of the proposed resolution for removal and a request requiring the directors to call a general meeting.

(Correct. Shareholders can remove a director by passing an Ordinary Resolution under s 168(1) CA 2006. Section 168(2) requires the shareholders to serve special notice of the proposed resolution. The directors are not obliged to place the proposed resolution on the agenda at a meeting of the shareholders (Pedley v Inland Waterways Association Ltd) and on the facts they are unlikely to. The shareholders can call a general meeting themselves in accordance with s 303 CA 2006. In order for unhappy shareholders to ensure the resolution to remove a director is heard as soon as possible, they will submit a s 303 CA 2006 request requiring the directors to call a general meeting at the same time as sending their s 312 CA 2006 special notice to the board. The written resolution procedure cannot be used to remove a director (s 288(2)(a) CA 2006))

Answer 109

A

C) The Board should put the Resolution on the agenda for the upcoming general meeting, since if the Board does not do so, then the Shareholders can call a general meeting to move the Resolution

(Correct. The special notice period can be observed. Although technically the Board may refuse to place the Resolution on the agenda of the next general meeting (Pedley v Inland Waterways), it would be unwise to do so as the Shareholders meet the 5% voting threshold to call the general meeting if the Board fails to do so within 21 days of notice of intention to remove a director)

Answer 110

A

D) A shareholders’ agreement

(Correct. Remember that any provision in the articles which requires the company to restrict its statutory powers in any way will be void. Shareholders on the other hand may deal with how they should exercise their voting rights however they so agree. Any such provision should be set out in a shareholders’ agreement and not the articles so that such a provision is a personal obligation between the shareholders only and not a restriction on the company)

Answer 111

A

A) 5% cumulative preference shares.

Answer 112

A

C) 4% participating non-cumulative preference shares.

Answer 113

A

B) When their name is entered into the company’s register of members.

Answer 114

A

B) When their name is entered into the company’s register of members

Correct. See section 112(2) CA 2006.

Answer 115

A

D) When an existing shareholder of the company gifts their shares to a family member during their life.

Correct. This is a transfer of shares and therefore a stock transfer form is required.

Answer 116

A

C) Stamp duty of 0.5% of the value of the transfer will be payable be B.

Answer 117

A

D) The company will need an ordinary resolution from the shareholders to give the directors authority to allot the shares.

Answer 118

A

E) The company will need a special resolution to disapply pre-emption rights because the shares are equity securities.

Answer 119

A

B) An ordinary resolution to give the directors authority to allot the shares and a special resolution to disapply pre-emption rights.

Answer 120

A

A) Only the security proposed by the Plc subsidiary is caught by the prohibited financial assistance regime.

Answer 121

A

A) The security offered by the Target and both subsidiaries will be caught by the prohibited financial assistance regime.

Answer 122

A

B) None of the security options fall within the prohibited financial assistance regime.

Answer 123

A

A) The terms on which redeemable shares may be redeemed are determined at the time that the shares are issued and are set out in the company’s articles.

Answer 124

A

C) The share capital of a company is seen as a permanent fund available to its creditors. Companies are not permitted to return capital to shareholders other than in limited circumstances.

Answer 125

A

C) An ordinary resolution to approve the terms of the contract for the buyback and a special resolution to approve the payment out of capital.

Answer 126

A

E) The receipts from the sale of the oil painting and shares in XYZ Plc are capital receipts and the dividend is an income receipt.

Answer 127

A

C) The expenditure on heating and lighting and the advertising campaign are income expenditure. The expenditure on the new printing press machine is capital expenditure.

Answer 128

A

D) The sums received from the sale of the painting and the grandfather clock will be income receipts and the sum received from the sale of the share portfolio will be a capital receipt.

Answer 129

A

£8,855

Correct. The correct calculation is:
Dividend £35,000 Other non-savings income £26,225 Available Basic Rate (£37,700 - £26,225) £11,475 Dividend will be taxed as follows: £1,000 @ 0% dividend nil rate £0 Remaining Basic Rate (£11,475 - £1,000) £10,475 @ 8.75% £916 Higher rate for remaining(£35,000 - £1,000 - 11,475) £23,525 @ 33.75% £7,939
Total tax payable on dividend £8,855

Answer 130

A

£67,750

Correct. Add up all of the sources of income to work out Total Income - trading profit of £73,000, plus savings income of £2,250 and dividend income of £1,000 = £76,250.
To work out the Net Income figure, you subtract available tax reliefs, which in this case are the pension contributions of £5,000 and the interest on the loan to invest in the business of £3,500 = £8,500.
£76,250 - £8,500 = £67,750 (Net Income).
The receipt of £5,000 for the sale of the painting is a one off transaction and so is a capital receipt, not income.

Answer 131

A

£1,360

Correct.
The correct calculation is:
Interest 5,000 Other non-savings income 35,000 Available Basic Rate (37,700 – 35,000) 2,700 Interest will be taxed as follows: £500 @ 0% PSA nil rate £0 Remaining Basic Rate (2,700-500) 2200 @ 20% £440 Higher rate for remaining 2,300 @ 40% £920
Total tax payable on savings£1360

Answer 132

A

£21,780

Correct. The correct calculation is:
Consideration £225,000
Less costs of disposal (£900)
Net sale proceeds: £224,100
Less base cost 200 shares @ £1.50 (£300)
Total chargeable gain £223,800
Less AE (£6,000)
Taxable chargeable gain: £217,800
Taxed at 10% as TP would be entitled to Business Asset Disposal Relief = £21,780

Answer 133

A

A) Replacement of roof tiles to the shop following a storm in 2006.

Answer 134

A

C) The taxpayer will not benefit from Business Asset Disposal relief because not all of the criteria are met.

Answer 135

A

Inheritance Tax

Answer 136

A

PETs, LCTs and death

Answer 137

A

C) A business consisting wholly or mainly for making or holding investments.

Answer 138

A

D) 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

Correct. The company has no cap as it has unamended Model Articles. An OR is required to give directors authority to allot as there are more than one class of shares in issue (s 550 does not apply). The preference shares are equity securities (s 560) as they carry a right to participate so pre-emption rights must be disapplied by SR (s 570(1). As the Company has only ordinary shares in issue the articles must be amended by SR to create the rights to the preference shares.

Answer 139

A

A) The security given by the Target, the Public Subsidiary and the Private Subsidiary would be unlawful financial assistance

Correct. By virtue of s 678(1) CA 06 where a person is acquiring or proposing to acquire shares in a public limited company it is not lawful for that company (ie the Target) or a company that is a subsidiary of that company (ie the Public Subsidiary and the Private Subsidiary) to give financial assistance either directly or indirectly for the purpose of the acquisition.

Answer 140

A

E) None of the proposed security would fall within the prohibited financial assistance provisions.

Correct. As the target company is a private limited company, ONLY PLC subsidiaries of the TARGET are caught by the prohibited financial assistance provisions.

Answer 141

A

E) No, since a special resolution is required to disapply pre-emption rights in relation to the new shares.

Correct. As the company has model articles there is no limit on the number of shares that can be issued so no shareholder approval is needed in respect of that, the directors have authority to allot the new shares under s550 CA 06 as the company only has one type of shares in issue and more of the same are being issued. As the shares are ordinary shares there is no limit on the amount of dividends that the shareholder might receive and no limit on the amount of capital on a solvent winding up of the company so the shares are equity securities by virtue of s560 CA 06. This means to protect the existing shareholders rights of pre-emption can only be disapplied by those existing shareholders passing a special resolution.

Answer 142

A

E) The directors of the company will require an ordinary resolution to authorise them to allot the preference shares.

Correct. As this is NOT a situation where s 550 CA 2006 applies the company will need further authorisation to allot shares under s 551 CA 2006. The company is a CA 2006 company with no relevant amendments in the articles so there will be no limit on the authorised share capital. The new shares are not equity securities so there is no need to disapply pre-emption rights. The new preference shares are already included in the articles so there is no need to amend the articles

Answer 143

A

£3,000

Correct. The 15,000 chargeable gain is taxed at 20%.

Answer 144

A

D) Business Assets Disposal Relief will apply to reduce the capital gains tax payable from 20% to 10% of the value of the gain.

Correct. This disposal fulfils the criteria for BADR to apply.

Answer 145

A

£67,300

Correct. The Net Income is calculated by calculating the Total Income and deducting available tax reliefs such as interest on qualifying loans and pension contributions.

Answer 146

A

£675

Correct. You have correctly identified that the taxable income minus the dividend is £40,000, therefore the higher rate applies to the dividend. The first £1,000 of the dividend income is taxed at 0% and the remaining £2,000 will be taxed at the higher rate for dividends of 33.75%.

Answer 147

A

£8,260

Correct. The net proceeds of sale will be £97,300 (£100,000 minus £2,700 sale costs). After deducting initial acquisition cost (£45,000) and incidental costs of the acquisition of £5,000, the chargeable gain will be £47,300. The taxable chargeable gain will be £47,300 minus the annual exemption (£6,000) = £41,300. As CGT is taxed after income, and we are told the person is a higher rate taxpayer with a taxable income of £50,000, all of the taxable chargeable gain of £41,300 will be taxed at the higher rate of 20%. The tax liability will therefore be £8,260.

Answer 148

A

Reduced rated at 5% VAT

Answer 149

A

The price of the supply of printer cartridges is deemed to include the VAT.

Answer 150

A

£404,500

Answer 151

A

£41,756

The calculation works out as follows:
Year 1 Writing Down/Capital Allowance (WDA/CA) = (18% x £345,000) = £62,100 Written Down Value (WDV) = (£345,000 - £62,100) = £282,900
Year 2 WDA / CA = (18% x £282,900) = £50,922 WDV = (£282,900 - £50,922) = £231,978
Year 3 WDA / CA = (18% x £231,978) = £41,756 WDV = (£231,978 - £41,756) = £190,222

Answer 152

A

£303,475

The company’s TTP is made up of its trading income and chargeable gain:
Trading receipts: £2,212,500
Less deductible expenditure: (£596,000)
Less AIA (£1,000,000)
Less CA (£12,600)
Plus Chargeable Gain £610,000
TTP = £1,213,900
@25% = £303,475

Answer 153

A

The company must pay corporation tax at a rate of income tax payable in dividends by a higher rate tax payer.

Answer 154

A

ABC is a close company on both tests

The company is under the control of five or few participators (A and B) and under the control of any number of participators who are also directors (A&B).

Answer 155

A

E) The company will calculate its tax liability and pay HMRC within 9 months and one day of the end of the accounting period.

Answer 156

A

£1,100

Correct. The amount in each transaction that is paid to HMRC is the difference between the input tax and the output tax.

Answer 157

A

£404,500

Correct. This is calculated as follows:
Trading receipts £555,000
Less deductible expenditure £105,000
Less interest paid on loan £10,500
Less rent £35,000
Total £404,500

Answer 158

A

Yes, because there were no trading profits or chargeable gains in the first accounting period to offset the £50,000 trading loss.

Correct. The trading loss in the first accounting period has first to be set off against any trading profits or chargeable gains in the same accounting period. However, as there were no trading profits or chargeable gains in the first accounting period, the trading loss could then be offset against future trading profits or chargeable gains in subsequent accounting periods, so can be set off against the £25,000 trading profit in the second accounting year.

Answer 159

A

The client can deduct the chargeable gain of £25,000 from the price of the premises only to give a new base cost for the premises of £225,000

Correct. This represents the operation of roll over relief to defer the payment of a chargeable gain tax liability.

Brainscape's Knowledge GenomeTM

Business Law and Practice MCQS Flashcards

Brainscape's Knowledge Genome^TM