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Ro1 Regulations And Ethics Of The Finanacial System > Legal Concepts Relevant To UK Financial Services > Flashcards

Legal Concepts Relevant To UK Financial Services Flashcards

1
Q

What are the different forms of business? 5

A

Sole trader
Partnership
Limited liability partnership
Limited company
Public Limited company

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2
Q

What is a sole-trader? 3

A

Not a legal entity
No separate business
Self-employed person trading under business name.

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3
Q

How does sole trading work? 3

A

Contracts entered directly between trader and the other party. Business is not separate.

Profits are taxed directly on the individual.

National Insurance is paid under classes 2 and 4

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4
Q

What is a partnership?

A

Not a legal entity
Two or more people working together to make a profit.

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5
Q

How does a partnership work?

A

Tax and NIC paid separately between each partner.

Partners are joint responsible for liabilities.

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6
Q

What is a Limited Liability Partnership?

A

New development.
Allows partnership to assume legal identity and be able to contract.

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7
Q

How does a limited liability partnership work?

A

Each partner is still self-employed.
Still pay tax on their profit.
LLP is a legal person
Various rules must be met for LLP to be valid.

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8
Q

What is a Limited Company (ltd)?

A

A company that incorporates and atains a legal idendity.
Becomes a legal person itself.

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9
Q

How does a limited company work? 5

A

Pays corporation tax.

Directors are employees.

Owner directors pay themselves salary or dividends.

The company will be responsible for its own debts and will not extend beyond the value of the company’s assets.

Owners are not liable for debts but may be expected to be guarantors.

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10
Q

What is a public limited buisness?

A

Larger form of incorporated buisness.
Usually floated on the stock exchange.

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11
Q

What rules apply to public limited business? 3

A

Required to have:
Two directors.
Two shareholders.
Capital more than £50000 with at least 25% of this being fully paid-up (put into the business)

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12
Q

What stricter rules apply to public limited business’s.

A

Company secretary must be part of a professional body.
Accounts must be put before an annual general meeting.

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13
Q

What is power of attorney?

A

A means for one person to give control over thier affairs to anther person.

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14
Q

What is the person giving POA known as?
What is the person receiving called?

A

Donor
Attorney

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15
Q

If there is more than one attorney, how must decisions be made?

A

The donor must state that they all must agree (acting jointly)
Or
Allow all individual attorneys to act individually on behalf of all attorneys. (Acting jointly and severally)

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16
Q

What are the different types of POA?

A

Ordinary power of attorney.
Enduring power of attorney. (EPA)
Lasting power of attorney.

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17
Q

Describe Ordinary POA

A

Simplist form of POA

Gives one person power over finances only whilst the donor is still compusmentus.

Automatically comes to an end if not.
If it comes to an end due to loss of capacity, the attorney needs a court order to act as deputy.

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18
Q

Describe enduring POA

A

Addresses the issue of loss of capacity on ordinary POA if the donor registers it at the court of protection as soon as capacity is lost.

This adds a check on power, ensuring the attorney can not act on behalf of the donor unless the court gives consent.

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19
Q

What are the two ways enduring POA can set up?

A

Immidiate action-
Comes into force straight away, allowing the attorney to act on the donors’ behalf much like an ordinary POA.
When capacity is lost, the attorney stops acting until the POA is registered at court.

Delayed action-
Doesn’t come into force until the donor loses capacity and the POA is registered at court. Donor, therefore, remains in charge.

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20
Q

Since October 1st 2007, what has not been possible in England and Wales? Why? And what may still be encountered?

A

The ability to draw up new EPAs.

Because the mental capacity act 2005 changed the law requiring Lasting Power of Attorney.

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21
Q

What does the Mental Capacity Act 2005 state? 4

A

Individuals have capacity if:
-understand relevant information.
-retain information
-evaluate the information in relation to the desicison.
-communicate that information.

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22
Q

What are the two types of lasting power of attorney? LPA

A

Financial decisions -
like EPA, covers only financial and carries on in case of incapacity.

Health and care decisions (Health and welfare)-
Allows attorney to make health and welfare decisions, including withdrawing treatment.
Only comes into effect when incapacity is met.

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23
Q

What must be done to enact LPA? 3

A

Registered at Office of Public Guardian.

Secondary check by an appointed individual.

Both forms of LPA are separate and should be registered individually (with separate fee to court).

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24
Q

When would an LPA cease? 3

A

Bankruptcy of the donor
Death or bankruptcy of the attorney
Divorce/dissolution of a civil partnership between donor and donee

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25
Q

Does the mental capacity act apply in Northern Ireland.

A

No

Therefore, EPAs can still be written.

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26
Q

What are the Scottish versions of POA?

A

General power of attorney

Continuing power of attorney-
Like LPA for finance and property.
Needs to be registered with the office of The Public Guardian.

Welfare attorney-
Like LPA for health and welfare

Continuing and welfare POA-
One power combining the both.

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27
Q

What is required for a contract to be valid in England and Wales?

A

Offer- one person offers the chance to engage in contract.

Acceptance-the person accepts

Intention-there must be an intention to enter the contract

Consideration- there is some form of payment made from one to the other.

Have the capacity to contract.

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28
Q

What are the considerations for capacity to contract? 5

A

18 England and Wales
16 scotland
It is possible for younger contracts in certain circumstances or to set a contract aside until later.

Must have mental capacity.

If they don’t and the other party knows or should have known the contract could be void from inception
Payments made might need to be repaid without interest.
It also includes drunk people.

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29
Q

How are life assurance contracts offered?

A

Allocation = the offer.
Written acceptance of terms = counter offer.

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30
Q

What is an invitation to treat?

A

A chance to start a contract process

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31
Q

In scotland, what is the delivery phase in contracts

A

A requirement to hand over property, money, or documentation.

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32
Q

What is the overarching principle to provide material facts called?

A

Good faith

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33
Q

What are the 3 forms of disclosure and their solutions as laid out in consumer insurance (disclosure and reputations) act?

A

Reasonable -
The customer made a mistake. They acted honestly and with care and did not try to mislead. Should be paid in full.

Careless -
The customer did not answer carefully.
Look at the contract again. Consider if they would have accepted the risk? What would the terms have been?
If it had been worse, they would lower the amount received to match and based on the premiums paid.

Deliberate/reckless -
The contract is void from inception. Primiums will be returned, but that is all. Interest may or may not be returned.

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34
Q

Why is the agency of law important?

A

It is a duty of care
Allows consideration of whom the agent is acting.

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35
Q

What forms would an agent act under when considering agency of law?

A

Tied financial advisor
Independent financial advisor
Tied advisor
Independent advisor

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36
Q

How does a tied financial advisor work under agency of law?

A

Agent of the company they represent.
Bound by regulation to do what is right but remain an agent of their employer.

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37
Q

How does an independent financial advisor work under agency of law?

A

Agent of the client and acts on their behalf.

Could have serious implications for disclosure. I.e. if the client told the agent something and they failed to pass it on.

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38
Q

How does a tied advisor work under agency of law?

A

Agent of the insurer.
If told something by the client, this is the same as telling the insurer and therefore could be argued that full disclosure had been made.

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39
Q

How does an independent advisor work under agency of law?

A

Agent of the client and therefore telling the agent would not be full disclosure. However, the client would have a case against the advisor for not passing on information

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40
Q

How long does duty of disclosure last?

A

From the point of application until the contract goes live. Any changes during this time should be notified to the insurer.

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41
Q

What are the two main ways property can be owned?

A

Joint tenants
Tenants in common.

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42
Q

How does ownership work with joint tenants.

A

Both own 100% each.
If one dies, the survivor still owns 100%, and it automatically over.

43
Q

How does ownership work under tenants in common?

A

Each person owns a set percentage of the property.
On death, this percentage can be passed on through the will or intestacy.
Can have significant benefits for financial planning but are not without risks. (Can pass on to people the other owner is not comfortable with)

44
Q

What are the different legal terms that apply specifically for bricks and mortar properties?

A

Freehold- ownership of the land and building

Leasehold - ownership of the building but not the land it sits on.

Commonhold- property owned but land owned in common under a separate legal agreement. (Appartments)

Shared ownership - purchasers buy a share of the property with the remainder being bought by a housing association.
Purchaser builds up equity over time by staircasing.

Help to buy - an equity loan is provided by the government to help with the purchase of a new build property

45
Q

How does Leasehold work?

A

Generally, a ground rent will be payable to the land owner.
May be short or long term.
Sometimes up to 1000 years but generally 99 years.

46
Q

What does the leesehold, reform housing, and urban development act 1993 permit?

A

Leaseholders to buy the freehold of the property or extend by 90 years.

47
Q

How long must be left on a leasehold to buy a property on it via mortgage.

A

20-30 years (60 in scotland)
As per the Common Hold and leesehold Reform Act 2002

48
Q

What does the leesehold hold reform (ground rent) act of 2022 do?

A

Restricts ground rents on newly created long leases for houses and flats.

49
Q

What are the requirements for a help to buy loan?

A

Must be a new build up to £600000.
Cannot be a sub-let or a part exchange agreetment.
Must be the sole property of the purchaser at the time of purchase.

50
Q

What is the law when someone passes stuff on through death?

A

Law of succession.

51
Q

What is a person’s estate?

A

All their assets or the corresponding value of all their assets.

52
Q

What does a will cover?

A

The way in which a person wishes their estate to be handled after death, including wealth and children, funeral plans etc.

53
Q

What is the oder of events when handling a will?

A

Death.
Executor lists liabilities and assets.
Pays IHT.
Grant of probate obtained.
Estate passed to successors according to the will.

54
Q

What must happen for a will to be put in place?

A

Must be in writing
Must be signed
Must be witnessed by two people.(known as attesting. Can’t be a benifactor)

55
Q

How can a will be invalidated?

A

Physical destruction
Marriage (unless drawn in consideration to marrige)
Creation of a new will.

56
Q

Does divorce invalidate a will?

A

No, but the divorce does become treated as though they had pre-deseaced testator.

57
Q

What is an executor/executrix?

A

The person who makessure the deseased wishes are carried out.

They apply for grant of probate, which confirms the will is valid and allows them to pass on the estate.

58
Q

What are living wills?

A

Where a person makes decisions on how they would like to be treated if they become unable to communicate due to medical illness.

These are not legally binding in the UK.

59
Q

What is intestate?

A

The way things are passed on when there is no will.

60
Q

Who takes the place of an executor in intestate? And what are these known as collectively?

A

The administrator
Personal representatives

61
Q

What takes the place of grant of probate in intestate? What are these known as collectively?

A

Letters of administration
Grants of representation

62
Q

What is the order in which intestate works in the uk?

A

Joint owned property passes to the surviving owner.

Spouse no children - all assets pass

Spouse and children - spouse inherits chattels. £270000 and half of anything above. Children inherit the excess whi h is held in trust till 18. (Or earlier marriage)

Children - children inherit everything to be held in trust till 18

Reletives-in order of parents, siblings, grandparents, uncles aunts.

No family crown/Dutch of cornwall/Lancaster receives all.

In this order, if children pre-desease parents, grand children step into their shoes and so forth.

63
Q

What are chattels?

A

Personal effects ie car

64
Q

What are trusts?

A

Means of making sure money ends up in the right hands at the right time.

65
Q

What can’t trust be used in conjunction with?

A

ISAs

66
Q

What are the 3 parties of a trust

A

The settlor- the person who puts the assets into the trust

The trustee/s- the person who looks after the assets will have the ownership of the asset registered against their name.

The beneficiary - the person/s who will benefit.

67
Q

Who can be a trustee?

A

Generally, anyone over 18 and capable of owning property.

68
Q

When will a trustee be removed?

A

On resignation or death
If determined by the trust deed itself
If removed by the other trustees (assuming this is the provision of the trust)
In accordance with the trustee act 1925
By court

69
Q

What are the main uses of trusts?

A

IHT planning
Avoiding probate
Looking after assets for minors

70
Q

How can trust be used for IHT planning?

A

Keeps control of the timings for distribution of gifts and tax exemptions.

For avoiding IHT by holding life policies in trust.

71
Q

What are the different types of trust?

A

Absolute/bare trust
Interest in possession trust
Power of appointment trust
Discretionary trust

72
Q

What is an absolute/bare trust?

A

Property is held for the benefit of one or more people in pre-designated percentages.

Once established, the beneficiary’s cannot be varied, and neither can their relative shares.

Once over 18 any beneficiary

73
Q

What is an interest in possession trust?

A

Will have a life tenant who is entitled to receive the income generated by the trust. Usually, it has remaindermen who will benefit when the tenant dies.

74
Q

What is power of appointment trust.

A

Trustees have flexibility to vary the beneficiaries by selecting from different classes of beneficiaries. Often has power of appointment so the life tenant can be changed from time to time.

75
Q

What is a discretionary trust?

A

A power of appointment trust but with no current life tenant. Trustees can appoint income or capital to anyone within the classea of beneficiaries.

76
Q

How do trusts come into being?

A

Express
Implied
Resulting
Successive
Will trust
Statutory trust

77
Q

What is an express trust?

A

The type of trust is expressly created with the clear intention of creating a trust. This is usually done with the use of a trust deed.

78
Q

What is an implied trust?

A

Not created by deed but Implied by action.

I.e. giving something to a friend to look after for your children.

79
Q

What is a Resulting trust?

A

A trust that arises because of something else.

I.e a beneficiary killing a settlor.

80
Q

What is a Successive trust?

A

A trust that is set up to benefit successive interests.

81
Q

What is a will trust?

A

A trust written into a will so that it comes into force when the will is proved.

Very common prior to the introduction of transferable nil-rate band IHT so that couples could benefit from both partners’ nil rate band.

Still have uses now ensure deseaseds wishes are honored.

82
Q

What is statutory trust?

A

Trust that set up automatically, i.e. minor children in intestacy

83
Q

What 3 certainties must there be to set up a trust as established in the case of Knight vs Knight 1840?

A

Words - words used should clearly show there is an intention to create trust.

Subject - the property to be held on trust must be certain

Object - the person to benefit from the trust must be certain. (Or at least the range of potential beneficiaries must be certain)

84
Q

What happens when a trust is established?

A

The trustees take control of the property and assume responsibility for ensuring the requirements of the deed are met.
Their primary duty is to the beneficiaries, and their actions should always be in their interest.

85
Q

What two legislations cover the responsibilities of trustees?

A

The Trustee Act 1925 (sets out rights and responsibilities)

The trustee investment act (sets out the requirements for trustees to take advice in respect to investment of trust property)

86
Q

What can happen if a trust is invested negligently?

A

The trustees could be held liable for the losses.

87
Q

Who can be a trustee?

A

Anyone over 18 and sane.

88
Q

How can a trustee be removed?

A

They resign
They die
They are removed under a provision of the trust
They are removed by the courts
They are removed by the Trustee Act 1925
They are removed by the other trustees or a protector under the terms of the trust.

89
Q

What happens if a trustee loses capacity and their affairs are taken over by a deputy or POA?

A

The deputy/POA would not be able to become trustee, so the incapable trustee will be removed.

90
Q

Where all the beneficiaries are over 18, what could they do?

A

Bring an end to the trust.
This is only possible if all beneficiaries are ascertained.
POA and discretionary trusts may prevent this.

91
Q

What is the difference between bankruptcy and insolvency?

A

Bankruptcy- individual
Insolvency - companies

Both concern the same thing. However, the inability to meet liabilities.

In both cases, a legal arrangement is put in place to attempt to recover as much creditors dues as possible.

92
Q

What is an IVA?

A

Individual voluntary arrangement.
An alternative to bankruptcy for when an individual finds themselves in significant financial trouble.

An arrangement where creditors agree not to take legal action in return for an agreed level of payments.

93
Q

How does an IVA work?

A

A vote of creditors takes place, which represents at least 75% of the debt.

The fees associated with the arrangement (the set up fee, nominee fee, and the ongoing management fee, supervisor fee) are added to the debt, and an overall repayment schedule is agreed.

An insolvency practitioner is appointed to oversee the arrangement and report annually to creditors.

The arrangement comes to an end when repaid or in default

Individuals’ names added to a register of IVAs, and their credit rating will be severely affected.

94
Q

What happens to the IVA individual?

A

They will not be able to apply for credit without seeking consent from the insolvency practitioner and will struggle to seek finance for some time.
A record of the IVA will reamin on their credit reference agency file for 6 years.

95
Q

What does an IVA permit?

A

Individuals to keep their home and avoid repossession. There could be considered preferable to bankruptcy but should not be considered a soft option.

96
Q

What are the requirements for bankruptcy?

A

Debts of £5000 or more and no other solution works.

The court requires evidence that attempts have been made to recover the debt.

The debtor requires 3 weeks’ notice that bankruptcy is being brought forward.

97
Q

What will happen when the requirements for bankruptcy are met?

A

Official receiver appointed by the court.

Official creditor potentially informs creditors to assign their own ‘trustee in bankruptcy’ to take possession of the debtors’ possessions and repay as many creditors as possible.

Only relatively few things will be left with the debtor, tools of trade, clothes, furniture.

98
Q

What order will a trustee pay back the debt?

A

Costs of bankruptcy.
Preferential debts. Wages or pension contributions.
Ordinary unsecured debt

99
Q

What happens if the debtor does not have enough in bankruptcy to cover the debt.

A

It will first be split between priority debts.
If there is enough of this but not enough for ordinary debts, the remainder will get split between the ordinary debts.

100
Q

What are the long term impacts of bankruptcy?

A

Ends after 12 months, and the debtor can start again. However, lenders will be unlikely to recently bankrupt, and the debtor may find themselves perminatly bared from certain jobs.

101
Q

What are the options for insolvency?

A

Voluntary agreements - like IVAs

Administration - an administrator is appointed to attempt to revive the business.

Liquidation - assets of the company are liquidated in a bid to repay the creditors.

102
Q

Whi are the 4 retail shops that failed in administration?

A

Woolworths, toys-r-us, comet, and BHS.

103
Q

What order is liquidation payed.

A

Secured creditors
Costs of liquidation
Preferential debts (unpayed wages)
Unsecured debts
Interest on debts

Ro1 Regulations And Ethics Of The Finanacial System (14 decks)

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