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Legal Persons

•Sole trader
o An individual who controls their own business (whether or not they employ other people)
o Treated as self-employed and personally liable for all debts/liabilities of the business
o No contract of employment with an employer
o Law doesn’t distinguish between the individual and the business
o No tax on unincorporated business, but instead levied on the owner
o Capital gains of business treated as individual gains
o Self-employed pay income tax twice yearly to HMRC
o They pay NICs classes 2 and 4
o Anyone they employ is taxed under PAYE and pays class 1 employee NIC, sole trader then pays class 1 employer NIC

o Not separate person but sum of partners
o Each partner has unlimited liability for trade debts of partnership
o Partners liable to income tax but only on their share (not liable to partner’s tax)
o Also subject to class 2 and 4 NIC
• Limited Liability Partnerships (LLP)
o A separate legal person with limited liability
o Partners not liable for LLP’s debts
o Partners are still treated as self-employed and pay tax on an individual basis
o Also subject to class 2 and 4 NIC

•Limited companies (Ltd)
o Legally separate identity from proprietors of business
o Managers, directors and shareholders are not liable for the debts of the company
o Company is responsible for own debts to the limit of its assets
o No income tax or CGT but instead pays corporation tax on profits (including capital gains)
o Companies cannot trade until registered with Registrar of Companies
o If owners work in business, classed as employees and pay tax under PAYE and class 1 NICs

•Public Limited Companies (PLC)
o When limited company floats on stock exchange becomes PLC
o Must have at least 2 directors, 2 shareholders and company secretary
o Company name must end with PLC. or Public Limited Company
o Need extra certificate from Registrar of Companies before can start trading
o Need allotted shares nominal value £50,000 and received ¼ of that, i.e. £12,500
o Company secretary must be member of professional body or person recognised as being qualified by e.g. experience
o Must present accounts and reports before general meeting
o File accounts within 6 months of end of accounting period, cannot waive auditing requirement or provide abbreviated accounts
o Must hold annual general meetings
o Requirements relating to disclosure of shareholdings and release of information


Powers of Attorney (POA)

•A person can give power to another individual to act on their behalf (either general or specific powers)

•Ordinary POA
o May be used by those who leave the country for a while / the elderly
o Only allows power whilst individual is capable of making own decisions and is revoked in event of mental incapacity

•Enduring POA
o NB Mental Capacity Act 2005 means no more enduring POAs can be granted
o Enables attorney to continue acting in event of mental incapacity
o Must be established whilst individual has mental capacity
o Assumed to have capacity unless otherwise established
o Under Act, unable to make a decision if cannot understand, retain, evaluate and communicate information regarding a decision
o Must satisfy conditions of Enduring Powers of Attorney Act 1985
o Attorney must register POA with Office of Public Guardian when individual loses mental capacity
o Must be established before 01/10/2007
o Could restrict power so only came into effect on loss of capacity
o Individual or joint attorneys
o Enduring POA does not cover health care provisions
o Standard form to complete
o Notice of registration given to at least first 3 eligible family members
o Once appointed attorneys are expected to manage affairs in accordance with the principles of the Act (e.g. forbidden to make gifts)
o Individuals can revoke power at any time

•Lasting POA (LPA)
o Donor can give attorney powers to make decisions about welfare and property and financial affairs
o Two separate documents required if LPA to cover financial and welfare matters
o LPA must be registered with Public Guardian at outset
o Cannot be used to make gifts unless donor customarily made them
o Revoked on donor’s bankruptcy (but not welfare power), death, incapacity or bankruptcy of sole attorney (but not welfare power), dissolution of marriage/CP between donor and attorney and attorney’s incapacity
o Court of Protection can appoint deputy where no EPA/LPA in place
o Deputies powers are limited
o Advanced medical decisions made when had capacity and over 18 valid after loss of capacity


Law of Contract and Capacity

•For a binding contract to exist following conditions must be met:
o Offer - i.e. insurance company offering to insure life assured
o Acceptance - applicant agreeing to the terms
o Intention - to create legally binding contract
o Power - both parties must have power (capacity) to contract (e.g. not a minor)
o Consideration - both parties must pay or stand to pay something to the other. E.g. policyholder pays premiums, life office pays out on valid claims

•In life assurance contracts the following also apply:

•Utmost good faith
o Proposer must declare all facts a reasonable person would think the life office underwriter would want to know
o Since April 2013 Consumer Insurance (Disclosure and Representations) Act 2012 came into force - removed common law duty on consumers to disclose any facts a prudent underwriter would consider material and replaces this with a duty to take reasonable care not to make a misrepresentation
o Insurance Act 2015 imposes duty of fair presentation of a risk in a way that is reasonably clear to a prudent insurer on non-consumers (commercial customers)

•Insurable interest - the proposer needs to have a financial interest in the life assured


Contractual Capacity

•Some people are subject to special rules which restrict their capacity to contract
•Minors Under 18 (English law)
o Aim is to protect them from their own inexperience
o Contracts made by minors are either:
o Binding - as long as for minor’s benefit e.g. apprenticeship
o Binding unless repudiated - minor can reject contract during minority and be freed from any further liability under contract
o Not binding - (applies to all other contracts) although minor not bound to contract, minor can sue other party

•Persons affected by mental health conditions
o Contracts are generally valid although contract can be avoided if they were unable to understand the nature of the agreement and the other party was aware of this
o A person affected by a mental illness can ratify a contract which previously didn’t bind them if they recover

•Under influence of alcohol / drugs
o Similar rules to persons affected by mental health condition
o An intoxicated person can avoid a contract if they were so confused at the time they didn’t understand what they were doing and the other person knew this
o Contract will become binding if ratified when the effects of alcohol/drugs wear off


Offer and Acceptance

•General law of contract applies to life assurance with modifications:
•Insurer’s prospectus is invitation to receive offer / invitation to treat
•Proposal form completed by proposer is offer
•Letter of acceptance is counteroffer
•Acceptance is receipt of signed direct debit or standing order
•Although 14/30-day cooling off period where policyholder can change their mind


Law of Agency

•Agency is contract where one party (agent) agrees to do certain acts on behalf of another party (principal)
•IFA is agent of client and owes duty of care
•IFA owes no duty of care to insurer, but must comply with FCA rules
•Client is responsible for acts of IFA

•If material circumstance disclosed by client to IFA but IFA doesn’t disclose to insurer, then treated as non-disclosure and contract is void (insurance company is not responsible for acts of IFA)
•But employee or self-employed representative of insurer is agent of insurer and insurer is therefore responsible for agent’s acts and omissions.
•If client discloses material circumstance to agent who fails to pass on, then contract is still valid as not non-disclosure.
•Agent owes duty of care to insurer


Property Ownership

•Freehold - own building and land it stands on
•Leasehold - the land the building stands on is not owned outright by buyer, instead lease the land and pay rent for it
•Commonhold - alternative to leasehold for flats, unit owners own flat in perpetuity and are member of commonhold association, have right to extend lease or buy freehold after 2 years, lease must have been for 21 years or more


Joint Ownership

Joint Tenancy
•Each party has equal share and can’t sell without other’s agreement
•On death, share passes to the other party

Tenants in Common
•Each party holds their share separately
•Can dispose of when they wish
•On death, their share goes to their estate / according to rules of intestacy


Housing Associations

Shared Ownership
- Operated locally by Housing Associations Purchasers buy share of property (e.g. 25%/50%/75%) and pay rent to Housing Association on remainder
Terms normally allow purchaser to staircase (increase share)
Can sell shared ownership with new owner taking it on

Help to Buy

- Equity loan where Government lends up to 20% (40% Greater London) of the value of a new build up to £600,000
Scheme to run until 2021 Need 5% deposit
Need 75% (55% Greater London) mortgage
Loan is interest free for 5 years Loan can be repaid at any time
No subletting, no part/exc, cannot own any other property at outset


Bankruptcy and Insolvency

•Bankruptcy applies to individuals
•Insolvency applies to companies


Individual Voluntary Arrangements

•An alternative to bankruptcy proceedings where the debtor proposes a voluntary agreement to repay some or all of their debts

o Creditors’ meeting held, vote 75% debt in favour
o Once approved, creditors cannot take legal action to recover debt
o Fees payable – set-up (nominee) fee and handling (supervisor) fees, paid as part of monthly repayment
o Insolvency practitioner (IP) conducts annual review and advises creditors of progress
o IVA cancelled if repayments not made
o When IVA ongoing, debtor needs IP consent to get credit
o Any credit available will charge high rates
o IVA added to individual insolvency register
o Removed 3 months after ends, but remains on credit reference agency report for 6 years after starts

•The advantages of an IVA are:
o the debtor is closely involved
o the restrictions of bankruptcy are avoided
o the debtor avoids the stigma and disqualifications that follow bankruptcy
o do not lose home
o overall costs are usually less

•If the creditors do not agree to an IVA, formal bankruptcy proceedings may start


Bankruptcy Procedures

•Presentation of petition for bankruptcy order by creditors
•Court only considers bankruptcy for debts of at least £5,000
•Before making order must demonstrate debtor’s inability to pay debts
•Official receiver takes control of assets once bankrupt order made
•Trustee in bankruptcy’s task to convert property into money to pay debts
•Debtor entitled to retain ‘tools of trade’, clothing, furniture and bedding belonging to them and family

•Order of payment
o Costs of bankruptcy
o Preferential debtors e.g. employee accrued holiday pay, wages and occupational pension contributions
o Ordinary unsecured debtors


Effects of Bankruptcy

•Usually continues for 12-month period
•Disqualifications apply throughout period e.g. unable to act as Company Director or obtain credit above £500 without disclosing bankruptcy status
•Afterwards, debtor largely free from debts at end of bankruptcy and able to make fresh start


Corporate Insolvency

•Liquidator appointed to take control of company, collect assets and pay debts
•Company dissolved and removed from Register of Companies
•Alternatives to insolvency
o Administration - attempt to rescue company as a going concern
o Voluntary arrangement - avoid insolvency by settling liabilities with creditors

•From 6 April 2020, HMRC will take precedence over many other creditors


Laws of Succession

•Applies when beneficiaries succeed to property on someone else’s death (property cannot belong to deceased)
•Estate is total value of deceased’s assets
•Will states which assets are left to who and names executors to administer the Will
•Intestacy is dying without a Will


Requirements of a Valid Will

•Writing - including print/type as well as personal handwriting
•Signature - signed by testator (person making will)
•Attestation - witnessed by 2 or more people



•Will revoked in full or in part on:
o Marriage/civil partnership (unless made in contemplation)
o Divorce/dissolution of civil partnership (but only parts relating to former spouse)



•Where there are no issue (children, grandchildren)
o Surviving spouse/civil partner is sole beneficiary

•Where there are children
o Spouse/civil partner take chattels and £270,000 (the statutory legacy) plus half of balance outright
o Children take remainder at age 18
o The statutory legacy amount is reviewed every 5 years and generally increases by CPI rounded up to the nearest £1,000

•Where there is no spouse/civil partner
o Children take everything absolutely, if no children then successively by relatives

•Where there are no relatives
o Estate goes to crown

•New definition of chattels covers all tangible movable property except for:
o Money or securities for money
o Property used at the date of death solely or mainly for business
o Property held at the death of the intestate solely as an investment


Legal Personal Representatives and Administration of Estate

•Executors deal with estate where there is a will
•Administrators (normally next of kin) deal with estates with no will under intestacy rules
•Both are known as Legal Personal Representatives (LPRs) and are personally liable for all debts and taxes from estate


Grant of Representation

•Required if total assets owned at date of death exceed minimum figure
•Issued by Probate Registry
•For large estates, HMRC account showing all assets plus gifts in last 7 years submitted and any IHT due paid
•Grant of probate used if will exists
•Letters of Administration used if no will exists
•The estate can be distributed to beneficiaries


Law of Trusts

•Settlor is the creator of the trust (gives away asset)
•Beneficiary is person(s) entitled to trust assets
•Trustees are legal owners of property so control/look after trust assets for beneficiaries

•Trust creation
o Express – verbal/written declaration of trust, deed
o Implied – implied from actions
o Presumptive – A buys property in B’s name, B holds on trust for A
o Successive – e.g. A for life, then B
o Constructive – imposed by law
o Resulting – trust fails

•Main types of trust
o Bare/Absolute - beneficiary specifically named/cannot be changed
o Power of Appointment – vary and appoint beneficiaries, default beneficiary has interest in possession
o Interest in possession – beneficiary has right to income, but not necessarily capital (which might go to another beneficiary)
o Discretionary – no one has interest in possession, trustees have flexibility what to hand over and when
o Will trust - trust within will - only comes into effect on death
o Statutory trust – created by law, e.g. Married Women’s Property Act 1882
o Pension scheme trust - Occupational schemes must be set up under irrevocable trust e.g. by a trust deed, declaration of trust, deed poll or board resolution to establish trust

•Uses of trust
o Keep policy benefits outside estate (no IHT payable on them)
o Pension schemes

•Creation of trust (by will, deed or statute)
o Need certainty of words, subject matter and beneficiaries (three certainties)
•Variation of beneficiaries
o Absolute / bare trust – not possible
o Power of appointment – possible within classes of beneficiaries

•Trustees’ duties and powers
o Be familiar with terms of trust
o Gain control over property
o Administer trust in beneficiaries’ best interests
o Invest money not immediately required to be paid out
o Use utmost diligence to avoid loss

•Trustee must be over 18 and sane

•Can be removed if:
o Resigns or dies
o Removed or automatically retired
o Removed by other trustees (if trust allows)
o Removed in accordance with Trustee Act 1925
o Removed by a court

•Beneficiary can be individually named or class of beneficiary
•Beneficial interest - absolute, life interest, reversionary or contingent
•Beneficiaries cannot usually order the trustees around
•Trustees can use personal judgement and do not have to consult beneficiaries
•In some cases, beneficiary can bring a trust to an end - Saunders vs Vautier – must all be 18+, no possibility of further beneficiaries, all agree – direct trustees to hand over the trust property
•Trustee who breaches trust / acts fraudulently can be taken to court by beneficiary