Starting a new business, Partnerships, LLPS, Sole trader

Question 1

What are the three broad categories of business model in the UK?

Answer 1

Sole traders, Partnerships, Companies

Question 2

What is a Sole Trader?

Answer 2

An individual person carrying on some form of business activity on their own account- most will be in business for their own benefit - pay income tax on their trading profits

Question 3

What are the advantages of sole trading?

Answer 3

• No formalities (apart from registering with HMRC for self-assessment) - No set up costs

Question 4

What are the disadvantages of sole trading?

Answer 4

• Personally liable for the debts of the business - Personal contracts with clients and customers and personally liable for breaches/mistakes- Difficulties raising finance - banks are cautious in loaning to sole traders

Question 5

What is a partnership according to the Partnership Act 1890?

Answer 5

A relation between two or more persons carrying on business in common for profit.

Question 6

What are the key characteristics of a traditional partnership?

Answer 6

• No set-up costs or formalities
• Unlimited joint and several liability for debts
• Not a separate legal entity
• No Companies House filing or procedural requirements
• Complete privacy
• Contracts between third parties and individual partners
• Governed by Partnership Act 1890

Question 7

What is the evidence of partnership according to the Partnership Act 1890?

Answer 7

Prima facie evidence of partnership is profit sharing, but it is not conclusive.

Question 8

What are the terms of a partnership according to the Partnership Act 1890 regarding profits and losses?

Answer 8

Partners are entitled to equally share in profits and losses, even if contributions are unequal.

Question 9

What is the liability of partners for partnership debts according to the Partnership Act 1890?

Answer 9

Partners are personally liable for contracts binding the firm, as there is no separate legal personality for the partnership.

Question 10

What is the tax treatment of partnerships according to the Partnership Act 1890?

Answer 10

Partners are taxed individually on their share of partnership income or gains, and must submit individual tax returns for income from the partnership.

Question 11

What is required for a partnership to make a single tax return of its profits in the UK?

Answer 11

Partnership Tax Return

Question 12

What do partners submit individually in the UK with income from the partnership and other sources?

Answer 12

Individual Tax Returns

Question 13

What tax liabilities are partners in the UK responsible for on their share of profits?

Answer 13

Income tax and capital gains tax

Question 14

Under what circumstances can partners vary mutual rights and obligations in the UK with unanimous consent?

Answer 14

Unanimous Consent (s 19 PA 1890)

Question 15

What do most partnerships in the UK have in place to outline their formal agreements?

Answer 15

Formal, written partnership agreement

Question 16

What should be outlined in a partnership agreement in the UK regarding commencement and duration?

Answer 16

Commencement date and whether it has a fixed term or continues until terminated

Question 17

What restrictions apply to partnership names in the UK, such as not including certain terms?

Answer 17

Not including ‘limited’, ‘ltd’, ‘LLP’, offensive terms

Question 18

What does each partner own in partnership property in the UK, where there is no separate legal personality?

Answer 18

A share in partnership property

Question 19

What are the grounds for dissolution of a partnership under the Partnership Act 1890?

Answer 19

• Mutual agreement
• Completion of a specific venture
• Death or bankruptcy of any partner
• Dissolution by Notice
• Unlawful business
• Court order

Question 20

What is the effect of dissolution on a partnership according to the Partnership Act 1890?

Answer 20

The partnership relationship ceases upon dissolution, and the assets of the business can be realised with partners having the right to demand their share.

Question 21

What are the key characteristics of limited partnerships?

Answer 21

• Limited partners have limited liability
• General partners have unlimited liability
• At least one limited and one general partner
• Governed by the Limited Partnership Act 1907
• Commonly used for investment vehicles

Question 22

What are the characteristics of Limited Liability Partnerships (LLPs) and their incorporation process?

Answer 22

• Introduced by Limited Liability Partnership Act 2000
• Separate legal personality, taxed as a partnership
• All partners have limited liability
• Registered at Companies House with annual accounts filed
• Incorporation process involves filing Form LL IN01 with specified details

Question 23

What is the purpose of a Certificate of Incorporation in a Limited Liability Partnership (LLP)?

Answer 23

To provide conclusive evidence of compliance with legal requirements, issued by the Registrar of Companies.

Question 24

What information is included in the LLP Agreement of a Limited Liability Partnership (LLP)?

Answer 24

Office address and designation of members (as per section 2(2) of the LLP Act).

Question 25

How are LLPs treated for tax purposes?

Answer 25

LLPs are treated as partnerships for tax purposes, with members individually taxed on their share of income or gains.

Question 26

What tax do LLPs not pay, unlike companies?

Answer 26

LLPs do not pay corporation tax; instead, members are individually taxed.

Question 27

Can LLPs register for VAT?

Answer 27

Yes, LLPs may register for VAT.

Question 28

What tax is applicable on the disposal of LLP assets while trading?

Answer 28

Capital gains tax is applicable on the disposal of LLP assets while trading.

Question 29

What is the advantage LLPs have over traditional partnerships regarding floating charges?

Answer 29

Like companies, LLPs can create a floating charge over their assets, enhancing financial flexibility.

Question 30

How does the management structure in LLPs differ from companies?

Answer 30

Unlike companies, there is no distinct separation between members/shareholders and the management board in LLPs, allowing members to actively participate in management.

Question 31

What is the 'clawback' rule applicable to LLPs under the corporate insolvency regime?

Answer 31

LLP members are subject to the 'clawback' rule, where money withdrawn by members up to two years before winding up can be reclaimed for the benefit of creditors.

Question 32

What governs companies in the UK?

Answer 32

Companies Act 2006 (CA 2006)

Question 33

What is a key characteristic of companies regarding legal entity?

Answer 33

Companies are separate legal entities from their owners

Question 34

What are the constitutional documents of a company?

Answer 34

Articles of Association and Memorandum (CA 1985 for older companies)

Question 35

Who are shareholders in a company?

Answer 35

Owners of the company who invest money in return for shares and potential dividends

Question 36

Who are subscribers in a company?

Answer 36

First shareholders in a company during its setup, playing a crucial role in the initial investment phase

Question 37

Who are directors in a company?

Answer 37

Officers/managers responsible for day-to-day operations, collectively known as the Board

Question 38

Who are Persons with Significant Control (PSC) in a company?

Answer 38

Shareholders with over 25% of shares who must provide details to Companies House for transparency

Question 39

Who are considered as other stakeholders in a company?

Answer 39

Include employees, creditors, and anyone with an interest in the company's affairs

Question 40

What is the responsibility of directors in a company?

Answer 40

Responsible for the day-to-day management, acting as agents of the company governed by statute and common law principles of agency

Question 41

What does the share capital of a company comprise?

Answer 41

Subscriber shares and additional shares issued post-incorporation

Question 42

What is the significance of allotment of shares in a company?

Answer 42

Allotment marks a significant step in shareholder registration, giving a person the unconditional right to be on the register

Question 43

What is the principle of limited liability in companies?

Answer 43

Shareholder liability is limited to the amount unpaid on their shares, providing financial protection for shareholders

Question 44

What are the criteria for Persons with Significant Control (PSCs) in a company?

Answer 44

Own more than 25% of shares or voting rights, power to appoint or remove a majority of directors, or significant influence or control over the company

Question 45

What are the different classes of shares in shareholder registration?

Answer 45

Ordinary shares, preference shares, and class rights

Question 46

What is the significance of limited liability for shareholders?

Answer 46

Shareholder liability is limited to the amount unpaid on their shares, providing financial protection.

Question 47

What are the key differences between private limited companies and public limited companies?

Answer 47

Private companies end with 'Limited' or 'Ltd', while public companies end with 'Public Limited Company' or 'Plc'. Private companies have no minimum share capital requirement, while public companies require a minimum share capital of £50,000.

Question 48

Definition of a private company according to S4(1) CA 2006

Answer 48

'a private company is any company that is not a public company'

Question 49

Definition of a public company according to Section 4(2) CA 2006

Answer 49

'public company is a company whose certificate of incorporation states that it is a public company'

Question 50

Key difference in the name between private and public companies

Answer 50

Private company ends in 'Limited' or 'Ltd', while public company ends in 'Public Limited Company' or 'Plc'

Question 51

Share capital requirement for private companies

Answer 51

often incorporated with nominal share capital like £1

Question 52

Share capital requirement for public companies

Answer 52

Must have a share capital with a nominal value of at least £50,000 (or the euro equivalent). At least one quarter of the share capital must be paid up at the time of purchase

Question 53

Number of directors required for private companies

Answer 53

Requires only one director

Question 54

Number of directors required for public companies

Answer 54

Must have a minimum of two directors

Question 55

Company secretary requirement for private companies

Answer 55

May choose to have a company secretary, but not obliged to. Directors (or authorised persons) can fulfil the duties if no company secretary is appointed

Question 56

Company secretary requirement for public companies

Answer 56

Must have a company secretary. The appointed person must possess requisite knowledge, experience, and specified qualifications

Question 57

Requirement for holding Annual General Meetings (AGM) in private companies

Answer 57

No longer required, although holding an AGM is optional

Question 58

Requirement for holding Annual General Meetings (AGM) in public companies

Answer 58

Required to hold one AGM each year. Provides non-director members with an opportunity to question directors, especially regarding the company’s finances