Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

Business > W0 > Flashcards

W0 Flashcards

(105 cards)

Start Studying
1
Q

What are some warning signs that indicate money laundering might be taking place?

A

Warning signs that money laundering might be taking place include instructions outside your firm’s area of expertise, unusual retainers, use of client accounts, setting up a trust, property purchases with large payments from private funds, and money coming from or being sent to offshore tax havens.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are some high-risk jurisdictions for money laundering?

A

High-risk jurisdictions for money laundering include the Democratic People’s Republic of Korea, Iran, Myanmar, Afghanistan, Barbados, Burkina Faso, Cayman Islands, Democratic Republic of the Congo, Haiti, Syria, Uganda, Vanuatu, Yemen, South Sudan, Trinidad and Tobago, Tanzania, Philippines, Nigeria, and Iran.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are the direct involvement offences under the Proceeds of Crime Act 2002 (PoCA)?

A

The direct involvement offences under PoCA include concealing, disguising, converting, or transferring criminal property; entering into or becoming concerned in an arrangement that facilitates the acquisition, retention, use, or control of criminal property by another person; and acquiring, using, or possessing criminal property.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What defences are available for the direct involvement offences under PoCA?

A

Defences for the direct involvement offences under PoCA include making an authorized disclosure, having appropriate consent, having a reasonable excuse for not making a disclosure, or carrying out a function related to the enforcement of any provision of PoCA or other enforcement relating to criminal conduct or benefit from criminal conduct.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is the offence of failure to disclose under PoCA?

A

Under PoCA, it is an offence to fail to make a disclosure to the firm’s Money Laundering Reporting Officer (MLRO) or the National Crime Agency (NCA) if you know or suspect that someone is laundering the proceeds of criminal conduct, you receive the information in the course of business in the regulated sector, and you can identify the person who is laundering the proceeds of criminal conduct or the whereabouts of the laundered property.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the golden rule when suspecting money laundering?

A

The golden rule when suspecting money laundering is to report your concern to your MLRO or other nominated official. It is important to disclose any suspicions and not tip off clients about any reports made

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are some activities that fall within the definition of ‘regulated sector’ under PoCA?

A

Activities that fall within the definition of ‘regulated sector’ under PoCA include participating in financial and real property transactions, managing client money or assets, opening or managing bank, savings, or securities accounts, organizing contributions for the creation and operation of companies, and creating, operating, or managing trusts or similar structures by providing legal or notarial services.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are the non-direct involvement offences under PoCA?

A

The non-direct involvement offences under PoCA apply to people working in the regulated sector. These offences include failure to disclose information about money laundering, tipping off clients about reports made, and disclosing information that may prejudice an investigation.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is the definition of ‘authorised disclosure’ under PoCA?

A

‘Authorised disclosure’ under PoCA is a disclosure made to a constable, customs officer, or a nominated officer by the alleged offender that property is criminal property. It must satisfy certain conditions outlined in the law.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the time frame for taking further action after making a disclosure under PoCA?

A

If the MLRO decides to make a disclosure by way of a suspicious activity report (SAR) to the NCA, neither the MLRO nor the fee earner should authorize or undertake any prohibited act unless authorized by the NCA or seven working days have passed from the disclosure to the NCA without refusal of authority to proceed.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the offence of tipping off under PoCA?

A

Under PoCA, it is an offence to tip off clients about any report made of information that came to you in the course of business in the regulated sector. It is also an offence to disclose that an investigation is being contemplated or carried out if the disclosure is likely to prejudice the investigation.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are some defences available for the non-direct involvement offences under PoCA?

A

Defences for the non-direct involvement offences under PoCA include making an authorized disclosure, having a reasonable excuse for not making a disclosure, or carrying out a function related to the enforcement of any provision of PoCA or other enforcement relating to criminal conduct or benefit from criminal conduct. There are also specific defences under certain sections of PoCA.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is the regulated sector under PoCA?

A

The regulated sector under PoCA includes various businesses and activities such as insurance companies, investment services, accountancy services, insolvency practitioners, providing tax advice, participating in financial and real property transactions, and more. It also covers legal work that falls within ‘participating in financial and real property transactions.’

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is the offense of failure to disclose under PoCA?

A

Under section 330 of PoCA, it is an offense to fail to make a disclosure to the firm’s MLRO or the National Crime Agency (NCA) if you know or suspect that someone is laundering the proceeds of criminal conduct, receive the information in the course of business in the regulated sector, and can identify the person who is laundering the proceeds of criminal conduct or the whereabouts of the laundered property.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What are the requirements for making a disclosure under section 330 of PoCA?

A

According to section 330(5) of PoCA, a disclosure must contain the identity of the person who is suspected of laundering the proceeds of criminal conduct, the whereabouts of the laundered property if known, and the information on which the knowledge or suspicion is based

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is the waiting period before taking further action after making a disclosure to the MLRO/NCA?

A

If the MLRO decides to make a disclosure by way of a suspicious activity report (SAR) to the NCA, under section 336 of PoCA, neither the MLRO nor the fee earner should authorize or undertake any prohibited act unless authorized to do so by the NCA or seven working days have passed from the disclosure to the NCA during which time the NCA has not refused authority to proceed.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is the offense of tipping off under PoCA?

A

Under section 333A of PoCA, it is an offense to tip off clients about any report made of information that came to you in the course of business in the regulated sector if you know or suspect that an internal or external report has been made and you tell your client or a third party, thereby possibly prejudicing any investigation. It is also an offense to disclose that an investigation is being contemplated or carried out if the disclosure is likely to prejudice the investigation.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What types of legal work fall within the definition of the regulated sector?

A

Some types of legal work, such as advising on a litigation matter, strictly don’t fall within the definition of the regulated sector. However, most firms have policies requiring their staff to report suspicions to the MLRO and no tipping off, regardless of whether the work falls within the definition of the regulated sector.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What factors indicate a risk of money laundering in the given scenario?

A

In the given scenario, factors that indicate a risk of money laundering include the purchaser paying a large sum of money in cash without the need for a mortgage, a large overpayment, the use of offshore bank accounts, a change in instructions, the client asking for a quick transaction, receiving a large payment from a tax haven like Bermuda, and making a large payment to another tax haven like the Cayman Islands.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What should you do to avoid committing an offense under PoCA?

A

To avoid committing an offense under PoCA, you should make an authorized disclosure to your firm’s MLRO or nominated officer under section 338 of PoCA. This will provide you with a defense to both direct and non-direct involvement offenses.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What are the penalties for offenses under PoCA?

A

The penalties for offenses under PoCA, whether direct or non-direct involvement offenses, include imprisonment, a fine, or both.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is customer due diligence (CDD) according to MLR?

A

Customer due diligence (CDD) refers to the measures that regulated businesses must take to identify and verify the identity of their clients and carry out ongoing monitoring.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

When should customer due diligence (CDD) be carried out?

A

According to Regulation 27 of MLR, customer due diligence (CDD) must be carried out when establishing a business relationship, carrying out an occasional transaction, suspecting money laundering or terrorist financing, or having doubts about the veracity or adequacy of the identification documents, data, or information previously provided.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What are the direct involvement offences under PoCA?

A

The direct involvement offences under PoCA include: concealing, disguising, converting or transferring criminal property (s 327), entering into or becoming concerned in an arrangement which facilitates the acquisition, retention, use or control of criminal property (s 328), and acquiring, using or possessing criminal property (s 329).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
What are the non-direct involvement offences under PoCA?
The non-direct involvement offences under PoCA apply to those working in the regulated sector. They include: failure to disclose suspicions to a nominated officer/MLRO (s 330) and tipping off (s 333A). A defence to both direct and non-direct involvement offences is making an authorised disclosure to a nominated officer under s 338 of PoCA.
26
What is Customer Due Diligence (CDD) and when should it be carried out?
Customer Due Diligence (CDD) is the process of identifying and verifying the identity of clients and carrying out ongoing monitoring. CDD should be carried out when establishing a business relationship, carrying out an occasional transaction, suspecting money laundering or terrorist financing, or having doubts about the veracity or adequacy of the identification documents, data, or information previously provided.
27
What is the purpose of ongoing monitoring in Customer Due Diligence (CDD)?
The purpose of ongoing monitoring in CDD is to scrutinize transactions throughout the course of the business relationship, ensure transactions are consistent with the law firm's knowledge of the customer and their risk profile, review existing records, and keep documentation and information up-to-date
28
When does the verification of a client's identity have to take place?
Generally, the verification of a client's identity must take place before the establishment of the relationship or the carrying out of the transaction. However, if a business relationship is being established, the verification can be completed during the establishment of the business relationship if it does not interrupt the normal conduct of business and there is little risk of money laundering or terrorist financing occurring.
29
What is the meaning of 'beneficial owner' in relation to Customer Due Diligence (CDD)?
The 'beneficial owner' refers to the person who owns or controls the customer on whose behalf the work is being undertaken. For example, if the client is a private limited company, the solicitor would have to identify any individual who owns or controls more than 25% of the voting rights in the company and verify their identity.
30
What are the risk factors for simplified Customer Due Diligence (CDD)?
The risk factors for simplified CDD include customer risk factors (e.g., public administration, publicly owned enterprise, financial or credit institution, company listed on a regulated market, individual resident in a geographical area of low risk) and product, service, transaction, or delivery channel risk factors (e.g., life insurance policy with a low premium, pension scheme meeting prescribed conditions, child trust fund, junior ISA).
31
What is customer due diligence (CDD) and why is it important?
Customer due diligence (CDD) is the process of identifying and verifying the identity of clients. It is important because it helps regulated businesses comply with anti-money laundering regulations and reduces the risk of money laundering.
32
What information should be obtained when conducting CDD for a company client?
When conducting CDD for a company client, you should identify its name, company number, registered office, constitutional documents, and the names of the directors. Additionally, you should also identify the beneficial owner, which is the owner of more than 25% of the shares or voting rights in the entity.
33
What is enhanced customer due diligence (CDD) and when should it be carried out?
Enhanced customer due diligence (CDD) is a higher level of scrutiny and additional measures that need to be taken when there is a higher risk of money laundering. It should be carried out when you need to satisfy yourself of the background and financial situation of the client and ensure that the transaction is legitimate.
34
What is simplified customer due diligence (CDD) and when can it be conducted?
Simplified customer due diligence (CDD) involves adjusting the type of CDD measures conducted when the risk of money laundering is low. It can be conducted when the relationship with the client is established, an occasional transaction is carried out, or there is doubt about the veracity or adequacy of the identification documents.
35
What are the consequences of relying on another person's due diligence for anti-money laundering purposes?
If you rely on another person's due diligence for anti-money laundering purposes, you remain liable for the client not being properly checked. It is important to ensure that the due diligence conducted by the third party is compliant with the Money Laundering Regulations (MLR).
36
Why do most law firms prefer to undertake their own customer due diligence (CDD)?
Most law firms prefer to undertake their own customer due diligence (CDD) because it allows them to have control over the process and ensure compliance with anti-money laundering regulations. Additionally, larger law firms are often uncomfortable relying on a third party's assessment of risk.
37
What is the role of the Financial Services and Markets Act 2000 (FSMA) in regulating financial services?
The Financial Services and Markets Act 2000 (FSMA) is the key statute governing the provision of financial services in the UK. It establishes the activities to be regulated by FSMA and sets out the regulatory framework for financial services, including the roles of the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).
38
What is the role of the Financial Conduct Authority (FCA) in regulating financial services?
The Financial Conduct Authority (FCA) is one of the regulators responsible for regulating financial services in the UK. It focuses on the conduct of business and regulates activities such as advising on investment products, dealing in investment products, and arranging investment products on behalf of clients. However, few law firms obtain direct FCA authorization due to the stringent level of regulation and cost efficiency considerations.
39
What is the general prohibition under the Financial Services and Markets Act 2000 (FSMA)?
The general prohibition under the Financial Services and Markets Act 2000 (FSMA) states that no person may carry on a regulated activity in the United Kingdom unless they are an authorized person or an exempt person. Breaching this prohibition is a criminal offense.
40
What are the conditions for an activity to be considered a regulated activity under FSMA?
According to FSMA, an activity is considered a regulated activity if it is an activity of a specified kind carried on by way of business and relates to an investment of a specified kind. The specific conditions are outlined in Section 22(1) of FSMA.
41
What are the steps to consider when determining if an activity is regulated under FSMA?
The steps to consider when determining if an activity is regulated under FSMA are: 1) Is the investment specified under FSMA? 2) Is the activity a specified activity under FSMA? 3) Is the activity excluded under FSMA? 4) Does the activity fulfill the basic conditions specified by Section 327 of FSMA and the SRA Scope Rule 2?
42
What are the specified investments that fall under FSMA?
The specified investments that fall under FSMA include shares, instruments creating or acknowledging indebtedness (such as bonds), and regulated mortgage contracts. These are outlined in Part III of the Regulated Activities Order (RAO).
43
What are the specified activities that fall under FSMA?
The specified activities that fall under FSMA include dealing in investments as principal or agent, arranging deals in investments, managing investments, and advising on the merits of investments. These activities are listed in Part II of the Regulated Activities Order (RAO).
44
What are the factors considered by the FCA to determine if regulated activities are incidental?
The FCA considers factors such as the scale of the activity in proportion to other professional services provided by the firm, whether the services are held out to be separate from other professional services, and the impression given by the firm through advertising or promotion of its services. The FCA believes that regulated activities cannot be a major part of the firm's practice and should not be conducted in isolation from the provision of other professional services.
45
How can a firm determine if an activity is incidental?
To determine if an activity is incidental, a firm needs to consider the overall work it does for clients. If the specified activity is a small part of what the firm does for clients overall, then it can be considered incidental.
46
What are the basic conditions specified by Rule 2 of the Scope Rules?
According to Rule 2 of the Scope Rules, a firm must ensure that the regulated activity arises out of or is complementary to the provision of a particular professional service to a specific client.
47
How can a firm determine if an activity arises out of the work being done for a client?
To determine if an activity arises out of the work being done for a client, the firm needs to consider what has prompted the activity. If the activity is completely unrelated to the non-regulated work being done for the client, then it does not arise out of the work.
48
What does it mean for an activity to be complementary?
An activity is considered complementary if it arises naturally out of the work being done for the client. If the specified activity does not arise naturally from the work, then it is not complementary.
49
What are the requirements to carry out an exempt regulated activity?
To carry out an exempt regulated activity, a law firm must comply with the Scope Rules and be authorized by the SRA. Additionally, the firm must comply with any relevant SRA Financial Services (Conduct of Business) Rules 2019.
50
What happens if a firm is not authorized by the PRA or FCA but carries out a regulated activity?
If a firm is not authorized by the PRA or FCA but carries out a regulated activity, the person carrying out the activity is likely to have breached s 19(1) FSMA, which is a criminal offense.
51
Why are financial services heavily regulated in the UK?
Financial services are heavily regulated in the UK to protect consumers from negligent advice.
52
What is the General Prohibition under s 19 FSMA?
The General Prohibition under s 19 FSMA prohibits solicitors from carrying out regulated activities.
53
What are regulated activities?
Regulated activities refer to specified activities, such as advising on the merits, in relation to specified investments, such as shares.
54
What should solicitors do if they are carrying out a regulated activity?
If solicitors are carrying out a regulated activity, they need to check if there are any specific or general exclusions. If there are no exclusions, they need to satisfy s 327 FSMA and Scope Rule 2. If they can satisfy these requirements, they are carrying out an exempt activity. If not, they need to be regulated or refrain from carrying out the activity.
55
What are the criminal sanctions for breaching the s 19 FSMA General Prohibition?
There are criminal sanctions for breaching the s 19 FSMA General Prohibition.
56
What are the steps to determine if an activity is an exempt regulated activity?
The steps to determine if an activity is an exempt regulated activity include checking for specific or general exclusions, satisfying s 327 FSMA and Scope Rule 2, and ensuring compliance with the relevant rules and regulations.
57
What are some key considerations in choosing a business model?
Key considerations in choosing a business model include costs, risk, structure, formalities, privacy, and finance.
58
What are the possible business models for a company?
Possible business models include the sole trader, partnership, limited partnership, limited liability partnership, private limited company, and public limited company.
59
What makes companies such a popular business model?
Companies are a popular business model because they are separate legal entities from their owners (shareholders or members). This means that the company owns property, enters into contracts, and can sue and be sued in its own name. Additionally, companies offer limited liability to shareholders and are governed by the Companies Act 2006.
60
What are the main characteristics of public and private companies?
Public and private companies have different legal characteristics. Public companies can offer their shares to the public, while private companies cannot. Companies Act 2006 governs how companies are run and the filings and disclosures that must be made by all companies at Companies House. Private limited companies are the most popular business model in England and Wales.
61
What is limited liability and why is it important for shareholders?
Limited liability means that the liability of shareholders is limited to the amount unpaid on their shares (if any). This protects shareholders and facilitates investment in the company.
62
What are the formal procedural requirements for running a company?
Companies are governed by the Companies Act 2006, which contains detailed requirements regulating how companies are run and the filings and disclosures that must be made by all companies at Companies House. However, these formal procedural requirements can be onerous, especially for small private companies where the shareholders and directors are often the same individuals.
63
Who are the key stakeholders in a company?
Key stakeholders in a company include shareholders (also known as members), directors, persons with significant control, and other interested parties such as employees and creditors.
64
What are the different types of private companies?
Private companies can be private limited companies (Ltd), private companies limited by guarantee, or unlimited companies. Private limited companies are the most common type and have no minimum share capital requirements. Private companies limited by guarantee have no share capital and the liability of members is limited to the amount they agreed to contribute in the event of winding up. Unlimited companies have unlimited liability for their members.
65
What are the different types of public companies?
Public companies can be public companies limited by shares (Plc) or listed companies. Public companies limited by shares can offer their shares to the public and have a minimum share capital requirement. Listed companies are those whose shares are admitted on a regulated investment exchange, such as the London Stock Exchange.
66
What are the principal differences between private and public companies?
The main differences between private and public companies include the name, share capital requirements, number of directors, company secretary requirement, and regulatory obligations. Private companies have the word 'Limited' or 'Ltd' in their name, while public companies have 'Public Limited Company' or 'Plc'. Private companies have no minimum share capital requirement, while public companies must have a minimum share capital of £50,000. Private companies can have one director, while public companies must have a minimum of two directors. Private companies are not required to have a company secretary, while public companies must have one. Public companies are subject to more onerous regulatory requirements.
67
What are the advantages and disadvantages of incorporation for a business?
Advantages of incorporation include limited liability, minimization of risk, formal structure for the business, easier finance raising through shares or bank loans, and potential return on investment through dividends. Disadvantages include the lack of effective separation of ownership from control in small private companies, high levels of formality that may not be desirable, and necessary public disclosures.
68
What are the main constitutional documents of a company?
The main constitutional documents of a company are the Articles of Association and the Memorandum. Under the Companies Act 2006, the Memorandum is no longer part of the company's constitution but is required for the registration process. The Articles regulate the relationship between shareholders, directors, and the company.
69
What is the purpose of the Memorandum and Articles of Association?
The Memorandum and Articles of Association are the constitutional documents of a company. The Memorandum is a declaration by the subscribers to form a company and become members. The Articles regulate the relationship between shareholders, directors, and the company.
70
What are the differences between a private and a public company in terms of name, share capital, number of directors, and company secretary?
Private companies have 'Limited' or 'Ltd' in their name, while public companies have 'Public Limited Company' or 'Plc'. Private companies have no minimum share capital requirement, while public companies must have a share capital of at least £50,000. Private companies can have one director, while public companies must have a minimum of two directors. Private companies are not required to have a company secretary, while public companies must have one.
71
How does the relationship between the Companies Act 2006 (CA 2006) and the Articles of a company work?
A company's Articles must be interpreted in the light of relevant legislation. There is considerable scope for overlap between the procedures set out in CA 2006 and those that may also be contained in the company's Articles. The Articles must comply with the minimum provisions of CA 2006, but a company may provide a procedure in its Articles that is more onerous than that contained in CA 2006. However, there are some CA 2006 provisions that override anything in a company's Articles.
72
What are the three choices available to a company regarding the form of its Articles?
The three choices available to a company regarding the form of its Articles are: Model Articles (MA) / Table A, Amended MA, and Tailor-made Article
73
How can a company amend its Articles?
Once a company has adopted Articles, it can alter them at any future date by special resolution. A special resolution is a decision of the shareholders. Section 22 of CA 2006 permits the entrenchment of specific provisions within a company's Articles, but this occurs relatively rarely in practice. An entrenched provision can be amended by agreement of all members or by a court order.
74
What is the legal effect of a company's Articles?
The provisions in a company's Articles bind the company and its members to the same extent as if there were covenants on the part of the company and each member to observe those provisions. The Articles evidence a contract between the company and its members, and between the members themselves. However, a member may not enforce any rights contained in the Articles against the company that are not relevant to their capacity as a member.
75
What are the options for incorporating a company?
A client can either incorporate a new company from scratch or purchase and convert an existing shelf company. Incorporating a new company involves submitting relevant information to Companies House, while converting a shelf company allows for quicker access but may require changes to meet the client's requirements.
76
What are the steps involved in incorporating a new company from scratch?
To incorporate a new company from scratch, an application must be made to the Registrar of Companies at Companies House. The application must include a copy of the company's memorandum, Articles (if not using Model Articles), the required fee, and an application for registration (Form IN01) stating the company's proposed name, registered office, liability, and whether it is private or public. Once approved, the company receives a certificate of incorporation.
77
What changes may need to be made when purchasing a shelf company?
When purchasing a shelf company, changes may need to be made to the company's name, as most shelf companies have names that are unrelated to the client's business. The company's name can be changed by a special resolution of the shareholders or by other means provided by the company's Articles. Other changes may also be necessary to meet the client's requirements.
78
What is the purpose of amending a company's Articles?
Amending a company's Articles is necessary to meet the specific requirements of a client. A company may alter its Articles by special resolution.
79
What changes may need to be made when purchasing a shelf company?
When purchasing a shelf company, changes may need to be made to the company's name, Articles, registered office, and the members, directors, and company secretary. The first members' shares should be transferred to the client, and the client's representatives should be appointed as directors and the company secretary.
80
What are the advantages of purchasing a shelf company?
Purchasing a shelf company has traditionally been regarded as a cheaper way to form a company for a client. However, once legal fees are factored in, the costs of purchasing a shelf company and incorporating a new company may not be materially different.
81
What are the formalities involved in setting up a new company using a shelf company?
To set up a new company using a shelf company, formalities include making changes to the name, Articles, registered office, and the members, directors, and company secretary. The required documents must be sent to Companies House, including Form IN01, Memorandum, and Articles (unless using Model Articles). If converting from a shelf company, meetings of directors and shareholders must be held to make the necessary changes.
82
Who are the key stakeholders in a company?
The key stakeholders in a company include shareholders (or members), persons with significant control (PSC), and directors. Shareholders are the owners of the company and invest money in return for a share in the ownership. PSC refers to individuals who own more than 25% of the shares or voting rights, have the power to appoint or remove a majority of the board of directors, or exercise significant influence or control over the company. Directors are responsible for the day-to-day management of the company.
83
What are the rights and features of shareholders in a company?
Shareholders invest money in the company in return for a share in the ownership. They have rights such as voting rights and rights to a dividend, which are set out in the Articles. Shareholders' membership begins when their names are entered in the company's register of members. Shareholders can be individuals or companies, and a company can own shares in another company. Different classes of shares may carry different rights and entitlements, which are specified in the Articles.
84
What is limited liability in relation to shareholders?
Limited liability means that the total nominal value of the shares held by a shareholder is equal to their liability to contribute to the assets of the company if it becomes insolvent. If all the shareholder's shares are fully paid, they will not have to contribute any further amount to the company on insolvency. The shareholder's liability is limited to the amount, if any, unpaid on their shares.
85
What is the role of directors in a company?
Directors are responsible for the day-to-day management of the company. They are agents of the company and owe fiduciary duties to the company. The directors together form the board of directors. Some fundamental decisions are reserved for the shareholders, but directors play a crucial role in running the company and making decisions on its behalf.
86
What are the different types of directors in a company?
There are various types of directors, including executive directors, non-executive directors, shadow directors, de facto directors, and alternate directors. All directors owe the same duties to the company and are subject to the same responsibilities under the Companies Act 2006 and insolvency legislation.
87
What are the different business models covered in the SQE?
The different business models covered in the SQE are sole trader, partnership, limited liability partnership (LLP), private and unlisted public companies.
88
What are some key patterns in the characteristics of the different business models?
One key pattern is that incorporated business models (companies and LLPs) are separate legal entities from their members, while unincorporated models (sole traders and partnerships) do not have separate legal entity status. Another pattern is that incorporated models offer limited liability, while unincorporated models have unlimited liability.
89
What are the advantages and disadvantages of incorporated business models?
The advantages of incorporated business models (companies and LLPs) include separate legal entity status and limited liability. However, the disadvantages include the time, expense, and disclosure obligations associated with incorporation.
90
What are the advantages and disadvantages of unincorporated business models?
The advantages of unincorporated business models (sole traders and partnerships) include no set-up costs and complete privacy. However, the major disadvantage is unlimited liability.
91
What are the tax treatments of sole traders, partnerships, and companies?
Sole traders and partners (including LLP partners) pay income tax on their share of the profits and capital gains tax on their share of any capital gains. Companies pay corporation tax, and shareholders also pay income tax on dividends received (double taxation of profits).
92
What are the principal differences between a private and a public company?
The principal differences between a private and a public company include the number of shareholders, regulatory requirements, access to the board, and offering shares to the public.
93
What are the key differences between private companies and public listed companies?
Key differences between private companies and public listed companies include regulation, disclosure requirements, required number of directors, requirement for a company secretary, AGM for public companies, offering shares to the public, and use of written resolutions.
94
What is the difference between corporation tax and income tax?
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.
95
What are the different types of private companies?
Private companies can be classified into different types. Private companies limited by shares are the most common type, while private companies limited by guarantee have no share capital and the liability of members is limited to the amount they agreed to contribute. Unlimited companies have unlimited liability but are relatively rare.
96
What is the process of converting a private company into a public limited company?
To enable a company to raise greater funds by offering shares to the public at large, a private company's shareholders may decide to convert the company into a public limited company (Plc). Public limited companies can offer their shares to the public and may seek a listing on a recognized stock exchange.
97
What is the significance of having a stock exchange listing for a company?
Having a stock exchange listing allows a company to raise greater funds by offering shares to the public at large. It also provides investors with the freedom to deal freely in their investments, making the company more attractive as an investment.
98
What are the differences between private and public companies in terms of regulation?
Listed companies require more regulation than private companies. Private companies enjoy lighter regulation under the Companies Act 2006. The aim of the reforms was to make it easier to set up and run a private company. Public listed companies have additional regulation to ensure the accountability of directors.
99
What is the written resolution procedure and how does it differ for private and public companies?
The written resolution procedure is a convenient method of passing shareholder resolutions without the need for a general meeting. Private companies can pass shareholder resolutions as written resolutions, while public companies cannot. This change has resulted in cost and time savings for many private companies.
100
What are the principal differences between private and public companies?
Private companies have fewer regulatory requirements than public companies. Private companies require a minimum of one shareholder and one director, while public companies require a minimum of two directors. Private companies do not require a company secretary, while public companies do. Private companies can pass shareholder resolutions as written resolutions, while public companies cannot.
101
What are the practical consequences of a company having separate legal personality and limited liability?
The separate legal personality of a company means that it has its own existence and personality, separate from its owners, directors, creditors, and employees. This allows the company to own property, enter into contracts, and be sued or sue on its own liabilities. Limited liability means that shareholders' liability for the company's debts is limited to the amount they paid for their shares.
102
Why is limited liability considered commercially significant?
The limited liability of companies is a quality that has made them useful commercial tools. It allows shareholders to invest in a company while knowing that their personal assets are safe and without having to take an active role in management. Limited liability also encourages investment and businesses to take risks, which generates money and benefits the wider community.
103
What are heads of terms and how are they used in commercial transactions?
Heads of terms, also known as memoranda of understanding, outline the agreed intentions of the parties before negotiating a formal contract. They set out the framework for future negotiations and are commonly intended to be non-binding, except for specific clauses. While they carry moral force, they often precede involvement from lawyers.
104
What are letters of comfort and how are they used in business transactions?
Letters of comfort are often given in loan finance transactions to provide assurance to a bank that a subsidiary will be able to make loan repayments. While the legal obligation arising from such letters remains a grey area, it depends on the facts of each case. Letters of comfort may make representations about a subsidiary's performance or state the parent company's policy to ensure subsidiary companies can service their bank debt.
105

Business (22 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions