Summary

Summary LPC - Business Law and Practice Notes

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LPC - Business Law and Practice Notes

Institution
Manchester Metropolitan University (MMU)

This revision document is for the core BLP unit featured on the LPC. It is a comprehensive revision manual that strives to offer notes that are both clear and useful. Given that they summarise important subject areas that are frequently thoroughly evaluated on the LPC, these notes will be an extrem...

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Uploaded on September 24, 2022
Number of pages 39
Written in 2022/2023
Type Summary

BLP REVISION NOTES PARTNERSHIP

Common concerns when starting a business;

1. Liability
- Dependent on business medium that is chosen.
- Unincorporated = The legal status is seen to be the same as the owners. The
business doesn’t have its own legal status. Liability stops with the business owners,
which can cause personal bankruptcy. Personal assets may need to be used to pay
business liabilities.
- The most common form of an unincorporated business is a sole trader or
partnership.
- Incorporated businesses = There is a formal registration process, the business has its
own legal entity, which exists separately from its owners. Less risk of liability. But
shareholders/directors can be asked to personally guarantee company debts.

2. Cash flow
- Need to ensure they have sufficient amount of money coming in, to pay their
outgoings and produce profits for those who own the business.
- New/small business have to make payments before getting paid by their customers.
- They also need to pay suppliers quickly, and they may not be being paid quick
enough by customers.
- Good cash flow can be achieved by drawing up business plans, managing cash flow,
good terms and conditions of sale, controlling expenditure, draw up accounts even
when there is not an obligation.

3. Funding
- Self-funding
- Family/ friends = can be more flexible in the amounts offered and the interest
charged. However, can cause personal embarrassment if business fails. Should still
be in writing.
- Borrowing (debt finance) = small businesses sometimes reply on credit cards and
overdrafts, but these can have high interest rates. But it does mean that they only
take out the specific amount they need.
- Limited companies taking out loans from bank ; require evidence of person
investment and personal guarantees for loans.
- If loans are not secured, the creditor will be ranked alongside all other unsecured
creditors if the business were to go insolvent. If secured, the creditor would be given
priority.

Fixed charge
- Can be over assets given by anyone in business (partners, sole traders, limited
companies).
- Over assets that business doesn’t need to deal with regularly =
plant/machinery/premises.
- Prevents the business dealing e.g. selling asset without lender consent.
Floating charge

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, - Applies to companies & LLP, but not SP and unincorporated partnerships).
- Over valuable assets, stock and book debts.
- The charge hovers over the assets until loan is paid or if charge chrysalises.
- Crystallisation = e.g. default in interest payment. Floating charger becomes fixed
charge. Assets can no longer be dealt with by company, without consent.

Outside investors (mostly applies to limited companies) (FSMA)*
- in return for the cash investment, they would receive a share of the company, in
hopes that he will make a profit when these are sold if company is successful.
Business Angels = (£20K-£500K)
Venture Capitalists = (£500k-£25M)
Private Equity = (£25M+)
- Grants

4. Business name
Regime for incorporated (companies & LLP)
- highly regulated, cannot be the same as name already on the index of names,
maintained by CH. Ignores punctuation
- Also not offensive/imply link with HM Gov etc.
- Cannot have limited, unlimited, community interest company or public limited
company anywhere except the end of the name (ss58-59 CA)

- Regime for unincorporated (sole traders & partners) businesses using own name(s) –
unregulated

- Regime unincorporated (sole traders & partners) businesses using “business name” –
some regulation
- Business names/ trading name = something other than their own names.
- So long as it doesn’t infringe ss1193 -1198.
- Follows disclosure requirements = actual names must be disclosed on
correspondence, invoice written demands etc.

5. Taxation concerns
- Income (self-employed & employees including directors and shareholders on
dividends)
- CGT (all individual taxpayers) on “disposals” (nb reliefs & exemptions)
- IHT (all individual taxpayers unless exempt e.g. some business property)
- Corporation Tax (companies)
- VAT (all registered businesses collect from customers)
- National insurance is deducted from employees’ salaries.

6. Employment of staff.
Test to see if employers are truly self employed

- “control” – the greater the control exercised by employers over the manner in which
their workers carry out their duties the more likely they are to be employees

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, - “mutuality of obligation to provide and to do work” – employers are obliged to offer
their employees work and employees are obliged to do it, so the more of this either
party has the more likely the relationship is that of employment
- “substitution” – employees are usually obliged to carry out their duties personally so
if the worker can send along a “stand-in” then they are much more likely to be self-
employed.

Employees rights

 The right for almost all employees to receive a written statement (or acceptable
alternative including a full contract of employment) setting out the main terms of
their employment within two months of starting work (A1 Employment Rights Act
1996)
 The existence of a maximum hours threshold (Working Time Regulations 1998)
 The right to be offered a minimum pension provision (see Pensions Act 2008).
 A National Living Wage (23 years & older)
 Minimum wage = £8.91 over 23.

Business accounts

- Make a business more attractive as it is aware of its outgoings and incomings.
- More likely to attract investors, be offered credit, pay bills on time and save money
for emergencies.
- Double entry system, one credit and one debit.

Trial balance =
- Before final accounts are produced, a trial balance is drawn up.
- List of all balances at the end of each ledger, both credit and debit.
- Used to check the accuracy of double entry system.
- Both credit and debit should equal the same.
- Shown on either the profit and loss account, or on the balance sheet.

Final account =
- Should be a minimum or a profit and loss sheet, and a balance sheet. (annually)
- Limited companies higher minimum requirement.
- Should be prepared at the end of the financial year = accounting period.
- Incorporated businesses such as limited companies, need to also file these to
registrar of companies (public doc) + shareholders and HMRC.
- Unincorporated = minimum need to send accounts to HMRC.

PROFIT AND LOSS ACCOUNT: (will show is net profit or loss is made)
Income = sales/turnover
Gross profit = income – cost of sales (stock, cost of production)
Net profit = gross profit – expenses (salaries, rent, interest, depreciation)

BALANCE SHEET: ( shows how much business is worth)

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, Net current assets = current assets (cash at bank, debtors who owe money stock) –
current liabilities (money owed)
Total net assets = total fixed assets + net current assets - liability

Capital employed = money owing to the business owners, due to their investment
Total owing to owner = net profit from P&L – drawings.
(Should be the same as total net asset figure, balanced )

Accounts for different modes of business

Soles traders = pays income tax on net profit and owns all business assets after liabilities
paid. No regulations governing their accounts. P&L and balance sheet.

Partnerships = similar to sole traders, no regulation governing their a content or
existence.
- Free to choose accounting periods, no obligation to audit accounts.
- Should have P&L and balance sheet for HMRC and self-assessment tax returns
- S.24 PA 1890 = if absence of contract.
- Profit and losses shared equally, no partner to be paid salary and no partner to
receive interest on their capital.
- Will have an appropriation section under P&L account, shows how net profit or loss
it to be shared out by partners.
- Balance sheet = will show partners capital account = how much money they invested
at beginning.
- It will also show current accounts = undrawn profit.

Limited companies = highly regulated. Must draw up and publish accounts.
- CA Part 15 =
- keep adequate accounting records
- retain copies for 3 years (private company), 6 years (public company)
- accounts to give true and fair view
- a directors report
- accounts signed by directors,
- accounts and report to be sent to members, debenture holders and anyone entitles
to receive notice to GM.
- File within 9 months of end of accounting period with Registrar of Companies at CH.
6 if plc.
Fail to do so = civil penalties, criminal offence for director who may be personally liable.
Could result is disqualification.

P & L of companies =
- Will display directors pay + debenture.
- Appropriation section, showing how net profit will be allocated for taxation,
distributed and dividends and retained.

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