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Summary notes Business law and Practice
Theses are compiled notes of Business Law and Practice that can be used as flashcards for both sqe and lpc. They are perfect to study for exams.
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dee CNET an ell SQEFlashcardBusiness Law and Practice (FLK1)
STARTING A NEW BUSINESS THROUGH THE VEHICLE OF of the Partnership Act 189@ could have been avoided LLPs are generally treated as being carried on in
A COMPANY, PARTNERSHIP, LLP OR AS A SOLE TRADER Decisions taken in a partnership are by majority, apart partnership by its members and not by the LLP as a
from three exceptions which require unanimity: separate entity for corporate and income tax purposes
BUSINESS ORGANISATIONS, RULES AND PROCEDURES ¢ Changing the nature of the business
e Introducing a new partner FINANCING A BUSINESS
Sole Trader: ¢ Changing the terms of the partnership agreement
No formalities required Actual authority: The firm will be liable for actions FINANCE
Not a seperate legal personality of individual partners which were actually or expressly
Unlimited liability applies authorised Equity Finance:
No public disclosure obligations Apparent authority: The firm may be liable for actions A company may issue different classes of shares with
which were not actually or expressly authorised but different rights to raise finance from members (i.e.
Private Limited Company: which appear to an outsider to be authorised (partners shareholders)
Has a separate legal personalty actions bind the firm by the law of agency) Shares have a nominal value (par value)
Recognised by law as a legal person with its own rights A person seeking to enforce a liability against a But shares can be issued for more than the nominal value
and obligations separate from the individuals who run it partnership may sue: The true value of the share will fluctuate either upwards
Limited liability refers to the ‘members’ own liability, * The partner with whom the contract was made or downwards
not the company’s ¢ The firm
A person becomes a member by buying shares in the company « Any person who was a partner at the time when the debt Issue Of New Shares:
A member cannot be asked to contribute further money to or obligation was incurred can be sued individually New shares are issued or allotted to the individuals who
settle the company’s debts (known as joint and several Liability) have contracted to buy them
The issue of shares may provide for payment in cash or
Incorporation Of A Private Company Limited By Shares: Limited Liability Partnership (LLP): non-cash consideration
Form IN@1 (Application to register a company) must Formed by registering an incorporation document with If full amount is paid at the time of allotment, shares
be completed and filed with the Registrar of Companies Companies House are ‘fully paid up’. If not, they are ‘partly paid’. The
together with: An LLP is a body corporate with a legal personalty outstanding amount can be asked for by the company (i.e.
* Memorandum of Association; and separate from that of its members making a call)
¢ Prescribed fee Members have no liability for the debts and liabilities If the company goes into liquidation, the shareholder is
Company comes into existence on Certificate of of the LLP obliged to contribute the outstanding unpaid amount to
Incorporation being issued the company if not fully paid up
Must register for corporation tax. Will automatically happen Incorporation Of A Limited Liability Partnership (LLP):
if incorporation done online at Registrar, otherwise must Form LLIN@1 (Application for the incorporation of a Distribution Of Profits And Gains
make a separate application to HMRC within three months limited liability partnership) must be completed and Examples of distributions include:
filed with the Registrar of Companies together with the Dividends, gifts, transactions at an undervalue,
Partnerships: prescribed fee surrender by a subsidiary to a parent of a tax loss,
S.1, Partnership Act 189@: ‘partnership is the relation Two or more members associated for carrying on a lawful intra-group loans on favourable terms, waiver of loans,
which subsists between persons carrying on a business in business with a view to profit must subscribe their names upstream guarantees and assumptions of liability
common with a view to a profit’ to its incorporation company proposing to make a distribution must:
>
Does not have a separate legal existence The LLP is created when the Registrar issues the Have ‘profits available’ to make the distribution
Partners are not protected by limited liability Certificate of Incorporation. The LLP is given a company (distributable profits or reserves); and
Partnership agreement helps ensure that undesired aspects registration number Must be justified by reference to the ‘relevant accounts’
e
, (
Procedure For Allotment And Issuing Of Shares And If a limitation, the Articles should be amended by If there is charge over land, the charging
Disapplying Of Pre-emption Rights For Companies: Special Resolution to remove the limitation/prohibition document should also be sent to HM Land Registry
The main types of borrowing facilities available to a for registration
STEP 1: Check If Any Constitutional Restrictions On company are:
Allotment Check Articles of Association for restrictions. * Overdraft Facility Financial Records, Information and Accounting Requirements:
Note: there are no restriction in Model Articles. If a ¢ Term Loan
restriction in Articles, amend by Special Resolution * Revolving Credit Facility Statutory Books:
¢ Register of Directors
P 2: Check Dire ve Authority To AL ir Types Of Security: * Register of Company Secretaries (if any)
If one class of shares, private company does not need The main types of security are: ¢ Register of Director’s Residential Addresses
shareholder authority to allot. Board Resolution is ¢ Lien * Register of Members
sufficient but if there is a restriction in the Articles * Pledge ¢ Register of Persons with Significant Control
on directors, this can be removed by Special Resolution ° Fixed Charge * Register of Director’s Interests
or by passing an Ordinary Resolution under s.551, * Floating Charge « Register of Charges
Companies Act 2006 to give new authority to allot Mortgage
If more than one class of share, Ordinary Resolution Mortgage over Land (legal mortgage or equitable Minutes, Resolutions, Contracts:
needed to grant new authority to allot shares (unless mortgage) ¢ Minutes of directors’ meetings for 1@ years
they have authority to allot in their Articles) Legal Assignment (by way of security) * Copies of members’ resolutions passed otherwise then
at general meetings (such as written resolutions) for
STEP _3: Check If Any Pre-Emption Rights Apply Priority Of Security Between Charge Holders: 1@ years if not fully paid up
‘Equity securities’ must be first offered in proportion There is an order of priority between competing charge Copies of minutes from general meetings for 1@ years
to existing members on the same or more favourable terms. holders if the charges are properly registered: Details of decisions by a sole member for 10 years
They have minimum 14 days ‘right of first refusal’ Successive mortgages rank for priority in the order in A copy of every contract under which the company bought
they were created, if they are registered its own shares within the last 1@ years
Share Buyback: Successive fixed charges rank for priority in the order Copies of all directors’ service contracts for one year
company may buy back its own shares out of: in which they were created, if they are registered after the contract expires
Profits/fresh issue of shares; or Successive floating charges rank for priority in
Capital (if no distributable profits available and the order in which they were created, if they are Confirmation Statement:
additional conditions are met) registered A company must deliver (within 14 days after the end of
A mortgage or fixed charge will have priority over an each 12 months period) to Companies House a confirmation
Transfer/Transmission Of Shares: earlier floating charge except where the charge holder statement (Form CS@1)
If a shareholder wishes to sell their investment, they had notice of a restriction granting security in the
must ‘transfer’ their shares to another person document creating the floating charge (i.e. a negative Accounting Requirements:
The transferee (the purchaser) agrees to become a pledge clause) Directors have a duty to:
shareholder by submitting the share transfer (the Registration perfects security; it gives notice to the Prepare a balance sheet
contract for the sale of the shares) to the company creditors Prepare a profit and loss account
The purchaser becomes a shareholder when his name is Prepare a directors’ report for each financial year
entered in the register of members Registration Of Security: (including a business review)
Share ‘transmission’ is the transfer of shares by The following should be delivered to Companies House File within nine months from the end of the accounting
operation of law on death to the personal representatives within 21 days (counting from the day after the creation reference period, the accounts and directors’ report
or on bankruptcy to the trustee in bankruptcy of the charge): for each financial year at Companies House
¢ Form MR@1 Appoint auditors to review the company accounts and
Debt Finance: ¢ Certified copy of the charge document prepare an auditor’s report (to send to every member of
Debt financing is where a company borrows money ¢ The applicable fee the company)
Debt finance may be unsecured or secured on the assets of Failure to register a charge renders the charge void Ensure the auditor’s report is sent to every member of
the company against a liquidator or an administrator or the company’s the company
A company will have the power to borrow money and grant other creditors
security unless there is a limitation (e.g. a cap) or A charge should be registered to protect the order of
prohibition in its Articles of Association priority
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