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Summary Business | SQE2
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Business notes to prepare for your SQE assessment. Prepare for your SQE exam for less. I achieved a 84% on my first sitting of the SQE2 relying solely on these notes.
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BUSINESS1.BUSINESS MEDIA
PERSONAL LIABILITY
LIMITED COMPANY Liable for its debts and its members are not
personally liable
SOLE TRADER/GENERAL Each partner is jointly and severally liable
PARTNERSHIP
LLP a hybrid between a general partnership and a
company
STARTING UP
LIMITED COMPANY - has to be registered with the Registrar of Companies
- will not exist until a certi cate of incorporation has been issued
SOLE TRADER/GENERAL no formalities for a sole trader to start up in business, making it
PARTNERSHIP relatively quick and inexpensive. Trading can start immediately.
Likewise, a general partnership can be created simply by two
people carrying on business with a view to making a pro t. There
are no registration requirements to form a partnership, although a
written partnership agreement to regulate relationships and
business a airs is advisable.
LLP An LLP must be registered with the Registrar of Companies and,
although not essential, it is advisable to have an LLP agreement.
A limited partnership also has to be registered with the Registrar
of Companies.
DECISION MAKING
Depending on what is being decided, decision-making in a company will be carried out either by
the directors only, or the directors and the shareholders.
LIMITED COMPANY Certain procedures, as set out in the articles of association and/or by
statute must be followed at these meetings, such as directors declaring
any interest or con ict they may have in the business under
consideration at the meeting.
SOLE TRADER/GENERAL - A simple majority vote by the partners is su cient for most
PARTNERSHIP business decisions, unless the partnership agreement provides
otherwise.
- it is the general partner who controls and manages the
business.
-The limited partner cannot manage the business and if they do
so, they lose their limited liability.
LLP an LLP can decide most matters by members’ majority vote.
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, FINANCING
• a company can issue shares in exchange for cash or assets
• a company / LLP can o er oating charges over their assets as security to a lender
DISCLOSURE
sole trader / LLP / general partnership => no requirement to disclose information about the
business a airs
company => required to disclose certain information via Companies House including nancial
information
SET UP
FORMATION NAME TAXATION
SOLE TRADER There are no formalities required to set up as a sole trader, other than registering as
self-employed HMRC for tax purposes.
PARTNERSHIP No formalities required, a - if name of partners, no - must register with
written partnership restrictions HMRC
agreement is advisable.
- otherwise, required - must register for VAT if
approval from relevant turnover exceeds
body £85,000 in the previous
12 months
LLP - register w/ Registrar of - An LLP cannot have a - must register with
Companies at Companies name that is already HMRC for selft-
House registered with an assessment
- becomes legal entity and existing LLP or other
can start trading from date body unless they are in - must register for VAT if
stated on certi cate of the same group, nor can turnover exceeds
incorporation it have a prescribed or £85,000 in the previous
- in the absences of an sensitive name 12 months
agreement, LLP Act 2000
applies - must include LLP
COMPANY - register w/ Registrar of - A company cannot have - must register w/
Companies at Companies the same name or a HMRC within 3 months
House similar name to one that of starting to do
is already registered with business
- bespoke Articles of an existing company or
Association can be other body, unless they - must register for VAT if
submitted - otherwise are in the same group, turnover exceeds
company model articles nor can it have a £85,000 in the previous
apply. prescribed or 12 months
sensitive name.
- becomes legal entity and
can start trading from date - must have "limited",
stated on certi cate of "ltd" or "plc" after its
incorporation name
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, 2. RUNNING BUSINESS
RUNNING A PARTNERSHIP
• use written partnership agreement
• Any assets which the partnership uses but does not own, should be identi ed in the
partnership agreement. Advisable to de ne personal property in the de nitions section
and then detail the property and who owns it.
• Each partner's ratio should be provided for in the partnership agreement
• there is no requirement for a partner to devote all their time and attention to the business
• partners can engage in non-competing business
• each partner has unlimited liability for the obligations and debts of the partnership
• Unless partners want the PA to prevail so that, for example, decisions are taken either by a
simple majority or, when admitting a new partner, changing the nature of the business or
altering the partnership agreement, by unanimous consent, then more detailed provisions
should be speci ed.
• A partnership agreement should regulate what happens when a partner leaves to ensure
the partnership does not dissolve automatically, assuming this is not what the partners
want.
• In a sole trader business and general partnership the ownership and management of the
business are one and the same.
• The Partnership Act 1890 contains provisions that deal with the management of a
partnership, such as the partners’ power to bind the rm and partners’ liability. However,
the partners are largely free to dictate how the business should be run in a separate
partnership agreement, so have a large degree of exibility.
RUNNING AN LLP
• advisable to use a written LLP agreement
• pro ts and capital will be shared equally among the members
• Any losses will not be shared as each member’s liability is limited to their capital
contribution
• Each member has a right to take part in the management of the LLP
• members cannot compete with the business nor use the LLP’s property for any private
bene t without its consent.
• An LLP must have at least two designated members who are responsible for various
administrative obligations which include ling certain details with the Registrar of
Companies
• in the event of insolvency limited liability will not extend to a member who is found to have
acted wrongfully or fraudulently
• most decisions can be taken by a majority of partners
• it will not cease to exist if a member leaves
• easier to raise nance and thus potentially grow the business, because lenders tend to
see these business entities as more secure from a lending perspective.
• Ability to grant oating charges
RUNNING A COMPANY
• limited liability (veil of incorporation)
• The shareholders’ liability is limited to their capital contribution
• exceptions to this general rule are circumstances where it is appropriate to lift the veil of
incorporation and make the shareholders (and/ or directors) personally liable for the debts
of the company
• Additional incorporation requirements - can lead to additional costs
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, • easier to raise nance and thus potentially grow the business, because lenders tend to
see these business entities as more secure from a lending perspective.
• Ability to grant oating charges
• A private company must have at lease one director ( 2 if it’s a public company)
• strict statutory duties on individuals that take on the role of director
• directors are also subject to the provisions of the company’s articles of association, which
is e ectively the company’s internal constitution.
SUMMARY
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