Business Flashcards

Question

What are the naming requirements (if any) for the following types of company? 1. Private limited by shares 2. Public limited by shares 3. Limited by guarantee 4. Unlimited

Answer 1

1. **Private limited by shares:** MUST end in "Ltd" or "Limited". 2. **Public limited by shares:** MUST end in "Public limited company" or "Plc". 2. **Limited by guarantee:** MAY be exempt from using "Limited". 3. **Unlimited:** PROHIBITED from using the wording "Limited".

Answer 2

**Public** * **Membership:** 1 (although very rare). * **Share capital:** £50,000. * **Paid shares:** 25%. * **Directors:** 2. **Private** * **Membership:** 1. * **Share capital:** No minimum. * **Paid shares:** No minimum. * **Directors:** 1.

Answer 3

**Public** * **Commencing business:** Receipt of certificate from Registrar confirming the nominal value of allotted shares is no less than authorised minumum (£50,000). * **Public trading of shares and debentures:** Yes. * **Company secretary:** Qualified CoSec required. * **AGMs:** Required. * **Written resolutions:** Prohibited. **Private** * **Commencing business:** Receipt of certificate of incorporation. * **Public trading of shares and debentures:** No. * **Company secretary:** Not required, usually done by a Director. If there is one, they don't need to be formally qualified. * **AGMs:** Not required for those incorporated *after* 1 Oct 2007. * **Written resolutions:** Permitted.

Answer 4

A **listed public company** trades on the stock exchange. An **unlisted** one does not. A listed public company can be deliberately delisted or automatically unlisted if it does not meet criteria for the relevant stock exchange. However, the *Companies Act 2006* does not distinguish between the two.

Answer 5

Where the liability of its members (shareholders) is **limited by its constitution** to the nominal value of the shares of each member (even if a portion remain unpaid).

Answer 6

1. Own property. 2. Sue and be sued. 3. Be a party to a contract. 4. Employ people, including its own members.

Answer 7

To make a director **personally liable** when they wouldn't otherwise be.

Answer 8

1. **Tortious liability:** Imposed by a court e.g. where a director has provided a personal guarantee or negligently misstated something (*Williams (1998)*) or a parent company has assumed a duty of care towards the employees of the subsidiary (*Chandler (2012)*). 2. **Piercing of the veil:** Where a court chooses to make the owners and/or directors liable e.g. in the case of concealment or evasion (*Prest (2013)*). 3. **Legislative offences:** The company is wound up / goes into administration and there is evidence of fraud / wrongful trading, or the company is otherwise used for fraud or other wrongdoing (*Insolvency Act 1989*). Or a public company enters contracts before it is issued its trading certificate.

Answer 9

An arrangement whereby a parent company might establish subsidiaries to shield the parent company from liabilities incurred by the subsidiary business or to shield parent company assets. A court may decide to lift the corporate veil and make a parent company shareholder liable for actions taken by the subsidiary. However, it typically looks for fraud, misconduct, and abuse of corporate structure to do this, so the bar is quite high.

Answer 10

* It has not traded in last three months. * It has not changed its company name in last three months. * It is not subject to legal proceedings. * It has not disposed of property or rights in last three months. * It has not engaged in any activity save for to strike-off or settle affairs. * It is not subject to insolvency. It must be made by the directors or a majority of them.

Answer 11

If there is reasonable cause to believe the company is **not carrying on business** or is not in operation. **Process:** * Registrar sends first communication to company inquiring whether it is carrying on business or is in operation. * If no response within 14 days, a second communication *may* be sent. * If no response within 14 days or response confirms this, the Registrar sends a notice to the company and publishes in the Gazette a notice that it will be struck off the register in two months.

Answer 12

1. **Administrative restoration:** A former director or member can apply to have the company restored where it was struck off for not carrying on business or a liquidator has not filed returns for 6 months. 2. **Court order:** Specific people can apply to the court where a company has been wound up, dissolved, not carrying on business, a liquidator has not filed returns for 6 months, or has been voluntarily struck off. In both case, the time limit to restore is **6 years** since strike off, although in the case of a court order there is an exception where there is a personal injury claim against the company or 28 days after an unsuccessful administrative restoration application.

Answer 13

It will take effect once a copy of the court order is delivered to the Registrar. But it should be followed by a notice in the Gazette. When restored, it is treated like it was never wound up in first place.

Answer 14

**Annual accounts required** 1. Private limited by shares 2. Public limited by shares 3. Limited by guarantee **Annual accounts not required** 1. Unlimited (so can keep its finances confidential)

Answer 15

Date of birth and signatures of individual members.

Answer 16

1. Identity of directors and members. 2. Constitution. 3. Accounts. 4. Certain decisions taken by shareholders (i.e. resolutions). 5. Registered office and email.

Answer 17

1. Registered office address. 2. Registered email address.

Answer 18

* Flexibility in running and management. * Attitude to risk. * Desire for privacy. * Tax. * Costs and formalities of setting up. * Need and ability to borrow funds or raise capital from outside sources.

Answer 19

A general partnership may arise automatically if parties carry on a business in common with view to profit.

Answer 20

**General partnership** - partners contract in own name as agents for partnership business. **LLP** - contracts in its own name.

Answer 21

**LLP** - generally, freedom to run as members see fit in accordance with members’ agreement, subject to established decision-making process. **Limited company** - some decisions can be made by directors alone; others require shareholder approval in accordance with legislation and articles of association.

Answer 22

False, only LLPs (and limited companies) have public disclosure requirements.

Answer 23

All can source funds through personal funds and borrowing but *in addition*: **LLPs** - able to offer security over LLP assets. **Limited companies** - able to issue shares to raise funds.

Answer 24

Public - **PLC**, meaning public limited company. Private - **LTD**, meaning limited private company.

Answer 25

Because private companies **cannot issue shares** (i.e. raise funds) to the **general public**, whereas public companies can.

Answer 26

**Pro:** Confidentiality and a lack of capital restrictions also means there can be freer movement of capital within group structures. **Con:** Unlimited personal liability of members (i.e. repossession of home etc.).

Answer 27

Continuing to trade when the directors knew or should have known that the company would become insolvent.

Answer 28

The owners are gaining an **unlawful advantage from incorporation**, thereby avoiding an existing legal obligation.

Answer 29

The shareholder will have to pay £150.

Answer 30

The insurance company will decline the shareholder’s claim on the grounds that the books belonged to the company.

Answer 31

When two or people carry on a business in common with a view to profit. | s 1 Partnership Act 1890

Answer 32

Every trade, occupation or profession | s 45 Partnership Act 1890

Answer 33

The partners in a partnership can include **individuals** and **corporate bodies** but not other partnerships because they do not have separate legal personality.

Answer 34

A matter of fact, having regard to: * The substance of **arrangements**, especially whether they are receiving a share of profits (which constitutes *prima facie* evidence). * The stated **intentions** of parties.

Answer 35

When the parties begin to "carry on business" (which doesn't necessarily mean starting to trade).

Answer 36

Each partner is jointly and severally liable, so technically any or all of them.

Answer 37

To avoid operation of some of the terms implied by the *Partnerships Act 1890*. And it should ideally be in writing for evidential and certainty reasons.

Answer 38

* Carry out searches on Intellectual Property Office and Companies House to ensure it is not similar to a **similar existing business**. * Ensure it does not suggest a **connection** with government, certain professions or institutions.

Answer 39

* The initials of the forenames of individual partners * Where 2+ individual partners have the same surname, the addition of “s” at the end of that surname

Answer 40

* The surnames of all partners * Where partners are bodies corporate, the corporate names of all the partners

Answer 41

To ensure that those doing business with the partnership can always discover the identity of the partners behind it, whatever name it operates under. | Part 41 Companies Act 2006

Answer 42

The following information needs to be included in official paperwork: * Business name * All partners' names * Address in UK at which each partner can be served with documents Exception: 20+ people, provided official paperwork states that the full names are available at a 'principal place of business'. | Part 41 Companies Act 2006

Answer 43

If the LLP has **more than 20 members** then it is sufficient to keep a list of all members' names in its principal place of business and state in the business letter that the list is available for inspection.

Answer 44

1. Fine. 2. Contracts may be unenforceable.

Answer 45

If the partnership includes corporate partners, then: * The **nominated partner** will need to submit the partnership tax return. * **Individual (non-corporate) partners** will need to submit their own tax return.

Answer 46

1. **Fixed term** partnership. 2. **Single adventure** / undertaking partnerships. 3. **At will partnerships** - indefinite period.

Answer 47

1. Expiration of term / adventure / as per provisions of agreement. 2. Death of a partner. 3. Bankruptcy of a partner. 4. Illegality. 5. Court order.

Answer 48

1. At any time by one partner giving immediate notice to the other partners. 2. Death of a partner. 3. Bankruptcy of a partner. 4. Illegality. 5. Court order.

Answer 49

Partnership at will (i.e. indefinite). | s 26(1) Partnership Act 1890

Answer 50

Vary this default position by overriding it in a partnership agreement.

Answer 51

True, because all the partners are entitled to **share equally in capital and the profits** of the business and must contribute equally towards the losses, whether from capital or income. BUT this default provision can be varied in the partnership agreement.

Answer 52

Because in lieu of such an agreement, the *Partnership Act 1890* stated that by default all partners are entitled to an **equal share in capital and profits**. This undermines the fact they've invested the lion's share.

Answer 53

5% per annum on loans. No interest on capital investment. | s 24 Partnership Act 1890

Answer 54

**Documents:** * Signed by *two* members of the LLP **or** * By a member of the LLP in the presence of a witness who attests **Deeds:** * Duly executed by the LLP (as above) **and** * Delivered as a deed (deemed delivered upon execution unless contrary intention

Answer 55

* **Capital profits** - a one-off profit e.g. from sale of a business asset. * **Income profits** - any profits made from selling the goods or services through the business.

Answer 56

Because all property (and associated rights / interests) either (a) brought into the partnership, (b) acquired for it, or (c) used for the purposes of the partnership business, is **partnership property** and must be used: 1. Exclusively for the purposes of the partnership. 2. In accordance with the partnership agreement. | s 20(1) Partnership Act 1890

Answer 57

Partners (in general partnerships and LLPs) must render **true** accounts and full information in matters affecting the partnership to **any partner**. | Partnership Act 1890; Limited Liability Partnership Regulations 2001

Answer 58

Every partner is entitled to access, inspect, and take copies of them. | Partnership Act 1890; Limited Liability Partnership Regulations 2001

Answer 59

1. **Profit and loss** - shared equally (except for LLPs, loss borne by LLP not personally). 2. **Management** - decisions by majority vote (or unanimously if change nature of partnership business). 3. **Salary** - no entitlement to remuneration. 4. **Admitting new partners** - unanimous consent required. 5. **Removal of partner** - unanimous consent (including by expulsed partner). | s 24 Partnership Act 1890

Answer 60

Single adventure partnerships. Partnerships at will.

Answer 61

Because the default under the *Partnership Act 1890* is that a partner can only be removed upon **unanimous consent** (including from that partner). They are unlikely to agree to this, especially in the event of a dispute. Also removal of a partner is likely in a long term business relationship. In lieu of clear provisions in the partnership agreement, the only other option would be to terminate the partnership as a whole and start again.

Answer 62

They need to be **expressly** disapplied in any partnership agreement. And for uncertainty and evidential reasons, ideally in writing. However, they can be **impliedly** disapplied by conduct of the partners e.g. if one partner has always been remunerated.

Answer 63

False, the *Partnership Act 1890* does not impose provisions requiring partners to actively participate in the business, so cannot be expelled for this reason (which in any event requires unanimous consent). However, a partnership agreement could set out provisions to expel such 'sleeping partners'.

Answer 64

The admission of a new partner technically **dissolves the partnership**. The new partnership will be a **partnership at will**, unless the existing agreement caters for the admission of new partners who agree to be bound by its terms or the newly constituted partnership enters into a new agreement.

Answer 65

**General dissolution** - a dissolution leading to a winding up of the business and distribution of its assets. **Technical dissolution** - when one partner leaves or another partner joins but the business carries on under a new partnership arrangement (having taken on the assets and liabilities of the old firm).

Answer 66

Each partner still has the **authority to bind** the firm and other entitlements but only to the extent needed **to wind up** the affairs of the partnership and complete unfinished transactions. Every partner is entitled to have the property of the partnership applied to payment of debts and liabilities *before* the balance is applied to their personal assets. And be paid any surplus assets.

Answer 67

Creditors must initially seek repayment from **partnership property**. Only if there is insufficient should they go after the personal assets of individual partners.

Answer 68

Partnership creditors rank equally with those of personal creditors. By contrast, individual creditors can only claim partnership property after all partnership creditors' claims are settled.

Answer 69

* **Expiration:** Expiry of fixed term or termination of the purpose i.e. the adventure for which it was set up. * **Notice:** Retirement / dissolution on notice from a partnership at will. * **Death, bankruptcy or charge:** Death, bankruptcy of a partner, or charging order. * **Illegality:** Where unlawful for business to carry on. * **Court order:** Incapacity, misconduct, persistent breach, deadlock or irreconcilable differences, or business carried on at a loss. | s 32-35 Partnership Act 1890

Answer 70

There is no right to retire during a fixed term partnership, unless **the partnership agreement contains a break clause** or the partners unanimously agree.

Answer 71

Only debts arising before the death. | s 9 Partnership Act 1890

Answer 72

The person who has a judgment and can enforce it by putting a charge against the debtor's property, land or assets up to the amount of judgment (plus interest and costs).

Answer 73

The other partners can dissolve the partnership.

Answer 74

Partnership agreement terms.

Answer 75

1. Profits. 2. Capital. 3. Personal assets of partners (in proportion in which they are entitled to share of profits).

Answer 76

1. Pay debts to persons who are not partners. 2. Pay to each partner proportionately as to advances made. 3. Pay to each partner proportionately as to capital investment. 4. In proportion to which profits were divisible. | s 44(b) Partnership Act 1890

Answer 77

1. Permanent incapacity of partner. 2. Unlawful or fraudulent conduct of partner. 3. Deliberate or persistent breach of partnership agreement. 4. Partnership is being carried on at a loss. 5. Dissolution is "just and equitable".

Answer 78

1. Capital contributions. 2. Profit sharing and drawings. 3. Potential salary.

Answer 79

1. Partners must divulge to one another **true accounts and all relevant information** connected to the business (s 28). 2. Partners are accountable for any **private profits** they make i.e. sharing any profit and benefits received connection with the partnership, business or its property unless consent from partners otherwise (s 29). 3. Partners must **not compete** with the partnership without consent from other partners by carrying on a business of the same nature, and they account for and pay over to the firm all profits made from the competing business (s30).

Answer 80

They must share any profit or benefit connected to the partnership, unless they have consent otherwise. For example, if they undertake work for a client of the partnership privately or set up a competing business.

Answer 81

1. **Actual authority** - express or implied e.g. partners take active role in running business and no limitations imposed on power / authority. 2. **Apparent authority** - the partner appears to the third-party outsider to be authorised based on the (i) type of business, (ii) nature of transaction, and (iii) third-party unaware that not authorised.

Answer 82

For the purpose of the business only, or actions carried out in partnership's name.

Answer 83

False, any person authorised by the firm to transact in the firm's name will be able to bind the firm and its partners.

Answer 84

True, provided the transaction relates to the firm's ordinary course of business (unless specifically authorised by the other partners to extend credit for unrelated reason).

Answer 85

Apparent authority: 1. Transaction relates to **type of business** the firm carries on. 2. Transaction is of kind that it would be **usual to expect the partner to have authority** to enter. 3. The third party was (a) **unaware** that partner not authorised to act, and (b) dealt with a person who **they thought was a partner**.

Answer 86

The (unauthorised) partner will be **personally liable** to the third party, and will also **indemnify** the other partners for any loss sustained.

Answer 87

1. Sue the (unauthorised) partner personally. 2. Sue the partnership (i.e. all partners in the firm at the time the contract entered into). 3. Sue individual partners, provided they were partners at the time the contract arose.

Answer 88

False, they will be liable for all existing contracts even if the debt is not yet payable.

Answer 89

1. **Novation agreement** - a tripartite agreement between departing partner, the firm, and each of the firm's creditors to settle any liabilities. 2. **Written release and indemnification** - the remaining partners release the departing partner of liability and indemnify to cover any existing or future liabilities.

Answer 90

1. **Novation agreement** - creditors may be reluctant as they'd have to make a "clean break" with the departing partner. 2. **Written release and indemnification** - the remaining partners are not obliged to agree and it also doesn't bind creditors.

Answer 91

They must: 1. Notify everyone with whom they had dealings prior to leaving. **AND** 2. Put a notice in the London Gazette announcing their departure.

Answer 92

1. If the client was **never aware** that the departing partner was, in fact, a partner. 2. If the departing partner departs the partnership by reason of **death** or **bankruptcy**.

Answer 93

For a third party to be able to successfully claim against that person, they must demonstrate that: 1. The person **held themselves out**/allowed someone to represent them as a partner. 2. They (the third party) **relied** on that representation, and 3. As a result of such reliance, **advanced credit** to the firm.

Answer 94

False, only if the third party also has notice of such agreement.

Answer 95

Notice in writing, signed by the partner.

Answer 96

False, it can be express or inferred e.g. by course of dealing.

Answer 97

As a result of the apparent authority, the partnership is liable to the third party, but the partner will also be personally liable. The partner is also liable to indemnify the partnership for their liability to the third party.

Answer 98

No, but the partners may agree how to split the proportion of debt, allowing the sued partner to recover payment from the other partners.

Answer 99

The *Partnership Act 1890* does not given any partner(s) the power to expel another partner. This is only possible if the partners have expressly agreed to such an expulsion clause in the **partnership agreement**.

Answer 100

1. Death 2. Dissolution of LLP 3. Per LLP agreement 4. Giving reasonable notice

Answer 101

* **Member-to-member:** The members don't have fiduciary duties towards other members. * **Member-to-LLP:** The members have fiduciary duties towards the LLP when acting on the LLP's behalf. * **Board member-to-LLP:** In terms of board members / management, it depends on the facts. * **Designated member-to-LLP:** Company directors' duties apply. ## Footnote Note: Members may owe a duty of care in tort law though.

Answer 102

A short document stating that the subscribers (original shareholders) wish to form a company and agree to become members. (and if the company has share capital, then **at least one person** is willing to subscribe to the memorandum). | s 8 Companies Act 2006

Answer 103

A company's internal rules ('constitution'). The promoters of a company (those planning to incorporate it) can write their own, but the *Companies Act 2006* provides for default 'Model Articles'. **Formalities:** * Contained in single document. * Divided into consecutively number paragraphs.

Answer 104

1. Directors' powers and responsibilities. 2. Decision-making by directors. 3. Appointment and removal of directors. 4. Shares and distributions. 5. Decision-making by shareholders.

Answer 105

1. **General Authority:** Directors manage company business subject to the articles and applicable laws, including making decisions by majority vote at board meetings and unanimously by any other means. 2. **Shareholders' Reserve Power:** Shareholders can direct the directors via special resolutions. 3. **Delegation by Directors:** Directors can delegate their powers to committees and individuals.

Answer 106

False, a company only needs to register its articles at Companies House if it has diverged from the Model Articles.

Answer 107

Unusual, at most they might amend the Model Articles.

Answer 108

1. Query and challenge information 2. Remove inaccurate, false or fraudulent information 3. Check company names to ensure they are not misleading 4. Impose financial penalties, annotate company record, or prosecute for failure to respond to requests

Answer 109

* Those setting up a company (promoters) * Owners * Managers / directors * Controlling shareholders

Answer 110

That the company is being formed for a **lawful purpose** in the memorandum of association. That the company's intended future activities are **lawful** on its annual confirmation statement (CS01 Form).

Answer 111

* Form IN01 and a fee * Name, office, and email of company * Statement of capital and initial shareholdings * Articles of association * Company information (intended business activity, confirmation of lawful purpose) * Directors, secretary (if relevant), persons with significant control * Statement of compliance | Small Business, Enterprise and Employment Act 2015

Answer 112

At least one issued share, with no upper limit (unless articles of association say otherwise).

Answer 113

Subscribers of a company must choose a company name which CANNOT: * Be offensive * Imply an association with government **(without relevant consent)** * Use particular sensitive words **(without relevant consent)** * Be the same as another company (or similar, misleading, **or exploit another company's good will**) * Be intended to facilitate **an offence of** dishonesty * Consist of computer code **or similar** | Companies House 2006; ECCTA

Answer 114

* If a document were delivered there (by hand, post, email), it would be **expected to come to the attention of a person acting on behalf of the company**. * Delivery is capable of being **recorded** (e.g. not a PO Box). Companies House will change the address to a default address and ask the company to provide an appropriate one **within 28 days**. Failure to do so, could mean being struck off the register.

Answer 115

Notice must be given to the Registrar of Companies using **Form AD01**. It must be filed within **14 days** of the change. It takes effect once the notice is registered by the Registrar.

Answer 116

If without **reasonable excuse**, then a fine for the company / LLP and each designated member in default.

Answer 117

It will include personal information, such as the directors' residential addresses. If held electronically by Companies House, this will be made publicly available. (ECCTA will soon *require* companies / LLPs to make this available electronically, but will hide certain personal information, so some of this concern will fall away).

Answer 118

* >25% of shares * >25% voting rights * Right to remove of appoint a majority of directors OR * Significant control or influence

Answer 119

* Full name and former names of each director * MM/YYYY of birth * Country and state of residence * Nationality * Occupation * Service and residential addresses (although only service address is public) (If company opting for company secretary (not required for a private company), they must also provide their information)

Answer 120

1. Total number of shares taken by subscribers 2. Classes of shares and rights attached to them (if Model Articles, they will all be 'ordinary shares') 3. Shares' aggregate nominal (minimum) value 4. And premium paid for shares (if any amount unpaid, then unpaid amount also stated).

Answer 121

When issued a **certificate of incorporation** (proof of registration with Companies House), which includes name, reg. no. and date of incorporation.

Answer 122

Annually, from the last day of the month in which incorporated. E.g. if incorporated 11 June, the accounting reference date will be 30 June. The first set of account have to be made up to that date a year later.

Answer 123

Shelf company: A company which has already been incorporated but is yet to trade. Usually acquired through law or accountancy firms. Pros: * Avoids delays associated with incorporation * A particular incorporation or accounting reference date can be secured. * Can enter into contracts before it has been fully customised, avoid personal liability issues for promoters

Answer 124

1. Certificate of incorporation 2. Statutory company books containing the registers 3. Memorandum and articles of association 4. Stock transfer form to transfer from subscribers to new shareholders 5. Letters of resignation from the first director(s) (and company secretary if applicable) 6. Certificate confirming the company has not traded.

Answer 125

1. **New shareholders:** Executed stock transfer forms will be approved by the *original director(s)* and new share certificate(s) issued to the new shareholders. 2. **Members register:** Updated with new shareholder(s). 3. **Companies House:** Supply updated information for persons with significant control and file relevant forms (PSC01 & PSC07)

Answer 126

Possible board resolutions: 1. Appoint further director(s) and/or company secretary. 2. Change appropriate registered office and/or email. 3. Change the accounting reference date. 4. Allot and issue further shares. Possible special resolutions: 1. Change company name.

Answer 127

Within 14 days, using Forms AP01 (directors) and AP03 (company secretary).

Answer 128

Either, * By affixing the company seal. * By two authorised signatories. * By a director if attested by a witnesses. * By every director and the company secretary.

Answer 129

Form AA01.

Answer 130

Three ways: * By any means allowed in the articles of association. * By passing a special resolution of the members. * By passing a special resolution based on a specified event (e.g. acquisition / merger). Then, file an **NM01 Form** at Companies House, paying the requisite fee. This should be done within **14 days** if done by resolution, and **15 days** for other methods.

Answer 131

File a Form SH01 within one month.

Answer 132

True, because the only class of shares are 'ordinary shares'.

Answer 133

* **PSC01:** Give notice of persons with significant control. * **PSC04:** Give notice of change of details for persons of significant control. * **PSC07:** Give notice of ceasing to be a person with significant control.

Answer 134

1. All special resolutions 2. Unanimous agreement that would have required a special resolution had the agreement not be unanimous 3. Shareholder agreements that bind a class of shareholders 4. Resolutions of all the members of a class of shareholders

Answer 135

An **LL IN01 Form**, which will include: * Proposed name of LLP * Appropriate address and email * Members' designation and details (at least two) * Details of people with significant control and details * Election to keep information on public register * Consent to act * Authentication

Answer 136

A third party dealing with an LLP does not need to be concerned at to the power of the LLP to enter into the transaction.

Answer 137

With the consent of all members (i.e. unanimity).

Answer 138

Because an LLP is not required to have an LLP agreement between members. And where there is none, the LLP we be governed by the *Limited Liability Partnership Regulations 2001*.

Answer 139

Unanimous consent of all members OR in accordance with membership/LLP agreement

Answer 140

**Director:** A leader selected by and accountable to shareholders. They appoint officers, while they manage the long-term vision and strategic investments. Directors make up 'the board'. **Officer:** They are executive leaders, overseeing the daily operations and function as managers for departments and department leaders (e.g. CEO, COO, CFO, etc.) **Member:** Shareholders (who may also be directors / officers in private limited companies).

Answer 141

The 2+ members with administrative functions in the LLP who have statutory administrative duties, such as: * Filing annual accounts * Appointing auditors * Filing other required documents with Companies House They are legally accountable for failing to carry out their duties, a bit like a company secretary. ## Footnote If no member is specified as a designated member, then all members will be regarded as designated members.

Answer 142

False, individuals should be named in a **separate form**. Companies can be named in the LL IN01 Form though.

Answer 143

False, notice is only published in the London Gazette for **LLPs**, *not* companies.

Answer 144

1. Displayed at its registered office and other locations where it carries on business. 2. Appeared on business letters, websites, publications, order forms, invoices, cheques, receipts and business correspondence. 3. Where correspondence includes the name of one director, it should disclose the name of all the others.

Answer 145

If an LLP does not start its business within **a year** from incorporation or suspends its business for a year it **may** be wound up by the court.

Answer 146

By **default provisions** imposed by the *Limited Liability Partnership Regulations 2001* (similar to those imposed by the *Partnership Act 1890*).

Answer 147

1. Death 2. Agreement with other LLP members 3. Giving notice to other LLP members 4. Dissolution if member is body corporate

Answer 148

False, unlike a company's articles and memorandum, an LLP agreement is **private** so does not need to be filed at Companies House.

Answer 149

As the LLP is a separate legal entity, * While capital and profits are shared equally, losses are borne by the LLP. * Adding / removing partners does not involve a technical dissolution.

Answer 150

In both cases, within 14 days of the decision. For appointment - Form LL AP01 For removal - Form LL TM01

Answer 151

s 33 of the *Companies Act 2006* creates a **statutory contract** between the following based on the company's **articles of association**: * The shareholder + company * The shareholder + other shareholders The effect is that the shareholder must observe the company's articles and has the right to enforce compliance with its terms.

Answer 152

False, it is **common** for the shareholders to enter into a private shareholders' agreement, but this is *not* a requirement.

Answer 153

**Statutory contract** - arises automatically when an investor subscribes for shares in a company (s 33 of the *Companies Act 2006*) and allows each shareholder and the company to sue and be sued for breach of the company's articles of association. **Shareholders' agreement** - an optional private agreement which sits alongside the statutory contract, which is usually just between the shareholders not the company itself. As a private contract is does not have to be filed at Companies House so remains confidential.

Answer 154

To avoid the company's powers potentially being fettered. This is also why directors should not agree to terms in the shareholders' agreement that would dictate how they vote.

Answer 155

The share certificate is *prima facie* evidence of the shareholders' shares, but they are not officially a shareholder until their name is on the **members' register**.

Answer 156

The company must issue the share certificate **within 2 months** of EITHER: * Allotment of new shares. * Lodging of the stock transfer form if shares re-allocated.

Answer 157

* Name and address * Date first registered * Date they ceased to be a member * Number and class of shares held by each shareholder * Amount paid / agreed to be paid for them | (if only one member, the register must state so)

Answer 158

The purpose is to improve transparency and trust by identifying who owns / controls the business. Both the company *and* Companies House maintains this record - the company must update *its own* record within 14 days, and then notify Companies House within a *further* 14 days (i.e. 28 days total since triggering event). They should also verify the identity of PSCs. It is publicly available on Companies House.

Answer 159

Failure to comply may constitute an offence by BOTH: * The company * Every officer in default

Answer 160

1. **New PSCs:** When someone meets one or more of the conditions to become a PSC (>25% shares; >25% voting rights; right to appoint or remove a majority of board of directors; exercise influence over company). 2. **Retiring PSCs:** Shareholding drops to 25% or less. 3. **Majority Shareholding:** PSC acquires 50%-75% of shareholdings. 4. **Dominant Shareholding:** PSC acquires more than 75% of shareholdings.

Answer 161

Any business undertaken at the meeting will be **invalid**.

Answer 162

* **Show of hands:** 1 shareholder = 1 vote. * **Poll:** 1 vote for every share owned.

Answer 163

A poll vote can be demanded by people listed in an MA 44 form, including shareholders with **at least 10% *combined*** of the company's voting shares. The right ***cannot* be excluded** in the articles of association except in very limited circumstances i.e. electing a chairperson at the meeting or adjourning the meeting.

Answer 164

5% of voting shares.

Answer 165

* Directors' service contracts and indemnities. * All statutory registers (members, PSCs etc.). * Memorandum and articles of association. * Current statement of capital. * Contracts regarding company's purchase of own shares. * Minutes of all general meetings (kept at registered address or alternative address) and written resolutions.

Answer 166

* All statutory registers (members, PSCs etc.).

Answer 167

The company (not the shareholders), to ensure against double recovery.

Answer 168

Courts will not interfere with the internal management of a company unless the company instigates proceedings (provided the internal management is acting within its powers).

Answer 169

Shareholders are barred from commencing proceedings about an irregularity if it can be remedied by ratification by a majority of members (over 50%).

Answer 170

1. **s 33 Companies Act 2006** - relying on the statutory contract of membership. 2. **Shareholders' agreements** - if one exists, the court may compel all parties to vote on the resolutions in question in a way which is consistent with the agreement. 3. **Derivative claims** (unusual) - where the proper claim would be the company but it is not acting properly e.g. if the wrongdoers are the directors. 4. **Claim for unfair prejudice** (most common) 5. **Just and equitable winding up** - agreed by the court.

Answer 171

Yes, same as a shareholder in a company.

Answer 172

1. The company's affairs are or have been conducted in a manner that is unfairly prejudicial to the shareholders' interests *generally* or some of them. 2. Any actual or proposed action / omission that is or would be prejudicial. The conduct must be unfair and prejudicial e.g. breach of directors' duties, mismanagement of the company, excessive director remuneration over payment of dividends.

Answer 173

1. An order for the shareholder's shares to be purchased by the other shareholders or the company based on an up-to-date independent market valuation (most likely). 2. Regulate future conduct of company's affairs. 3. Authorise civil proceedings on behalf of company. 4. Prohibit or mandate that the company do something. 5. Stop the company changing its articles without court permission. (2-5 are descretionary powers)

Answer 174

When the shareholders (including minority shareholders) bring an action to enforce the company's rights on the company's behalf (hence, derivative). The action can be brought unless the conduct has previously been authorised or subsequently ratified by the company. Scenarios: 1. A director behaved **dishonestly**. 2. A director prevented shareholders from bringing proceedings against them by **abusing their majority voting rights**. Grounds: 1. Negligence 2. Default 3. Breach of duty 4. Breach of trust

Answer 175

1. **Paper submission** to the court for court to dismiss claims that do not have a *prima facie* case. 2. **Substantive hearing** to decide whether the derivative claim should continue.

Answer 176

EITHER: * A director acting in accordance with their duty to promote the success of the company would not seek to continue the claim. * The act was pre-authorised. * The act has since been ratified by the company.

Answer 177

* Is shareholder acting in good faith? * Whether the shareholder could bring a personal claim rather than on behalf of company, and * The views of those shareholders who have no personal direct or indirect interest in the matter. * The importance a director acting to promote the success of the company would attach to continuing the action * Whether the act or omission could be and was likely to be pre-authorised or subsequently ratified by the company * Whether the company has decided not to pursue the claim

Answer 178

The company, as the shareholder brings the action on behalf of the company.

Answer 179

* Management deadlock * Inability to meet specified company objectives * Justified loss of confidence in company management e.g. serious mismanagement * Member excluded from management despite having genuine expectation of being entitled to participate

Answer 180

No, if the Companies Act 2006 prescribes an ordinary resolution for a decision, it must remain an ordinary resolution.

Answer 181

True, as it is a more reasonable remedy and courts rarely order a company be wound up.

Answer 182

5% of the shares.

Answer 183

> 25% of the voting shares.

Answer 184

16 years old + Not disqualified from being a director

Answer 185

* **Remuneration:** The board of directors have authority to decide remuneration. If a director's service contract gives them security of tenure for more than 2 years, then shareholder approval is required (by way of ordinary resolution). * **Expenses:** The company may reimburse directors for reasonable expenses incurred performing in their roles.

Answer 186

At least one year after it has expired.

Answer 187

* Post - **48 hours** after posting, as long as it can be shown it was addressed, stamped, and posted correctly. * Email and other electronic means - **48 hours** after sending, as long as correctly addressed. * Website - the *later of* when **first published** or when the recipient was **notified** of its availability. | The 48 hours runs on business days only.

Answer 188

**Appointment:** 1. A simple majority board decision OR 2. An ordinary resolution (i.e. simple majority) of the shareholders. **Removal:** 1. Resignation. 2. Removal via ordinary resolution. 3. Disqualification by law, incapacity (>3 months), death, bankruptcy.

Answer 189

Because the director has a **right to respond**, which they are not afforded with a written resolution.

Answer 190

1. Give special notice of proposed ordinary resolution to the company **at least 28 days before** the general meeting. 2. Send a copy of the special notice to the director **immediately**. 3. Give notice to all shareholders if practical, and if not put advertisement in newspaper **at least 14 days before** the meeting or other manner allowed by articles. 4. Director has a right to give representations at the general meeting, either orally or written, whether or not they are a shareholder.

Answer 191

If one or more of the shareholders have **5% of the fully paid-up share capital** then they can insist on the general meeting (known as '**requisitioning**').

Answer 192

When a shareholder with more than 5% of the share capital insists on a general meeting being called (e.g. to propose removal of a director). The effect of a s303 notice is that the board must call a general meeting **within 21 days** (by way of board resolution) and the meeting itself must be held **within 28 days** of that resolution. If the board fail to do this, then the shareholder can call the general meeting *themselves* by giving **14 clear days' notice** as to the date, time, place of the meeting to shareholders (i.e. go over the board's head). Although they waive the right to do this after 3 months of their s303 notice.

Answer 193

A simple majority of the votes cast.

Answer 194

A clause giving company shareholder-directors **weighted votes** should their removal as a director be voted on at a general meeting (this assumes that they are also a shareholder and so can vote).

Answer 195

**Within 14 days** in a TM01 form (for removal) or AP01 form (for appointment).

Answer 196

2 - 15 years.

Answer 197

1. Convicted of indictable offence involving mismanagement of a company (including similar foreign offence). 2. Persistent breaches of companies legislation (e.g. filing requirements at Companies House). 3. Fraud or wrongful trading. 4. Conduct making them unfit. 5. Instructing a director who becomes disqualified as a result of those instructions.

Answer 198

1. The director is / was a director of a company which became **insolvent** AND 2. The director's conduct makes them unfit to be involved in the management of a company

Answer 199

1. Someone on the board who is professionally qualified (e.g. accountant) must keep an eye on them AND 2. The director must accept personal liability for the debts of the company

Answer 200

False, their appointment will be **void** from the outset as it is a criminal offence to contravene a disqualification order.

Answer 201

Instead of initiating disqualification proceedings in court, the director gives the undertaking to the SoS for Business and Trade. The benefit is they might get a shorter disqualification period and avoid court costs.

Answer 202

**Private companies:** Only shareholders can remove directors. **Public companies:** Both the board of directors and shareholders can remove directors.

Answer 203

Yes, they can claim from the company who in turn will recover from the directors.

Answer 204

They would need to be the director of a company which becomes insolvent while or after they hold the office of director. If found to be unfit to be involved in company management, the court **must** make an order (mandatory, unlike other discretionary action the court can take under the Company Directors Disqualification Act 1986).

Answer 205

**Director:** An person responsible for supervising the management of the company. It includes executive directors appointed by the company, non-executive directors appointed by the company, and *de facto* directors who have not been formally appointed but have assumed the status and functions of a company director. **Shadow director:** A person who the formally appointed directors of a company are accustomed to acting on their instructions. They are treated in the same way as a formally appointed director and so have various personal liabilities etc.

Answer 206

No, but all companies must have *at least one* natural person director.

Answer 207

* Over 16 years old * Not be an undischarged bankrupt * Not be subject to debt relief restrictions * Not be subject to a debt relief order

Answer 208

True, although shareholders may have derivative claim meaning they can bring a claim *on behalf of* the company.

Answer 209

1. To act within the company's powers. 2. To promote the success of the company. 3. To exercise independent judgment. 4. To exercise reasonable care, skill, and diligence. 5. To avoid conflicts of interest. 6. To not accept benefits from third parties. 7. To declare interest in a proposed / existing transaction or arrangement within the company.

Answer 210

The director must act in accordance with the company's constitution (i.e. articles), resolutions, and agreements. And only exercise powers for the purposes for which they were conferred i.e. act for **"a proper purpose"**.

Answer 211

Non-exhaustive list: * Likely long-term consequences. * Interests of employees. * Business relationships with suppliers, customs and others. * Impact on community and the environment. * Company reputation. * Acting fairly between members of the company.

Answer 212

False, while they must consider these factors, there is **no hierarchy**.

Answer 213

Because if they face any allegations of breaches of their duties, meeting minutes will serve as evidence.

Answer 214

1. Appoint further directors. 2. Call a general meeting of members.

Answer 215

False, while this will usually be the case, a company's constitution may have different / additional objectives.

Answer 216

As long as they use their own judgement on whether to rely on such advice. Similarly, they can delegate tasks to other people (e.g. a solicitor) or committees as long as they are not unduly influenced by them.

Answer 217

A **reasonably diligent person** with: * The general knowledge, skill and experience that may be expected of a person carrying out the same functions (**objective test**). * The general knowledge, skill and experience that the director actually has (**subjective test**). (i.e where a director has a particular skill or experience, the standard expected of them will be higher)

Answer 218

The director should declare their interest, and then the board can authorise the director's involvement in a transaction as long as: * The quorum is met for making the decision. * The agreement to authorise the transaction is made *without* counting the interested director.

Answer 219

If the acceptance of a benefit (e.g. reasonable and proportionate hospitality) cannot reasonably be regarded as likely to give rise to a conflict of interest.

Answer 220

False, the board does not have the power to authorise receipt of a benefit by a director from a third party (although the shareholders can in principle).

Answer 221

Yes, the director must disclose this fact i.e. they don't need to be a party to the transaction themselves.

Answer 222

They do not need to declare anything.

Answer 223

The director must disclose the **nature and extent** of the interests **as soon as reasonably practicable** when new interests arise or existing interests change.

Answer 224

1. It is not reasonably likely that a conflict will arise. 2. The other directors are already aware or ought reasonably to be aware. 3. It concerns the director's service contracts to the extent it has already been considered by a meeting / committee of the directors. 4. The director is not aware of the interests, transaction, or arrangement unless they ought reasonably to be aware of it.

Answer 225

It could render the contract voidable if the company insisted on this, and they'd be made to account for the profits they made out of the transaction.

Answer 226

False, it is a criminal offence only if they don't declare an interest in respect to an **existing** transaction or arrangement only.

Answer 227

Either: * At a meeting of the directors * Written notice * General notice

Answer 228

1. **Ratification** - as long as the breach didn't involve unlawful conduct, shareholders can condone the breach by passing an ordinary resolution. 2. **Relief by court** - the director may be relieved of liability for breach of duty or negligence where they acted honestly *and* reasonably *and* having regarded to the circumstances, they ought fairly be excused. 3. **Company action:** The company (directly or via a derivative claim) can sue the director. 4. **Damages** 5. **Restoration of property** 6. **Account of profits**

Answer 229

No, any attempt to exempt directors from liability is **void**. The same applies to restrictions on any indemnities directors owe to the company except for permitted protections like insurance.

Answer 230

1. Substantial property transactions. 2. Loans to directors. *Exceptions:* * Value does not exceed **£10,000** OR * Company is a money **lending company** and the transaction is entered into in the ordinary course of business OR * Company is **not UK-registered** OR * Company is a **wholly-owned subsidiary** of another company

Answer 231

Either: * A **director** of the company (or its holding company) or person connected with them **acquires** (or is to acquire) a substantial non-cash asset from the company directly or indirectly. * A **company acquires** (or is to acquire) a substantial non-cash asset from a director of the company (or its holding company) or a person connected with them. **Substantial non-cash asset** = Any property or interest in property whose value exceeds £100k **or** 10% of company's *net assets* and is more than £5k.

Answer 232

Either before, or after provided the transaction was *conditional* on shareholder approval. The ordinary resolution will only be valid if a memorandum setting out details of the relevant transaction is made available in advance (for a written resolution) or at the registered office for inspection within 15 days of the general meeting.

Answer 233

The contract is **voidable**. UNLESS either: 1. Restitution of the money / assets or transaction no longer possible. 2. Company already indemnified by a person for any loss / damage. 3. Rights were acquired in good faith for value without notice of the contravention by an innocent person, who would be affected if the transaction / arrangement were now void.

Answer 234

* Value does not exceed **£10,000** OR * Company is a money **lending company** and the transaction is entered into in the ordinary course of business OR * Company is **not UK-registered** OR * Company is a **wholly-owned subsidiary** of another company

Answer 235

An **ordinary** resolution.

Answer 236

A **memorandum** setting out (i) the nature of the transaction, (ii) the amount and purpose, and (iii) the extent of the company's liability. WHEN: * If *written resolution method*, then **before or at time** that the written ordinary resolution sent out. * If *general meeting method*, then make available for inspection at registered office **at least 15 days** prior to the meeting.

Answer 237

The loan would be **voidable**, and the director may be liable to account for any gain and to **indemnify** the company's loss. Shareholders may also argue they are in breach of their duties. UNLESS either: 1. Restitution of the money / assets or transaction no longer possible. 2. Company already indemnified by a person for any loss / damage. 3. Rights were acquired in good faith for value without notice of the contravention by an innocent person, who would be affected if the transaction / arrangement were now void.

Answer 238

True, as distinct from loans from the company to directors or their associates.

Answer 239

1. Up to **£50,000** for a **director’s expenditure** for the company’s business in order to properly perform their duties. 2. To fund a director’s **defence** against proceedings for alleged breach of duty, negligence, default or breach of trust or against investigations by regulatory authorities. 3. **Minor and business transactions** up to a total of £10,000. 4. **Credit transactions** or security for a credit transaction not exceeding **£15,000**. 5. **Credit transactions** entered into by the company in normal course of business.

Answer 240

1. Show and explain transactions. 2. Show financial position of the company at the date accounts are drawn up. 3. Ensure accounts satisfy the relevant accounting requirements. Retention period: 3 years.

Answer 241

**Annual accounts:** Shareholders Companies House **Confirmation statement:** Companies House

Answer 242

* Private - 9 months after the end of the accounting period. * Public - 6 months after the end of the accounting period. Late payment: Penalties levied on company and fines on the directors.

Answer 243

The company can make the loans to the first director and to the second director’s son, provided that they obtain a board resolution, as each of the loans is less than £10,000 in value. This is an exception to the general prohibition on loans being made unless they are authorised by ordinary resolution of the shareholders, as the value of the transaction does not exceed £10,000.

Answer 244

The director should obtain approval from the members of both companies. Any contract made in contravention of the requirements for **shareholders’ approval** of either company is **voidable** by that company.

Answer 245

Any director upon reasonable advance notice. Notice does not necessarily need to be in writing.

Answer 246

1. **Collective decision-making:** Decisions are made at board meetings by simple majority (or solely if only one director). 2. **Unanimous written decisions:** Directors can make decisions without a meeting (i.e. written resolution) provided they are unanimous. 3. **Calling meetings:** Any director can call a board meeting by giving notice or authorising a company secretary to do so. 4. **Participation & quorum:** Directors can participate in meetings. Quorum is two directors (or one if only one director). 5. **Chairperson:** The board appoints a director to chair meetings. The chairperson has a casting vote where there is a tie. 6. **Conflicts of interest:** A director with an actual or potential personal interest in a decision cannot vote (save for some limited exceptions). Disputes are resolved by the chair.

Answer 247

**Actual authority:** Explicit or implicit permission from the company for the director to act on its behalf. **Apparent (ostensible) authority:** The perception of a director's power by third parties. Even if the director does not have actual authority, their actions can still bind the company if the third party's belief was genuine and reasonable and in good faith the company represented the director as having more authority than they did.

Answer 248

* The third party is *not* required to enquire as to any limitation on the powers of directors to bind the company or authorise others to do so. * The third party is presumed to have acted in good faith unless the contrary is proved. * The third party doesn't act in bad faith even where they know the director is acting outside of the company's constitution.

Answer 249

True. | s 40 Companies Act 2006

Answer 250

1. **Fully paid up:** Shares cannot be issued for less than their nominal value plus any premium except for those given to founding subscribers. 2. **Share classes:** Different share classes may be defined and issued following an ordinary resolution. 3. **Share certificates:** Shareholders must be issued with a share certificate free of charge. 4. **Share transfers:** Shares can be transferred in any usual way or a way approved by directors. No fee can be charged to register a transfer or any document affecting share ownership. 5. **Dividends & capitalised profits:** The company may declare dividends by ordinary resolution (but cannot exeeed director recommendation), and directors may pay interim dividends. Fixed-rate dividends are only permitted if profits allow. The company can also issue new shares to existing shareholders by capitalising profits.

Answer 251

**Duomatic principle** - the principle that an informal decision of shareholders (i.e. not made in general meeting or via written resolution) will only be binding if it is unanimous among *all* shareholders.

Answer 252

1. An ordinary resolution to disapply the rule (model article 14) on a one-off basis. 2. The rule does not apply. 3. The interest is unlikely to give rise to a conflict of interest.

Answer 253

**10 years**. Failure to do so is an **offence** against every officer of the company.

Answer 254

1. **Participation & quorum:** Attendees to a general meeting can participate. Except for appointing a chairperson, no business can proceed without quorum. Quorum is two qualifying persons (or one if only one member). 2. **Chairperson:** A standing chairperson can be appointed. Alternatively, the directors or attendees must appoint a chair as the first order of business. 3. **Adjournment:** If quorum is not present within 30 minutes or is lost, the chairperson must adjourn the meeting. Proper notice is required if re-commenced after 14 days. No new business can be transacted until re-adjourned. 4. **Voting:** The default is a show of hands (regardless of share weight) unless a poll voted (weighted by shares) is demanded. A poll vote can be demanded by the chairperson, directors, 2+ voters, or shareholders with at least 10% of the voting rights.

Answer 255

A shareholder has no automatic right to inspect a company's records and accounts unless: * Permitted by law. * Directors allow. * Approved by ordinary resolution.

Answer 256

* **Indemnity:** The company may (not must) indemnify directors for liability incurred in the performance of their duty. * **Insurance:** The company can purchase insurance for directors.

Answer 257

1. Passing resolutions at a **general meeting**. 2. Using the **written resolution** procedure.

Answer 258

**Who:** 1. All shareholders 2. All directors 3. Company's auditors **How:** By hard copy, electronically, on a website. The notice must state the date, time, and place and the general nature of the business to be conducted. Also the right of members to send a proxy. **Note:** If a special resolution is proposed, the notice should also include the full text of the resolution (although it is also good practice for ordinary resolutions). **When:** It should be *called* within 21 days of the date the general meeting was requested, and *held* within 28 days of the call. **Consequences of default:** Failing to do so invalidates the meeting.

Answer 259

**Who can propose:** * Directors * Members representing 5% of those eligible to vote (unless articles state otherwise) **How:** The written resolution must be sent to all those eligible to vote electronically or in hardcopy. Agreement is usually signified by signing, cannot be revoked, and each member gets one vote per share. **Consequence of default:** The decision is invalidated.

Answer 260

**General meeting:** 14 *clear* days. **AGM:** 21 *clear* days *Exceptions:* * Members must receive at least 28 days' notice for any resolutions requiring 'special notice' e.g. removal of a director. * Shorter notice can be agreed if those with at least 90% of voting shares agree (95% for a public company, and 100% for an AGM).

Answer 261

Ordinary - simple majority Special - at least 75% (show of hands votes = 1 per shareholders; poll votes / written resolutions = 1 per share)

Answer 262

False, as distinct from a board meeting, the chairperson of a general meeting does not generally have a casting vote.

Answer 263

A decision to **dismiss** a director or auditor. This requires a **general meeting**.

Answer 264

A proposed shareholder written resolution must be passed before the end of **28 days** (the lapse date) beginning on the circulation date **unless a different date is specified**. Any votes received after the cut-off date **will not** count.

Answer 265

At least 28 days' notice.

Answer 266

No, once the relevant threshold is met, it will have passed.

Answer 267

The following resolutions (whether by general meeting or written procedure) need to be sent to Companies House within **15 days** of the decision: 1. All **special** resolutions. 2. Decisions by **unanimous** consent. 3. An ordinary resolution to give directors the authority to **allot shares**.

Answer 268

A **special resolution** of the shareholders (i.e. 75% or more), provided it is in the best interest of the company. The special resolution (along with the amended articles) need to be files with the Registrar within **15 days**. It will take effect immediately once passed, unless it represents a change to the company's objects, in which case it will be effective once registered. If the provision being amended is **"entrenched"** then the company will also need to certify that whatever the additional conditions were for making the amendment, that they have been followed.

Answer 269

The AGM must be called on at least 21 (clear) days’ notice, excluding from this notice period the day of giving the notice and the day of the meeting itself.

Answer 270

Where a company issues shares (a type of personal property) in return for cash it can use for growth. Shareholders hold a portion of equity ownership.

Answer 271

1. **Subscriber shares** issued on incorporation. 2. **Subsequent shares** issued to existing shareholders or outsiders.

Answer 272

* **Pre-1 Oct 2009** - the limit stated in the memorandum of association (unless removed / amended by an ordinary resolution). * **Post-1 Oct 2009** - no limit unless articles expressly state otherwise.

Answer 273

The principle that the cash value of shares (or a portion of their value) must not be eroded or returned to shareholders, including: 1. The **original capital** when a company is incorporated (set out in the statement of capital in the IN01 Form). 2. The **share premium** i.e. excess paid for shares beyond the nominal value. Exceptions include the process permitting share buyback.

Answer 274

The difference between the nominal value of a share (usually £1) and the purchase price.

Answer 275

The share premium account.

Answer 276

The directors seek shareholder approval via an **ordinary resolution**.

Answer 277

* **Ordinary shares:** No special rights or restrictions. * **Preference shares (usually):** Priority over other classes of shareholder in distribution of dividends and repayment of capital if company becomes insolvent/is wound up. * **Cumulative preference:** If company cannot pay the dividend in one year, it can carry it forward into successive years. * **Redeemable shares:** Can be bought back by company on pre-determined terms.

Answer 278

**Articles with a variation clause:** Following procedure laid down in that clause. **Articles w/o a variation clause:** Either: * In writing by shareholders holding 75% of nominal value of that class of shares. * Special resolution at general meeting of shareholders in that class.

Answer 279

**Allotted** - acquiring an unconditional right to be included in the company's register of members. **Issued** - when the allotment has *actually* been registered in the company's register either by the company (if it maintains its own) or by the Registrar (if it doesn't).

Answer 280

True, if the company was incorporated on or after **1 Oct 2009** and the articles don't prohibit it (known as **'s550 authority'**). *But* for companies incorporated before then, as they have 'authorised share capital (ASC)' in their articles, the directors need shareholder permission via an ordinary resolution to grant them power to allot shares (now or in future). | (ASC no longer exists for companies incorporated on/after 1 Oct 2009)

Answer 281

If a private company has just one class of shares (and was incorporated after 1 Oct 2009) then the director does not need permission to allot new shares unless the Model Articles have been expressly amended to impose some kind of restriction. If it has more than one class of shares, regardless of when it was incorporated, then either of the following is needed: 1. Shareholder permission via ordinary resolution OR 2. Express provision in articles of association (not made in Model Articles)

Answer 282

Shareholder permission via ordinary resolution.

Answer 283

1. It can only last for **maximum 5 years**, starting from either the date of the resolution or incorporation depending on whether permission was granted via resolution or the articles. 2. The permission must state the **maximum number of shares** that can be allotted.

Answer 284

Pre-emption rights ensure existing shareholders are given the first right to purchase new equity securities so that they can **maintain their percentage** shareholding in the company. Equity securities = ordinary shares with unfixed rights to participate in dividends and capital. The offer to purchase shares pre-emptively must remain open for **14 days** before being offered to third parties on no less favourable terms.

Answer 285

**Private companies with only one class of shares** * Their power to disapply pre-emption rights can be *indefinite*. * In some cases they may be required to apply pre-emption rights but with modifications determined by the directors. **All other companies** * Their power to disapply pre-emption rights is limited to the *duration of their authority to allot*.

Answer 286

1. **Bonus** shares. 2. Shares issued partly or wholly for **non-cash consideration**. 3. Shares held under an **employees' share scheme**.

Answer 287

Payment can be in **cash** or other **consideration** e.g. good will and know-how. Shares can be allotted at a discount but the allottee will still be liable to pay the difference with interest.

Answer 288

By special resolution of the shareholders to insert the rights attaching to the new types of shares.

Answer 289

* File any **ordinary resolution** regarding any authority to allot. * File any **special resolution** disapplying pre-emption rights. * File any **special resolution** to amend articles and the amended articles.

Answer 290

* Update **register of members** (shareholders) and **PSC register** if relevant in the company’s internal books. * Update the **minute books** internally to include the minutes of any board or shareholder resolutions or any written resolutions. * File any relevant **PSC forms** (if relevant) at Companies House.

Answer 291

Any contract attempting to allot shares at a discount is **void**. And if it *proceeds* at a discount, the purchaser is liable to **pay an amount equal to the discount incl. interest**. The company and every director and other officer will also commit a **criminal offence**.

Answer 292

False, only public companies must obtain an independent valuation. However, it is good practice for private companies to do so too.

Answer 293

Issuing new shares increases the share capital of the company. The minimum that can be charged is the nominal value (usually £1). Selling or gifting existing shares does not raise share capital of the company. There is no statutory control on the price of shares.

Answer 294

1. The transferor completes and signs a **stock transfer form** and gives this to the transferee along with the **share certificate**. 2. If the consideration is >£1000, **stamp duty** is payable at 0.5% (no stamp duty on a gift) and should be made within 30 days of the transfer date. HMRC will then stamp the stock transfer form. 3. The transferee submits the (stamped if applic.) stock transfer form and share certificate to the **company**. 4. Within 2 months of the directors approving the transfer, the new shareholder's name is added to the **members' register** and a new **share certificate** issued (plus adding them to PSC register if threshold reached). 5. The new shareholder should be reported on the next annual confirmation statement.

Answer 295

The shares transfer to the deceased's personal representative. But the personal representative canot vote, attend meetings etc. until they are officially registered via probate or letters of administration.

Answer 296

The company can control who its shareholders are and prevent existing ones from increasing their shareholding (and therefore potential voting rights).

Answer 297

They automatically vest in their personal representative / trustee in bankruptcy. Under s 773 of the *Companies Act 2006*, a personal representative of a deceased shareholder may execute a valid transfer instrument *without* needing to become a member.

Answer 298

Amend the Model Articles.

Answer 299

1. Do articles have any restrictions? 2. Do directors have authority to allot? 3. What are statutory pre-emption rights? 4. Have any pre-emption rights been excluded? 5. Does a new class of shares need to be created?

Answer 300

1. THE ALLOTMENT ISSUE: As the private company has **one class of shares** and **unamended Model Articles**, under s 550 of the *Companies Act 2006* there is no need to obtain shareholder approval to allot further shares. 2. THE PRE-EMPTION RIGHTS ISSUE: As the shares are being allotted to **existing shareholders** and in the **same proportion** to the shares they already hold, there is no requirement to disapply pre-emption rights.

Answer 301

1. THE ALLOTMENT ISSUE: As the private company has only **one class of shares** and **unamended Model Articles**, it already has authority under s 550 of the *Companies Act 2006* to issue further shares. 2. THE PRE-EMPTION RIGHTS ISSUE: A **special resolution** will be required to disapply the pre-emption rights. This is because the new shares will not be offered to the existing shareholders in proportion to their shareholdings.

Answer 302

1. THE ALLOTMENT ISSUE: As the private company has **more than one class of shares**, it must obtain shareholders’ approval under s 551 of the Companies Act 2006 by way of an **ordinary resolution** to allot further shares. 2. THE PRE-EMPTION RIGHTS ISSUE: A **special resolution** will be required to disapply the pre-emption rights because the new shares will not be offered to the existing shareholders in proportion to their shareholdings.

Answer 303

Shareholder approval should be sought for a maximum number of shares to be allotted and the date on which the authority will expire, which authority should not exceed 5 years.

Answer 304

The company should make the offer to all its existing shareholders pro rata.

Answer 305

Neither an ordinary resolution to allot nor a special resolution to disapply pre-emption rights will need to be obtained from the shareholders because: * The company has **one class of shares** and therefore does not need shareholder approval to allot further shares. * Pre-emption rights do not need to be disapplied because the shares are being acquired for a **non-cash consideration**.

Answer 306

Raising money through borrowing and promising to repay the sum later with interest.

Answer 307

**Overdraft** * Payments out of the company's current account which exceed its credit balance. * Unsecured, meaning higher interest rate. * Normally provided by bank for annual fee. **Term loan** * Repayable at end of fixed term, anywhere from around 1-10 years. * Can be structured as principal repayment or interest-only. * Lender can be single bank or group of lenders (syndicated). * Documented in facility agreement (or loan or credit agreement). **Revolving credit facility (RCF)** * Hybrid between overdraft and term loan, but with no fixed amount and interest only paid on amount actually borrowed. * The company can drawdown and repay amounts (up to pre-agreed maximum) whenever it wants. * Can be secured or unsecured, bilateral or syndicated and terms in facility agreement.

Answer 308

* Sum borrowed and interest charged. * Details of the security being given in a separate security document. * Consequences of default. * Representations and warranties about the financial position of the company.

Answer 309

If the company requires a large sum instead of just a small cash injection to solve short-term cashflow issues.

Answer 310

1. Overdraft - **unsecured** 2. Term loan - **secured** 3. Revolving credit facility - either **secured or unsecured**

Answer 311

1. Mortgage 2. Charge 3. Lien 4. Pledge

Answer 312

A covenant or promise in a loan agreement not to create another security to a different lender.

Answer 313

A mortgage, as it transfers the title of the assets to the lender until the borrower repays the debt. And until such time, the borrower (e.g. company) is prohibited from dealing with the asset until the debt is repaid.

Answer 314

Charge - granting the lender an **equitable right** over the charged property in the event of default on the loan. The borrower cannot deal with the charge property without the charge holder's permission. Unlike a mortgage, a charge does not give the lender a proprietary interest in the asset.

Answer 315

Secured creditors take priority over unsecured creditors.

Answer 316

1. **Fixed charges** - an alternative to a mortgage involving an equitable right taken over a specific asset (e.g. machinery). If the borrower defaults, the lender can sell the charged asset. 2. **Floating charges** - an equitable right taken over a class of assets that fluctuates (e.g. stocks). These can fluctuate over the course of business. They crystallise into a fixed charge when a specified event happens (e.g. default on loan; insolvency). Fixed charges take priority over floating charges.

Answer 317

False, a company can grant *multiple* fixed charges over the same asset, although older ones will take priority over newer ones.

Answer 318

Upon a specified event occurring (e.g. default or insolvency), the charge attaches to the class of assets, whatever they are at the time. They essentially become fixed charges (although standard fixed charges still have priority).

Answer 319

The name of a security or charging document (or instrument) between a lender and borrower in respect to a fixed and/or floating charge.

Answer 320

The facility (loan) agreement, since it creates the security for the loan.

Answer 321

1. Type of security. 2. Covenants as to the value and condition of and encumbrances on the charged assets. 3. Negative pledge. 4. Circumstances constituting default.

Answer 322

The power to **appoint a receiver** (and possibly an administrator) to seize the charged assets and sell them to satisfy the outstanding debt upon specified events.

Answer 323

False, since April 2013 this has been replaced by a voluntary system of registration. But the company itself should register the charge.

Answer 324

1. **MR01 form & fee** containing the statement of particulars along with certified copy of the instrument creating the charge delivered to Companies House **within 21 days** of the day *after* the charge was created. 2. **Certification** - the Registrar issues a certificate providing conclusive evidence of registration. 3. **Record-keeping** - a copy of the MR01 form and charging document is kept at company's registered address and made available for inspection. For charges (including mortgages) over land, the charge holder must also register at the **Land Registry**.

Answer 325

It is a criminal offence but will not affect the validity of the charge.

Answer 326

The buyer of the land will take it free from any fixed charge / mortgage *even if*: 1. They know the land had a charge. 2. The charge appeared on the Companies House register.

Answer 327

Two main reasons: 1. If the company goes into administration or is wound up, an incorrectly registered or unregistered charge will be **void against the liquidator / administrator** and the company's other creditors (the charge holder would rank as an **unsecured creditor**). But the loan will still be valid as between the company and charge holder, and payable immediately. 2. If another lender registers its charge over the **same asset** later, it will take priority.

Answer 328

A fixed charge created *later* over the same assets will take priority over any *existing* floating charge, which means the former can hugely undermine the latter. A negative pledge contained in the MR01 form (registered at Companies House) will put any future fixed charge holder on actual notice, thereby subordinating their loan.

Answer 329

1. Fixed charge > floating charge (regardless of when created). 2. 2+ fixed charges, then priority determined by date of creation (not registration unless it's a charge over land). 3. 2+ floating charges, then priority determined by date of creation (not registration unless it's a charge over land).

Answer 330

The right to physical possession of the debtor' goods by the creditor until the debt is repaid.

Answer 331

An enforceable promise by a third party (guarantor) to repay the money to the lender in the event of a company's default.

Answer 332

**Term loan:** * Certainty * Fixed repayments * Not repayable on demand (unless default) **Revolving credit facility:** * Flexibility * Can re-borrow * Not repayable on demand (unless default) * Only pay interest on sum borrowed

Answer 333

**Term loan:** * Time-consuming and expensive to arrange * Less flexible than overdraft * Security usually required * Interest starts to accrue immediately * Cannot be re-borrowed * Must be accepted quickly once approved **Revolving credit facility:** * Usually need to maintain 'clean down' of £0 balance for specified time * Commitment fee (even if not drawn down) * Time-consuming and expensive to arrange * High fees * Notice periods * Less flexible than overdraft

Answer 334

**Overdraft:** * Uncommitted - bank can refuse * Expensive * Repayable on demand

Answer 335

1. **Retaining control** - **debt finance** because the company is only limited by the terms of the facility (loan) agreement, whereas any new shareholder may acquire significant decision-making power. 2. **Growing capital** - **either** have potential for capital growth. 3. **Reducing repayments** - **equity finance** since capital will not have to be repaid unless the company is wound up, whereas debt finance must be repaid with interest. 4. **Reducing immediate cost** - **equity finance** since not taking on a loan to be repaid with interest, although there will be an indirect cost of allotting / issuing new shares if they dilute those of existing shareholders. 5. **Avoiding regulation and procedures** - **debt finance** as there is not statutory procedure to follow, whereas equity finance require board (and possibly shareholder) approval. 6. **Mitigating risk level** - **equity finance** because debt finance comes with a set of terms and conditions.

Answer 336

Grant **preferences shares** which attract no voting rights and instead require the company to pay a fixed dividend in priority to other ordinary shareholders.

Answer 337

No, a floating charge is not suitable because only limited liability partnerships and companies can grant a floating charge.

Answer 338

The charge is void against a liquidator or administrator, and other creditors of the customer.

Answer 339

The bank’s fixed charge has priority. As both were registered correctly, priority is given to the fixed charge that was created first.

Answer 340

A term loan secured by a floating charge and directors’ guarantees.

Answer 341

The company can only sell the machinery if it does so with the consent of the bank as charge holder.

Answer 342

This (ordinary not statutory) agreement will be confidential between the parties to it and can dictate to the signatory shareholders, who may also be directors, how they must vote on specified matters in general meeting.

Answer 343

LP and LLP only.

Answer 344

The company must have at least one director at incorporation. Subsequent directors can be appointed by either: 1. Shareholders by ordinary resolution. 2. A simple majority of the directors in a board meeting.

Answer 345

A clause stating the purpose for which a company is formed and the activities it is permitted to carry out. It is part of the process of registering a company.

Answer 346

Any description of a distribution of a company's assets - cash or otherwise - to its members.

Answer 347

1. If the distribution cannot be justified on the basis of the last annual accounts, then **interim accounts** can be used. 2. If the distribution is being made in the company's first accounting period, then **initial accounts** can be used.

Answer 348

The interim / initial accounts must enable a reasonable judgment as to the amount of the distribution.

Answer 349

A dividend is a type of distribution (generally, cash) that a company makes to its shareholders from a portion of its net profits. A dividend in kind is a class of dividend which is a non-cash asset.

Answer 350

It is declared and authorised.

Answer 351

1. **Recommendation:** Directors recommend the amount of dividend. 2. **Declaration:** The company declares the dividend by passing an ordinary resolution of the shareholders (they can reduce but cannot exceed the recommendation). 3. **Payment:** Directors pay dividends to shareholders. Where there are multiple classes, the dividends will be paid out according to the classes, but equally *within* the class.

Answer 352

False, there is no requirement for shareholder consent at all for interim dividends provided profits permit.

Answer 353

1. Act within powers (i.e. the Articles). 2. Promote the company's success for the benefit of members as a whole. 3. Exercise reasonable skill and care. 4. Declare an interest in the proposed payment (e.g. if they are also a shareholder).

Answer 354

**Capital maintenance rule** which says that the cash value of shares (or a portion of their value) must not be eroded or returned to shareholders, including: 1. The **original capital** when a company is incorporated (set out in the statement of capital in the IN01 Form). 2. The **share premium** i.e. excess paid for shares beyond the nominal value.

Answer 355

1. Look at the company's balance sheet based on relevant accounts i.e. latest annual accounts. 2. Take professional advice e.g. accountant or auditor.

Answer 356

(Accumulated, realised profits) - (accumulated, realised losses) = profits available for distribution. They cannot be estimates - they must be strictly calculated using accepted accounting principles.

Answer 357

1. Shareholders with knowledge / reasonable grounds to believe the distribution was unlawful must **repay** the dividend to the company. 2. A shareholder without notice is under no obligation to repay.

Answer 358

Yes, if they breach their duties but did not act dishonestly, the court may, in the circumstances, excuse the director. | s1157 of the Companies Act 2006

Answer 359

**COMPANIES ACT 2006:** Directors will be **personally liable** for repaying the money if they knew or ought to have known the distribution was unlawful. They will be **jointly and severally liable** to the company for the total amount of the dividend. **INSOLVENCY ACT 1986:** Directors will be **personally liable** if at the time the distribution was paid, 1. The company was insolvent. 2. There were no reasonable grounds for believing that the dividend payment would benefit the company. 3. The company later goes into solvent liquidation or administration.

Answer 360

A reasonably competent and diligent director.

Answer 361

If the unlawful distribution arose out of the director’s reliance on **incorrect accounts** prepared by the company’s auditor, and the auditor was **negligent**, the auditor could be liable to repay the company.

Answer 362

1. **Reinvestment** e.g. expand, invest in R&D, put aside for future tax liabilities, increase liquidity. 2. **Share buyback** where the company buys some of its own shares from existing shareholders (effectively cancelling them out).

Answer 363

**PRIVATE LIMITED COMPANIES** 1. **Increase return per share** - when a company invests in itself by re-purchasing its own shares, the total number of shares is reduced, which increases the value of the shares for existing shareholders who enjoy higher earnings per share. 2. **Removal of shareholder** - directors may refuse to resign unless their share are purchased and they can realise their investment. 3. **Retirement of shareholder** - directors may wish to retire and receive a return on their investment but cannot find willing purchasers. **PUBLIC COMPANIES** 1. **Increase return per share** - as above (this makes it more attractive to investors). 2. **Increase value of shares** - for example because the company feels its shares are undervalued.

Answer 364

**Share buyback conditions:** 1. The shares were **fully paid up** at the time of their purchase by the company. 2. It is an **off-market** purchase and in pursuance of a **contract** approved in advance. 3. The shares are **paid** for by the company **on purchase** unless they are being purchased for the purposes of or pursuant to an employees’ share scheme. | s 691 & s 692 of the Companies Act 2006

Answer 365

**Buyback:** Purchase by company of its own shares from a member at a price to be agreed at any time. Can be at option of member. **Redemption:** Purchase by company of redeemable shares from a member at a price and time that was agreed at the time of allotment. Not at the option of members.

Answer 366

* **OPTION 1 - de minimis cash:** As long as the amount paid is ≤ £15,000 or 5% of total share capital of company in aggregate in a given year (whichever is lower), provided the Articles permit this (the Model Articles don't). * **OPTION 2 - distributable profits:** Using distributable profits or proceeds from issuing new shares, provided the Articles permit this (the Model Articles do). The buyback contract must simply be approved by ordinary resolution of shareholders. * **OPTION 3 - capital:** Where a company cannot fund the buyback by the above two routes, they may use some existing share capital (the Model Articles allow this). * **OPTION 4 - new issue of shares:** Where new shares are issued in order to fund the buyback.

Answer 367

False, the Model Articles do not permit this. They would need to be amended.

Answer 368

**De minimis cash:** As long as the amount paid is ≤ £15,000 or 5% of total share capital of company in aggregate in a given year (whichever is lower), provided the Articles permit this (the Model Articles don't). The buyback contract must simply be approved by ordinary resolution of shareholders.

Answer 369

**Distributable profits:** Using distributable profits or proceeds from issuing new shares, provided the Articles permit this (the Model Articles do). * The buyback contract must simply be approved by ordinary resolution of shareholders. * Once the ordinary resolution is passed, the board can proceed to approve the buyback and enter into the purchase contract. ## Footnote Note: If a written resolution is used, the members whose shares are being purchased cannot vote.

Answer 370

≥15 days ending with the day of the meeting.

Answer 371

Either before or with the proposed written resolution.

Answer 372

If the vote is to approve the purchase contract on a **buyback** of shares, then a shareholder cannot cast votes attached to the shares that the company wishes to buy.

Answer 373

It means the shares are not cancelled and are held by the company to be reissued to a shareholder in the future. Treasury shares do not carry any rights e.g. to vote or receive dividends but they can be sold, transferred, or cancelled.

Answer 374

1. **Share sale:** The entire issued share capital of a company is sold. Unless the company's articles or CA 2006 or STA 1963 say otherwise, shares or other interests of a shareholder are transferable. Only share not asset sale will result in a change to company ownership. 2. **Asset sale:** Only the assets of the business of the company are sold, including goodwill, know-how and stock. There is no change in the legal or beneficial ownership of the company but existing contracts with respect to the sold assets will need to be assigned to the new owner.

Answer 375

The *Transfer of Undertakings (Protection of Employment) Regulations 2006* protect employees in the context of an asset sale only. With an asset sale, any existing contracts of employment will generally transfer to the new owner under TUPE. They won't (at least not automatically) transfer with a share sale.

Answer 376

An asset sale exposes the corporate seller and its members to more tax liability because: * They will pay corporation tax on any chargeable gains made from the sale of assets. * Members may have to pay tax on any distribution of the proceeds of the asset sale. By contrast, with a share sale, the members may only incur income tax liability on chargeable gains made from the sale of shares.

Answer 377

A buyer may have VAT liability on an asset purchase unless the asset is a going concern (i.e. will be used for the business). VAT is not chargable on a share sale. If the asset in an asset sale relates to property and is above a certain price, then the buyer will need to pay SDLT.

Answer 378

No, but the parties usually enter into a share purchase agreement.

Answer 379

10 years in the company's internal books.

Answer 380

Within **28 days** of completion of the buyback, except for PSC forms which must be filed within **14 days**.

Answer 381

Public companies can only buyback shares using the **distributable profits** procedure.

Answer 382

**Capital:** Where a company cannot fund the buyback by the above two routes, they may use some existing share capital (where Articles allow). 1. Directors make **solvency statement** and obtain **auditor's report**. 2. Obtain approval to use capital from shareholders via **special resolution**. 3. **Publicise** the buyback, including advertising in the London Gazette to allow for objections. 4. (If no objections after 5 weeks) obtain approval from shareholders on purchase contract via **ordinary resolution**. 5. **Complete** within 2 weeks of objection period.

Answer 383

* De minimis cash (≤ £15,000 or 5% of total share capital) - **ordinary** for authorising purchase contract. * Distributable profits - **ordinary** for authorising purchase contract. * Capital - **special** for authorising capital use; **ordinary** for authorising purchase contract.

Answer 384

Personal and possibly criminal liability for directors e.g. if there are no reasonable grounds for their decision.

Answer 385

The directors must make a solvency statement (DS) setting out that in their opinion that the company is solvent and will remain so for the **next 12 months**. The DS must be in a **prescribed form** and must have an auditor’s report (AR) attached confirming the directors’ view re the company’s financial position.

Answer 386

Within one week.

Answer 387

The company must put a **public notice** in the London Gazette **within 7 days** of the special resolution approving the payment out of capital being passed. The notice must specify that: 1. The special resolution has been passed to enable the company to use capital to fund the buyback. 2. The date of that resolution. 3. The amount of the capital to be used. 4. Details of where the DS and AR can be inspected. 5. Any creditor has **5 weeks** from the date of the special resolution to apply for a **court order** to prevent the payment. In addition, a notice must be put in a national newspaper or the company must give written notice of the same information to each of its creditors.

Answer 388

Either ***before or at the same time*** as making the information public, the company must file the DS and AR at **Companies House**. The company must also make the DS and AR available for inspection at the company’s registered **office** for **5 weeks after** the date of the special resolution.

Answer 389

1. Return of purchase of own shares (SH03 form) - **28 days**. 2. Notice of cancellation of shares - **28 days**. 3. Statement of capital - **28 days**. 4. Special resolution - **15 days**. 5. PSC forms (if relevant) - **14 days** after the company's own PSC register updated (i.e. 28 days overall since triggering event).

Answer 390

£50 each.

Answer 391

Any **shareholder** who knew or had reasonable grounds to believe that the distribution was unlawful – there is also a requirement to repay it to the company. The **directors** who authorised the distribution, if they knew or should have known it was unlawful – there is also potential personal liability to repay the money to the company. Note that directors are jointly and severally liable to the company for the total amount of the dividend payment.

Answer 392

1. It is an exception to the maintenance of capital doctrine. 2. The buy-back contract is negotiated with the relevant shareholders. 3. Once the shares are bought back, they are cancelled. 4. The company’s share capital is reduced accordingly.

Answer 393

1. ≥ 15 clears days prior to the general meeting, the **buy-back contract** must be sent to each member eligible to vote. 2. The contract is put to a general meeting and approved by **ordinary resolution** (i.e. over 50% of voting share, excluding the shareholders whose shares are to be bought). 3. The board then resolves to **execute the contract**.

Answer 394

1. The directors call a board meeting to pass a resolution to circulate a written resolution (to include the buy-back contract). 2. Then shareholders pass a written resolution approving the proposed buy-back. 3. The board holds a second board meeting and resolves to enter into the buy-back contract.

Answer 395

As the company is insolvent within 12 months of the buy-back out of capital, the seller of the shares and the directors may be required to personally contribute to the company’s financial losses and the directors may face criminal liability.

Answer 396

1. Report on financial activity, performance, and health. 2. Calculate tax liability. 3. Establish profit available for distributing to owners and bonuses to be paid to owners, executives or other staff. 4. Indicate liabilities and level of debt.

Answer 397

A balance sheet of profit and loss, providing a true and fair view of the state of affaris of a company at the end of the financial year. They can be prepared using standardised reporting practices (e.g. UK GAAP or IAS). Directors of most companies have a statutory duty to prepare these annually unless: 1. The company is a subsidiary undertaking *and* 2. The company has been dormant all that year *and* 3. The company's parent undertaking is established in the UK.

Answer 398

The profit and loss account shows: 1. Revenue or income (turnover minus direct cost of sale) i.e. **gross profit**. 2. **Costs** (indirect overheads e.g. wages, business rates, electricity). 3. How much **net profit** or loss the business made over the period of the statement or financial year.

Answer 399

No, which is why it is important to categorise income and expenses accurately.

Answer 400

A balance sheet is an accounting document that provides a snapshot of the business’s financial health on the last day of its accounting record. Sections: 1. Assets in ascending order of liquidity. 2. Liabilities in descending order of priority of repayment. 3. Where the money has come from to fund the net asset position. The net assets must equal the owners'/shareholders' equity plus any profits retained in the business.

Answer 401

Usually liabilities that are repayable **within 12 months**.

Answer 402

The undistributed profits owed to owners/shareholders (as distinct from liabilities owed to third parties/creditors shown in the liabilities section).

Answer 403

While both are treated as capital, "share capital" reflects the original nominal value. The "share premium" reflects the increase in price.

Answer 404

1. **Depreciation and reevaluation:** To account for a decrease in value of an asset over time and spread the cost over its estimated useful life e.g. office equipment. It will be an asset in the balance sheet and be classed as an expense in the profit and loss account. 2. **Accruals:** An expense that has not yet been paid by the company but the benefit of which was used in the relevant accounting period. It will appear on the balance sheet as a liability and on the profit and loss account as an expense. 3. **Prepayments:** Payment of something upfront is apportioned between the correct accounting periods. The advance payments are credited back to the expense account in the profit and loss account. The assets in the balance sheet will increase by the amount of prepayment. 4. **Bad and doubtful debts:** Provision made for where there is uncertainty around a debt being repaid. In the profit and loss account this will appear as a potential expense. In the balance sheet it will reduce current assets under 'debtors'.

Answer 405

They are treated as **profits**.

Answer 406

1. Profit & loss account. 2. Balance sheet. 3. Profit appropriation statement, recording how the net profits are divided between partners (by default, equally).

Answer 407

Partners often have their own **current account** which net profit is paid into, and a separate **capital account** with their contributions which accrues interest in their name.

Answer 408

Both are reflected in the **capital** section, and the details of the accounts annexed to the sheet.

Answer 409

The net profit share will be calculated before and after the change in the partners, and an appropriation account for each will also be created.

Answer 410

False, it is an offence not to produce adequate accounting records even if the company or LLP is not trading.

Answer 411

When publishing a director's / strategic report (unless they are a small company/LLP or micro-entity).

Answer 412

* Every company officer or designated member in default has potential **criminal liability** unless they can show they acted honestly and with excuse. * Company directors may be in breach of their **statutory duty** and/or **director duties** (although difficult to prove loss).

Answer 413

The directors (or designated members of LLP) are responsible for circulating to: * Shareholders / members of LLP. * Debenture holder. * Any other person entitled to receive notice of general meetings.

Answer 414

In both cases, *before* the filing deadline of the period to be changed via board resolution and sending the relevant form (LL) AA01 to Companies House. Note though that extensions can only be extended to more than 18 months if in administration. Also, extensions are only possible in every 5 years.

Answer 415

An income and expenditure account instead of a profit and loss statement.

Answer 416

It should be signed by a **director / designated member** on behalf of the board.

Answer 417

Statements of stock held at the end of each financial year, the evidence for which should also be retained.

Answer 418

Small companies do *not* have to provide: * Directors'/strategic report. * Profit and loss account.

Answer 419

1. Disclosure of **accounting policies** adopted by the company while drawing up the balance sheet and profit and loss account. 2. Details of **fixed assets**. 3. Information about the **fair value** (the amount it could be exchanged for at market rate) of assets and liabilities. 4. Details of **debts**. 5. Information about guarantees and other **financial commitments**. (always the balance sheet)

Answer 420

Each financial year, unless either: 1. The directors reasonably believe audited accounts to be unlikely to be required or 2. The company is a small company.

Answer 421

1. Private company - **9 months**. 2. Public limited company - **6 months**. 3. LLP - **9 months**.

Answer 422

A company's size is determined by meeting *at least two* of the following three criteria for two consecutive years.

Answer 423

1. Total failure to deliver accounts - **criminal offence**. 2. Late filing - **civil penalty**. 3. No longer in operation (or apparently not) - the Registrar can **strike off** and dissolve it.

Answer 424

1. Private companies - 3 years. 2. Public companies - 6 years. 3. LLPs - 3 years.

Answer 425

1. **Gross profit margin** i.e. profit per £ of each good/service sold ((GP / sales) x 100). 2. **Net profit margin** i.e. how efficiently the business is operating ((NP / sales) x 100). 3. **Return on capital employed (ROCE)** i.e. profit being made on resource available to the business ((NP / CE) x 100). 4. **Asset turnover** i.e. volume of sales by amount of capital employed ((Sales / CE) x 100). 5. **Earnings per share (EPS)** i.e. NP/number of shares.

Answer 426

**Return on capital employed** i.e. profit being made on resource available to the business ((NP / CE) x 100).

Answer 427

**Net profit margin** i.e. how efficiently the business is operating ((NP / sales) x 100).

Answer 428

1. **Current ratio:** Whether the business has enough liquid assets to pay its way - it should be more than one but ideally 5:1 (current assets / current liabilities). 2. **Acid test ratio:** Liquidity taking into account that stock can be harder to shift - should be 0.8 ((current assets - stock) / current liabilities).

Answer 429

* **Trade debtor days:** How long business waits to get paid - should be low to reduce cashflow issues ((trade debtors / sales) x 365). * **Trade creditor days:** How long business takes to pay its creditors - the fewer days the stronger liquidity ((trade creditor / cost of sales) x 365). * **Stock turnover:** The fewer the days, the greater the liquidity ((stock / total cost of sales) x 365).

Answer 430

Market price per share / earnings per share (EPS) ## Footnote EPS = net profit / number of shares

Answer 431

30 November.

Answer 432

Wages and rent.

Answer 433

Debtors and creditors.

Answer 434

The profit and loss account will be for the 12-month period to 30 June.

Answer 435

When a company is wound up. Its assets are collected by an insolvency practitioner and sold. The proceeds of sale are then distributed, in a particular statutory order, to those who are owed money, known as the company’s creditors. Once the assets have been distributed, the company may be dissolved, which has the effect of bringing the company to an end. The person who undertakes this role is called a liquidator.

Answer 436

A company is insolvent if it is deemed unable to pay or discharge its debts and liabilities. 1. **Cash-flow test:** A company cannot pay its debts as they fall due. 2. **Balance sheet test:** A company's liabilities (including contingent and prospective ones) exceed its assets. | s123 of the Insolvency Act 1986

Answer 437

The **cash-flow test** because they won't typically have access to the company's balance sheet.

Answer 438

1. A **statutory demand** being a formal demand for payment has been served by a creditor who is owed more than £750 and who has not been paid by the company within 21 days (3 weeks) of that demand being served on the company’s registered office; **or** 2. An **unsatisfied judgment** being where the creditor has obtained a judgment against the company and has attempted to execute that judgment but the debt is still unsatisfied, in full or in part.

Answer 439

A formal demand for payment served by a creditor who is owed **more than £750** and who has not been paid by the company **within 21 days** (3 weeks) of that demand being served on the company’s **registered office**.

Answer 440

1. **Compulsory:** Initiated by a creditor, director, administrator or official receiver to exert pressure on a company to pay the monies owed. They petition for a winding-up order, for example when a creditor makes a statutory demand. 2. **Voluntary:** Either a members' voluntary liquidation (MVL) in which a solvent company decides to stop trading, or a creditors' voluntary liquidation (CVL) commenced by the company in response to creditor pressure.

Answer 441

A declaration by the majority of directors that they have inquired into the company's financial affairs and believe it can **pay its debts in full** (+ interest) **within 12 months** of commencement of the winding up. | s 89 of the Insolvency Act

Answer 442

The directors make a **declaration of solvency** to commence liquidation, supported by a **special resolution** within 5 weeks of the declaration (i.e. 5 weeks before general meeting or written resolution).

Answer 443

False, shareholders can only choose the liquidator in the case of MVL. Creditors control the process, including the choice of liquidator, in the case of CVL.

Answer 444

Directors are liable for fines and/or imprisonment for making a declaration without reasonable grounds.

Answer 445

1. Pressure on directors from creditors. 2. Professional advice from the company's financial advisors that the company is insolvent.

Answer 446

The shareholders must pass a **special resolution**.

Answer 447

1. Liquidation proceedings are commenced. 2. A **liquidator** is appointed (usually the Official Receiver or insolvency practitioner). 3. The liquidator **collects and realises** the company's assets and may clawback assets from previous transactions. 4. The liquidator **distributes** the assets in the statutory order to the company's creditors. 5. Within 12 months of appointment, liquidator provides a **progress report** to the company's members, creditors, and Registrar of Companies (progress reports happen annual until liquidation completed). 5. Prepare and send a **final account** to creditors, explaining that they may object to liquidator's release, and Registrar of Companies. 6. If no objections, the company is **dissolved** three months' later by the Registrar of Companies.

Answer 448

* Collect in and **realise assets** (i.e. convert them to cash) and **finalise contracts** (including employment contracts). * **Investigate** prior transactions and/or conduct of directors to see whether monies can be clawed back. * Commence litigation or defend proceedings, disclaim onerous property or contracts, and do all things necessary to **facilitate winding up**.

Answer 449

A creditor with a fixed-charge over certain assets.

Answer 450

It will become an **unsecured creditor** in respect to the balance, or rank as a floating charge holder if they took both a fixed and floating charge over the assets.

Answer 451

Liquidators must be paid the costs and expenses of realising those fixed charge assets.

Answer 452

1. Fixed-charge holder. 2. Liquidator's costs and expenses for realising fixed charge assets. 3. Costs and expenses for realising the company's remaining assets. 4. Preferential debts e.g. employee wages for previous 4 months (up to £800 per employee), holiday pay, pensions, tax debts to HMRC. 5. Floating-charge holders (minus any prescribed or ring-fenced sum for unsecured creditors). 6. Unsecured creditors (ring-fenced of 50% of first £10k and 20% of remaining balance after sale of property not subject to a fixed charge up to £800k of floating charged created on or after 6 April 2020). 7. Statutory interest on debts. 8. Shareholders.

Answer 453

50% of the first £10,000 of money received from the assets subject to a floating charge (i.e. £5,000) **and** 20% of the remaining money up to a maximum of £800,000.

Answer 454

The moratorium stops enforcement action by certain types of creditors relating to pre-moratorium debts against the company. This gives the company a chance to organise its affairs to recover financially and avoid being forced into insolvency.

Answer 455

An insolvency practitioner (called a **monitor**) monitors the process and can end it if they think the company is not financially viable or is not paying critical debts as they fall due by filing a notice at court.

Answer 456

Companies and LLPs only.

Answer 457

A company/LLP's **directors or designated members** and the proposed **monitor** must **certify** that it is **insolvent** (or close to it) and that the moratorium will be likely to result in its rescue.

Answer 458

A company or LLP is ineligible to apply for a **moratorium period** pursuant to the *Corporate Insolvency and Governance Act 2020 (CIGA)* if it has been the subject of a moratorium period, **company voluntary arrangement (CVA)** or administration in the last **12 months**, nor in any type of insolvency process at the date of application.

Answer 459

True, but they must use the **court route** to do so.

Answer 460

1. **Out-of-court route:** The moratorium comes into effect when the relevant prescribed documents are filed at court, endorsed by the monitor. 2. **Court route:** The moratorium comes into effect when the relevant court order is made.

Answer 461

The moratorium initially lasts **20 business days** beginning with the business day *after* the day the moratorium comes into effect. It can be extended, 1. For another 20 business days without creditor consent. 2. With creditor consent for up to 1 year from the initial effective date. 3. Until a date specified by the court.

Answer 462

The effect of a **moratorium** is as follows: 1. All creditors, **[1] except for financial creditors**, are barred from pursuing any action to enforce their debts. 2. Sums that fall due to financial creditors (e.g. banks) are still payable by the company during the moratorium period. 3. Suppliers cannot terminate their supply agreements with the company on the grounds that the company proposes to enter into a formal insolvency procedure, **[2] even if** the supply contract/agreement states that insolvency is a ground for termination 4. A court must presume that any director who chose to carry on business generally between **[3] 1 March and 30 June 2021** is not responsible for the company’s financial position worsening. 5. Certain premoratorium and moratorium debts take priority over other preferential, floating charge and unsecured debts. 6. There are restrictions on a company’s activities during the moratorium such as not agreeing to grant fresh security **[4] without the monitor’s consent**.

Answer 463

1. All **pre-moratorium debts** (i.e. debts for which the company does not have a payment holiday during the moratorium) must be paid or discharged. 2. Debts that the company **incurred liability for *during* the moratorium** must be paid or discharged. 3. The **monitor** must provide a statement that, in their view, it is likely that the moratorium will result in the **rescue of the company** as a going concern.

Answer 464

A restructuring plan (once sanctioned by the court) becomes binding on *all* creditors, including the secured ones. By contrast, a CVA only binds creditors who consent.

Answer 465

1. **Administration:** An independent insolvency practitioner (administrator) takes over management of the company and attempts to rescue it as a going concern. During this period there is a statutory moratorium period in which creditors cannot enforce their security or initiate proceedings. 2. **Company voluntary arrangement (CVA):** A rescue procedure that allows the company to negotiate with its creditors to enter into a binding arrangement to pay its debts. 3. **Fixed-asset receivership:** When the security document creating a security or fixed or floating charge over a company's assets grants the creditor the power to appoint a receiver without having to apply to the court.

Answer 466

An individual appointed by a creditor that holds security over all (or substantially all) the assets of a company which was created as a floating charge. An administrative receiver can: * Take custory of charged assets. * Run the company's business. * Dispose of assets to satisfy secure debt. Once appointed, the floating charge crystallises and the company can no longer deal with it.

Answer 467

1. The company - **immediately**. 2. All known creditors - **within 28 days**.

Answer 468

When the floating charge holder has been paid in full or when the administrative receiver has sold all the property and distributed all the proceeds in the order prescribed by law e.g. preferential creditors before QFCHs.

Answer 469

**Advantage:** * Provides the floating charge holder with control of the secured assets. **Disadvantage:** * No automatic statutory moratorium. * Procedure can begin rapidly and with little notice. * Control of business is handed to an administrative receiver and, in most case, the assets of the company are liquidated at a discount. * Often leads to liquidation.

Answer 470

1. Rescue the company as a going concern. 2. Achieve a better result for the company’s creditors, as a whole, than would be likely if the company were wound up. 3. Realise the company’s assets to make a distribution to one or more secured or preferential creditors.

Answer 471

1. **Scheme of arrangement:** A statutory procedure under *Part 26* of the *Companies Act 2006* which allows companies to restructure its debt and facilitate recovery from financial distress. Can be used in in conjunction with a formal insolvency procedure or independently. It binds all creditors once sanctioned by a court. 2. **Restructuring plan:** A statutory procedure under *Part 26A* of the *Companies Act 2006* that can be proposed by directors to ask the court to approve a compromise or arrangement between dissenting classes of creditors or members. Available to companies in financial difficulty. **Approval Process:** **75% of value** of 1+ creditors or members must approve, followed by court approval.

Answer 472

It is not reasonably practicable to achieve the first objective. OR The second option would provide a better outcome to creditors as a whole.

Answer 473

When neither of the first two objectives are reasonably practicable to achieve.

Answer 474

1. It is satisfied that the company is or is likely to become **unable to pay is debts**. 2. Administration would achieve a **better result** for the company’s creditors than liquidation i.e. the purpose of administration would likely be achieved.

Answer 475

1. Anyone who has appointed or may appoint an administrative receiver. 2. Any qualifying floating-charge holder who may appoint an administrator. 3. Anyone else entitled to have notice under the *Insolvency (England and Wales) Rules 2016*.

Answer 476

* **Court route:** The court releases an administration order if satisfied that the company is or is likely to become unable to pay its debts and and administration order is likely to achieve the purpose of administration. * **Out-of-court route:** An administrator can be appointed without a court order by either (a) a QFCH whose floating charge is enforceable and relates to the whole of substantially the whole of the company's property and expressly allows them to appoint an administrator or (b) by the company or its directors if the company is or is likely to become unable to pay its debts, there are no ongoing administration applications or winding up petitions, and no administrative receiver has been appointed.

Answer 477

The court route.

Answer 478

1. The appointing party must give **5 days' notice** of intention to any **qualifying floating-charge holder (QFCH)**. 2. The prescribed documents are **filed** at the court, and with any QFCH and lender entitled to appoint an administrative receiver. 2. The QFCH either agrees to the administration or appoints its own administrator or applies to court for alternative **appointment**. 3. A **qualifying floating charge (QFC)** is created, specifying what powers apply.

Answer 479

A creditor who holds one or more charge or other security (including at least one QFC) over all or substantially all of the assets and undertaking of a company.

Answer 480

**Appointment by company** - a general meeting must be called to obtain approval from shareholders of the notice of intention to appoint an administrator. **Appointment by directors** - a board resolution is required along with a statutory declaration at court stating (a) the company is unable to pay its debts, (b) the company is not in liquidation, and (c) there has not been a previous administration within the last 12 months.

Answer 481

When the notice of intention to appoint is filed at court.

Answer 482

1. **Demand payment:** Demand immediate repayment of all the secured liability of the debtor company. 2. **Appoint:** Appoint an administrative receiver (who must be an insolvency practitioner) to the assets secured by the corresponding security documents.

Answer 483

A majority of the company's creditors.

Answer 484

1 year after the date of administration, unless extended or brought to an end sooner.

Answer 485

* The purpose of the administration cannot be achieved. * The company should never have entered administration. * The court converts an administration into a liquidation in the public interest. * The administrator resigns.

Answer 486

* The creditors have had a meeting that requires them to apply to the court. * The creditors think that the purpose of the administration has been sufficiently achieved. * The administrator converts the administration into a CVA.

Answer 487

A rescue procedure that allows the company to negotiate with its creditors to enter into a binding arrangement to pay its debts. Any agreement binds the company and the unsecured creditors. It usually involves waiting longer to be paid and/or partial payment.

Answer 488

A CVA generally does not allow for a statutory moratorium.

Answer 489

Directors, liquidators or administrators.

Answer 490

A company voluntary arrangement (CVA).

Answer 491

It will bind all unsecured creditors eligible to vote, even if they disagreed.

Answer 492

Within 28 days of creditor approval being notified to the court. Also creditors who were unaware of the voting process can challenge at any time, even after the CVA has concluded.

Answer 493

1. Directors seek **advice** from insolvency practitioner. 2. Directors put forward written **proposal** to creditors, informing them that the insolvency practitioner will supervise the CVA ("the **nominee**"). 3. The nominee invites creditors to a **meeting**. 4. To pass proposal, 75% or more in value of *unsecured* creditors must **agree** unless those voting against it include more than 50% in value of all the unconnected creditors who are voting on the proposal.

Answer 494

False, a nominee may need to report to the court within 28 days of the proposal on the viability of the arrangement if they are not an appointed administrator or liquidator, but there is no requirement for court approval.

Answer 495

They must write a **final report** which is given to the creditors and shareholders, after which the CVA comes to an end.

Answer 496

**Fixed-asset receivership:** When the security document creating a security or fixed or floating charge over a company's assets grants the creditor the power to appoint a receiver without having to apply to the court. **Limitation:** The right to appoint an administrator curtails and replaces most charge holders' ability to appoint a receiver.

Answer 497

The receiver takes control of the charged asset(s) and realises the asset(s) to satisfy the creditor's debt.

Answer 498

The receiver's primary duty is to the creditor who appointed them, so they are more concerned about their client's interests than that of the company or other creditors. As a result, if the assets to be realised are essential to the company's business, winding up may be inevitable.

Answer 499

1. **Statutory demand:** A creditor has served a statutory demand for >£750 which remains unpaid or there is no repayment arrangement in place. 2. **Judgment:** A creditor has obtain judgment against the company and has attempted to enforce it but the debt is still unsatisfied in whole or in part. 3. **Non-payment:** A company cannot pay its debts as they fall due. 4. **Assets < liabilities:** A company's assets are less than its liabilities.

Answer 500

1. Members' voluntary liquidation (MVL) - **company**. 2. Creditors' voluntary liquidation (CVL) - **company** (usually in response to pressure by creditors). 3. Compulsory liquidation - **creditor** owed > £750.

Answer 501

1. Members' voluntary liquidation (MVL) - **solvent**. 2. Creditors' voluntary liquidation (CVL) - **insolvent**. 3. Compulsory liquidation - **insolvent**.

Answer 502

**Members' voluntary liquidation (MVL):** * **Special resolution** to wind-up the company or when duration of company set out in articles expires. * **Ordinary resolution** to appoint liquidator. **Creditors' voluntary liquidation (CVL):** * **Special resolution** to wind-up the company if the directors are unable to make a declaration of solvency. * **Ordinary resolution** to appoint liquidator. **Compulsory liquidation:** * None required if unable to pay debts or just and equitable to wind up, but can be by **special resolution** to wind up.

Answer 503

Within 15 days of the special resolution.

Answer 504

Either 6 years from the date of liquidation or administration, or 12 years if the claim involves property other than money. If the debt has committed fraud, then the clock starts running only once it is discovered.

Answer 505

1. **Recommendation:** The directors recommend CVL to members. 2. **General Meeting:** To pass special resolution (to wind-up) and ordinary resolution (to appoint liquidator). 3. **Creditors' Meeting:** Held *within 14 days* of resolutions after appropriate notice given (7 days before in London Gazette). 4. **Liquidator Chosen:** At the creditor's meeting, *unsecured* creditors can choose liquidator by simple majority (secured creditors cannot vote as they have alternative means of recovery). 5. **Sworn Statement:** At the creditors' meeting, directors give sworn statement of company's affairs. **[Liquidation proceeds]**

Answer 506

1. **Statutory Declaration:** Directors swear that company can pay its debts and is solvent (after taking professional advice) *5 weeks* before general meeting or written resolution. 2. **Financial Statement:** Directors share statement of company's assets and liabilities. 3. **Resolutions:** General meeting / written resolution held to pass special resolution (to wind-up) and ordinary resolution (to appoint liquidator). 4. **Companies House:** Statutory declaration and special resolution filed at Companies House *within 15 days*. 5. **Notification of Appointment:** Notification of liquidator's appointment given to all creditors. **[Liquidation proceeds]**

Answer 507

1. **Winding-up Petition:** Petition showing that company unable to pay its debts given to court by creditor. 2. **Advertisement:** Petition advertised in London Gazette *within 7 business days*. 3. **Schedule Hearing:** Court hearing date fixed. 4. **Winding-Up Order:** Court may make winding-up order. If it does, notice placed in London Gazette. 5. **Liquidator Appointed:** Either creditors choose one, or Official Receiver appointed as liquidator. 6. **Statement of Affairs:** Directors present statement of affairs *within 21 days* of notice by the liquidator. **[Liquidation proceeds]**

Answer 508

**Members' voluntary liquidation (MVL):** * Creditors have no say in the appointment of liquidator. * They will be paid back in full. **Creditors' voluntary liquidation (CVL):** * Creditors control the winding up. * Creditors choose the liquidator. * Creditors unlikely to recover everything. **Compulsory liquidation:** * Creditors or the court appoint the liquidator. * Creditors unlikely to recover everything.

Answer 509

**Members' voluntary liquidation (MVL):** * Directors have no powers unless continuance is sanctioned by liquidator or members at general meeting. * Directors still hold office. **Creditors' voluntary liquidation (CVL):** * Directors have no powers unless continuance is sanctioned by liquidator or members at general meeting. * Directors still hold office. **Compulsory liquidation:** * Directors' powers and office are terminated.

Answer 510

A **majority** of directors must declare that the company will be able to pay its debts in full within 12 months of the winding up commencing. So, two of the three directors will be sufficient for the declaration.

Answer 511

The insolvency practitioner who is monitoring the process must believe that the moratorium will **result in the rescue** of the company and make a **statement** to that effect.

Answer 512

Doing all things necessary to facilitate the winding up of the company.

Answer 513

No, the out-of-court route will not be possible because the company has been in administration in the last 12 months.

Answer 514

**Clawback** - to restore the company to the position it *would have been in* had the transaction not occurred in the first place.

Answer 515

1. Transactions at an undervalue. 2. Preferences. 3. Floating charges. | (provided they fall into the specified statutory period)

Answer 516

1. **Timing** - the transaction must have taken place within the specified statutory period. 2. **Connected persons** - if the transaction took place with a person connected to the company, then this can impact the period in which the liquidator / administrator can challenge it.

Answer 517

* Family and spouses * Business partners * Employees * A company controlled by the director or a person connected to the director

Answer 518

**Undervalued transaction** - a gift or sale of a company asset for significantly less money than the actual value of the item. It comes within the specified statutory period if: * It took place in the **2 years prior** to the onset of insolvency **and** * The company was **insolvent** at the time *or* became insolvent as a result. | s 238(4) Insolvency Act

Answer 519

If the transaction was with a **connected person**. Otherwise, the liquidator / administrator has the burden of proof.

Answer 520

It is a defence to prove that the company entered into the transaction in **good faith** and for the purpose of **carrying on its business**, where there were reasonable grounds for believing that the transaction would **benefit the company**. | s 238(5) Insolvency Act

Answer 521

A **preference** is an unfair or improper advantage which has had the effect of elevating an unsecured creditor above the position they should have been paid out in the statutory order of priority.

Answer 522

Specified statutory period: ***Either*** it took place **6 months prior** to the onset of insolvency with an *unconnected* person ***Or*** it took place **2 years prior** to the onset of insolvency with a *connected person* ***and*** the company was (i) **insolvent** at the time of the transaction or became insolvent as a result and (ii) influenced by a **desire to prefer** that creditor (presumed if with a connected person).

Answer 523

Assuming the specified statutory period applies, a **floating charge** can be avoided on the grounds that it is **invalid**. Specifically, where an unsecured creditor has obtained (or upgraded) the charge to secure an existing obligation for no new consideration.

Answer 524

Specified statutory period: ***Either*** it took place **1 year prior** to the onset of insolvency with an *unconnected* person and the company was insolvent at the time of the charge or became insolvent as a result. ***Or*** it took place **2 years prior** to the onset of insolvency with a *connected* person (no need to prove insolvency as it is presumed)

Answer 525

The date a winding up petition is presented.

Answer 526

1. Transactions at an undervalue **(court application req.)**. 2. Preferences **(court application req.)**. 3. Floating charges. | s 245 Insolvency Act

Answer 527

They can make an application to the court for a declaration that the directors (or anyone else) were knowing parties to **fraudulent trading**. Or, if actual dishonesty cannot be proven, then **wrongful trading**.

Answer 528

1. Personal liability to contribute towards the company's assets. 2. Criminal conviction (fraudulent only). 3. Disqualification under the *Company Directors Disqualification Act 1996*.

Answer 529

Because even if they retire, they may still be personally liable so evidencing their concerns will help minimise their culpability.

Answer 530

There is a **[1] 6-year** limitation period in which the insolvency practitioner must bring proceedings against the director.

Answer 531

1 March - 30 September 2020 26 November 2020 - 30 April 2021

Answer 532

In **descending order** of priority: 1. Fixed charge holders and expenses of the relevant insolvency process. 2. Preferential creditors. 3. Floating charge holders. 4. Unsecured creditors.

Answer 533

Usually, when the preceding class has been paid in full (even if this means there is nothing left for subordinate classes). | (subject to some exceptions)

Answer 534

Fixed charge holders are entitled to be paid ahead of the liquidators’ fees and the insolvency expenses to the extent of their security. However, an insolvency practitioner will want to be paid for the costs and expenses of realising the fixed charged assets so will usually take their fees and expenses before paying any sums to the fixed charge holder. ## Footnote *Example:* if there is a fixed charge over an asset worth £200k, but only £105k was realised from the sale, the charge holder will become an unsecured creditor for the shortfall (£95k), less the amount owed to the liquidator in fees and expenses in respect of the sale (e.g. £5k). The fixed-charge holder will become an unsecured creditor for the sum of £100k (£95k + £5k). If the same asset has several fixed charges over it, then they rank in order of creation of the charge subject to any agreement to the contrary.

Answer 535

Any sums realised from the floating assets will be paid to the floating charge holder(s) subject to **ring-fencing** an amount (the prescribed part or ring-fenced fund) for **unsecured creditors**.

Answer 536

1. **Ordinary preferential:** Contributions to occupational and state pension schemes, wages and salaries for work done in the preceding 4 months (up to £800), and unpaid holiday pay. 2. **Secondary preferential:** Applies to insolvency after 1 December 2020 only and concerns taxes primarily e.g. VAT, PAYE, Construction Industry Scheme deductions, employee NI contributions and student loan repayments.

Answer 537

50% of first £10k and 20% of remaining balance up to **£600k**.

Answer 538

The liquidator / administrator would **write** to the floating charge holder to let them know in their view it was invalid. If this is challenged or the floating charge holder sought to enforce the charge legal proceedings may need to be brought.

Answer 539

1. Transactions at an undervalue - transaction made in **good faith** for benefit of company. 2. Preferences - desire to prefer can be rebutted if **genuine commercial pressure**. 3. Floating charges **(no defences)**.

Answer 540

1. **[Missing:]** Return proceeds of sale. 2. Return property. 3. Discharge security. 4. **[Missing:]** Anyone who derived benefit to repay the money. 5. **[Missing:]** Restoration of property / revival of surety or guarantee. 6. Security provided for any discharged obligation. | s 241 Insolvency Act

Answer 541

1. Return proceeds of sale. 2. **[Missing:]** Return property. 3. **[Missing:]** Discharge security. 4. Anyone who derived benefit to repay the money. 5. Restoration of property / revival of surety or guarantee. 6. **[Missing:]** Security provided for any discharged obligation. | s241 Insolvency Act

Answer 542

**Fraudulent trading:** * Intention to defraud i.e. dishonesty. **Wrongful trading:** * Company insolvent. * Before winding up the person knew or ought to have concluded that there was no real prospect of the company avoiding insolvency. * The person was a director at the time.

Answer 543

Generally the same as for companies, so: * Propose a CVA with creditors * Appoint an administrator * Enter compulsory or voluntary liquidation * Wound up by court order

Answer 544

No differences - the liquidator / administrator can apply by court application.

Answer 545

**Fraudulent trading:** * Directors. * Anyone knowingly carrying on business with an intention to defraud. **Wrongful trading:** * A person who is or has been a director (including shadow directors and de fact directors).

Answer 546

**Fraudulent trading:** * Rebut knowledge. * Rebut intention. **Wrongful trading:** * Took all steps to minimise losses to the creditors.

Answer 547

**Objective** – how they carried out their role with the general knowledge, skill and experience that should be expected of someone with the role of a director. **Subjective** – the knowledge and skill that they actually have as a director.

Answer 548

1. Liquidator’s general costs and expenses. 2. Preferential creditors. 3. Floating charge holders. 4. Unsecured creditors. 5. Shareholders.

Answer 549

1. Any new money brought into the company. 2. New goods brought into the company. 3. New services brought into the company. 4. Existing debts extinguished.

Answer 550

Yes, by a majority vote (**ordinary resolution**) of the shareholders having discounted the votes of any shareholding directors or persons connected with them.

Answer 551

The buy-back could only proceed if the company’s articles permit it. ## Footnote **de minimis cash exception:** As long as the amount paid is ≤ £15,000 or 5% of total share capital of company in aggregate in a given year (whichever is lower), provided the Articles permit this (the Model Articles don't).

Answer 552

A legal process to grant relief to a debtor who cannot pay their creditors and to fairly distribute their assets to their (unsecured) creditors so that they are paid at least a portion of what they are owed.

Answer 553

The **trustee in bankruptcy (TIB)** (the official receiver / an insolvency practitioner).

Answer 554

After **1 year** the slate is wiped clean and they can start afresh (although their creditworthiness will be damaged).

Answer 555

During 12-month **bankruptcy** period the bankrupt will be subject to restrictions including disclosing the bankruptcy on applying for credit over **£500**.

Answer 556

It will automatically terminate unless automatic termination has been varied in the partnership agreement.

Answer 557

Unless they **disclose** that they are subject to a bankruptcy order to the people with whom they are trading.

Answer 558

1. A **bankruptcy restriction order (BRO)** which imposes continuing restrictions for up to 15 years. 2. A **bankruptcy restrictions undertaking (BRU)** in lieu of a BRO if they agree to co-operate (again for up to 15 years).

Answer 559

An IPO requires the bankrupt to continue to contribute towards the bankruptcy debts for **up to 3 years** from the date of the IPO.

Answer 560

1. Debtor. 2. Debtors' creditors (owed £5,000 or more). 3. Supervisors or creditors of the individual's (failed) IVA. 4. Director of Public Prosecutions, where the person has been convicted of an offence causing loss above a specified sum.

Answer 561

1. **Inability to pay immediate debts:** The debt(s) is payable immediately and the debtor has insufficient funds to pay it, even if the debtor may, at some point in the future, be able to settle the debts. 2. **Inability to pay future debts:** The debt(s) is payable at a specified point in the future and the debtor has *no reasonable prospect* of being able to pay.

Answer 562

False, an executive arm of the Department for Business & Trade called the **Insolvency Service** makes bankruptcy orders (which have the same statutory force as a court order).

Answer 563

1. Application setting out the grounds submitted via online portal of the Insolvency Service. 2. Fee paid. 3. Application reviewed within 28 days (unless extended). 3. Bankruptcy order made (if conditions met). Otherwise, application refused and explanation of why and what the debtor can do. 4. The debtor can ask for another review within 14 days of original refusal.

Answer 564

1. Adjudicator has jurisdiction. 2. Debtor is unable to pay debts. 3. No outstanding bankruptcy petition. 4. No bankruptcy order already in effect as to the debts.

Answer 565

£5,000 or more.

Answer 566

* The debtor is **domiciled** or personally present in England and Wales. * The debtor is **unable to pay** or has no reasonable prospect of being able to pay. * The debt is **£5,000 or more**. * The debt is for an **unsecured liquidated (fixed) sum**, payable either immediately or at a specific further date and the sum is unsecured. * There is **no outstanding application** to set aside a statutory demand in respect of the debt.

Answer 567

If the debtor fails to satisfy a **statutory demand** served on them by the creditor.

Answer 568

The debtor must owe £5,000 or more **and** one of the below: 1. **Non-payment of statutory demand:** The individual has not paid, secured or compounded a statutory demand for the debt in question *within 3 weeks* (21 days) of being served with the demand (and has not applied to the court to set aside the statutory demand). 2. **Unsuccessful enforcement of court judgment:** The creditor has a court judgment and has attempted execution or other enforcement action against the individual in respect of the debt without success.

Answer 569

1. **Petition:** The creditor presents a bankruptcy petition at court by paying the fee and making a large deposit into court to cover the TIB's costs. 2. **Prove:** The creditor must prove the debtor is unable to pay the debt or has no reasonable prospect of doing so. 3. **Serve:** The bankruptcy petition is served on the debtor at their home or work address, or the petitioning creditor can ask for service in another way if debtor being elusive.

Answer 570

It starts at the date and time on the **bankruptcy order**. It ends when either discharged or after one year.

Answer 571

An Official Receiver (OR) is an officer of the court who is appointed after a bankruptcy order is made. The OR advertises the order in the London Gazette and takes control of the bankruptcy estate. They usually then take on the role of trust in bankruptcy (TIB).

Answer 572

To realise the bankrupt's estate and distribute the proceeds equally to creditors (minus the TIB's fees and expenses).

Answer 573

The debtor cannot dispose of any of their assets and any disposition made post-petition is void unless the court consents to it.

Answer 574

Creditors have to accept what they are offered. They can ask for a licensed insolvency practitioner to be appointed as the TIB, but this is more costly so entails bigger deductions from the bankrupt's estate before payment to creditors.

Answer 575

* Bankrupt's home. * Bankrupt's business. *Excluded:* * Items needed for work or trade. * Everyday household items. * Assets of personal nature. * Bankrupt's income or salary.

Answer 576

1. **Court order required** if the house is (a) in joint names with someone else, (b) a spouse/civil partner has registered a charge on property, or (c) children live at home (although for (b) and (c) this can only be delayed for 1 year). 2. **Reversion after 3 years** if the TIB does not sell the home (or make application to) then on third anniversary of bankruptcy order, it will automatically transfer back to bankrupt.

Answer 577

If the value of the asset exceeds the costs of reasonable replacement, then the TIB can claim the item and replace it with a cheaper alternative.

Answer 578

An income payment order (IPO) may be made if it is likely there is **excess income / salary** beyond that required to meet the **reasonable domestic needs** of the bankrupt.

Answer 579

1. **Transactions at an undervalue (TUVs):** When a bankrupt gives a gift or enters a transaction in consideration of marriage or in exchange for something else which is *significantly less* than that provided by the bankrupt. 2. **Preferences:** A payment putting a creditor in a better position than they would be on bankruptcy.

Answer 580

Any TUV made up to **5 years** before the bankruptcy order. If the TUV was made **2-5 years** ago though, the TIB must demonstrate that the bankrupt was **insolvent at the time** of the transaction (this will be presumed if the TUV was with an associate though).

Answer 581

Any preference made in the **6 months** ending with the day of bankruptcy. If the transaction was made with an associate, this is extended to **2 years**. In both cases it must be shown the bankrupt became insolvent as a result of the preference or was already insolvent.

Answer 582

TUVs - it will be presumed insolvent if transaction with associate. Preferences - no presumptions.

Answer 583

1. Transactions at an undervalue (TUV) - **no defences**. 2. Preferences - if the bankrupt can show there was **no desire to prefer** when they made the payment (e.g. their motivation was to placate an insistent creditor instead). A desire to prefer will be *presumed* if made to an associate.

Answer 584

Surplus funds must be paid to the TIB. They will become unsecured creditors to the extent of any shortfall.

Answer 585

1. Mortgage payments. 2. Court fines. 3. Maintenance payments. 4. Student loans.

Answer 586

* Secured creditors. * Bankruptcy costs and expenses. including the TIB’s remuneration. * Preferential debts – e.g. wages due in the last 4 months (up to £800), holiday pay, pension contributions, certain tax debts owed to HMRC. * Ordinary unsecured debts e.g. credit card companies, utilities, landlords, HMRC. * Interest on preferential and ordinary debts. * Postponed creditors i.e. the bankrupt’s spouse or civil partner.

Answer 587

If there is money left over after everyone has been paid in full (including all fees and interest on debts).

Answer 588

Once discharged from bankruptcy, the debtor normally has no further liability for their bankruptcy debts (excl. fraudulent debts, student loans, court fines, debts created after bankruptcy order, maintenance payments). They can also: * Borrow money. * Carry on a business without restriction. * Become a company director (unless disqualified under a separate order). *Exceptions:* Ongoing BROs, BRUs, or IPOs.

Answer 589

A low-cost alternative to bankruptcy for those with relatively limited (non-business) debts and who have few assets and a low income. At the end of the DRO, the debtor is freed from the debts listed in the DRO unless their circumstances have changed.

Answer 590

**12 months** during which time the debtor ceases to pay towards the debts listed in the DRO (with creditors unable to take action without court permission).

Answer 591

The debtor cannot: 1. Borrow more than £500 without telling the lender about the DRO. 2. Act as a director. 3. Create, manage, or promote a company without court permission. 4. Manage a business without disclosing the DRO to those they do business with.

Answer 592

1. Court fines. 2. Obligations arising from family proceedings e.g. maintenance. 3. Student loans. 4. Secured debts e.g. mortgages.

Answer 593

False, **debt relief orders (DROs)** are administered by the **Insolvency Service** in conjunction with debt advisors called "approved intermediaries".

Answer 594

1. Be domiciled in E&W **[1] or have worked there** in last 3 years. 2. Not have applied for a DRO in the last **[2] 6 years**. 3. Be unable to pay their debts. 4. Owe ≤ £50,000 (was £30,000 until 28 June 2024). 5. Have assets of <£2,000 (not including essential **[3] household items and** work equipment). 6. Not own a car valued at **[4] ≥£4,000** (was £2,000 until 28 June 2024). 7. Not own own home. 8. Have a disposable income of ≤£75 per month after tax/NI and normal household expenses. 8. Not be involved in another formal insolvency process such as an IVA or be bankrupt. 9. Not have entered into a transaction at an undervalue **[5] or a preference** in the previous 2 years.

Answer 595

1. Be domiciled in E&W or have worked there in last **[1] 3 years**. 2. Not have applied for a DRO in the last 6 years. 3. Be unable to pay their debts. 4. Owe **[2] ≤ £50,000** (was £30,000 until 28 June 2024). 5. Have assets of **[3] < £2,000** (not including essential household items and work equipment). 6. Not own a car valued at ≥£4,000 (was £2,000 until 28 June 2024). 7. Not own own home. 8. Have a disposable income of **[4] ≤ £75** per month after tax/NI and normal household expenses. 8. Not be involved in another formal insolvency process such as an IVA or be bankrupt. 9. Not have entered into a transaction at an undervalue or a preference in the previous **[5] 2 years**.

Answer 596

Individual Insolvency Register. They will be removed **3 months** after the DRO ends.

Answer 597

1. The debtor - they **keep control** of their assets and avoid the effects of bankruptcy (e.g. automatic dissolution of a sole trader business or partnership or disqualification as director). 2. The creditor(s) - they may **recover more** and avoid the costs of petitioning the court for the bankruptcy order.

Answer 598

A debtor works with an insolvency practitioner to draw up **proposals** to be made to creditors. The proposal identifies the proportion of the **debt** to be repaid and over what **time period** (usually 5 years). A **statement of affairs** is prepared and an **interim order** sought from the court.

Answer 599

This interim order prevents proceedings from being brought against the debtor usually for **14 days** while the creditors consider and approve the debtor’s proposals.

Answer 600

Unsecured creditors holding **75% or more** of the value of the debt. As secured creditors cannot be affected without their consent, they usually remain outside the terms of an IVA unless they consent.

Answer 601

1. **Initial Assessment & Advice:** Debt advice sought and eligibility check undertaken. 2. **Nominee Appointed:** An insolvency practitioner is appointed as nominee. 3. **Proposal & Nominee Report:** The proposal is drafted and is supported by a report by the nominee stating their opinion on whether the proposal has a reasonable prospect of being approved by creditors and successfully implemented. 3. **Interim Order *(optional)*:** An interim order is granted which prevents recovery action from creditors for 14 days. 4. **Creditors' Decision Procedure:** Creditors given *at least 14 days* to consider the proposal, after which they vote on it. They need 75% or more in value of debt, including at least 50% of creditors unconnected to the debtor, in order to get approval (approval binds all unsecured creditors). 5. **Supervisor Appointed:** A supervisor is appointed (usually the nominee) to implement the proposals. The supervisor also needs to make annual reports to creditors and other interested parties.

Answer 602

The creditors can petition the court for a **bankruptcy order** on grounds that the IVA failed.

Answer 603

The unsecured creditors cannot take an action unless the terms of the IVA are broken.

Answer 604

DROs are designed to give eligible debtors breathing space by providing a right to legal protections from creditor actions for a period of time (i.e. a moratorium). During this time, the debtor can obtain advice and find a solution.

Answer 605

1. **Standard respite:** Available to anyone with relevant that a debt advisor is satisfied they cannot pay, giving them respite for *up to 60 days*. 2. **Mental health crisis respite:** Available to an individual receiving mental health crisis treatment. In addition to the standard order, alternative points of contact are identified and the order may be renewed. It lasts as long as their treatment *plus 30 days*.

Answer 606

Yes, a DRO freezes most interest and charges on debts.

Answer 607

The debtor must: 1. Owe a qualifying debt. 2. Live or usually reside in E&W. 3. Not have a DRO or IVA nor be an undischarged bankrupt at the time of applying. 4. Not already have had a standard respite order in the 12 months prior to applying. (if applying for the mental health respite order then be receiving mental health crisis treatment).

Answer 608

1. Secured debts e.g. mortgage. 2. Student loans. 3. Court fines. 4. Family court orders e.g. maintenance. 5. Debts occurred through fraud. 6. Most tax and benefit debt.

Answer 609

1. The debtor can pay their debts. 2. The creditor has unreasonably refused to secure or compound the debt.

Answer 610

As the house is held in joint names, the trustee in bankruptcy cannot sell it without a court order.

Answer 611

Income tax is charged on: * Payments to employees (salary, bonus, taxable benefits). * Profits for sole traders and partners (i.e. the self-employed). * Shareholders (on dividends), lenders (on interest), and debenture holders (on interest). * Owners of rental properties.

Answer 612

6 April - 5 April

Answer 613

No, they are taxed on all profits made from their trade or profession irrespective of whether they've drawn down anything into a personal account.

Answer 614

Either in accordance with the terms of the **partnership agreement** or **equally** if there isn't one.

Answer 615

This is known as **"salary"** or **"interest on capital"**. The balance of the profits are then shared according to the agreed profit share.

Answer 616

True, each partner has **individual liability** for their own tax. They are not liable for the income tax of co-partners.

Answer 617

1. Deduction of expenses. 2. Capital allowances. 3. First-year allowances. 4. Annual investment allowance. 5. Writing-down allowance.

Answer 618

**Income-related** expenses (rather than capital-related ones) incurred *wholly and exclusively* for the **purpose of the business or trade**. Examples: * Travel costs. * Office costs. * Raw materials costs.

Answer 619

If any expense is incurred for a **dual purpose** but the expenses can be identified as having a **separable** business and non-business part, HMRC will permit a tax deduction on the business portion. | (strict test)

Answer 620

Capital allowances are a form of **tax-approved depreciation** for certain types of capital expenditure. These capital allowances are treated as deductible expenses.

Answer 621

29 October 2018.

Answer 622

A 100% first-year allowance is available for investment in environmentally friendly products, such as energy efficient heating and electrical charging points.

Answer 623

The AIA allows businesses to obtain a **100% tax deduction** for expenditure on **plant and machinery** (excluding cars).

Answer 624

False, the annual investment allowance (AIA) cannot be carried over to future periods.

Answer 625

Writing-down allowances (WDA) enable businesses to reduce their trading profit by claiming a deduction for the cost of **plant and machinery** that is *not* covered by the first-year allowance or the AIA. Unlike the AIA, WDAs happen continuously, reducing the cost of the asset carried forward into the next accounting period.

Answer 626

1. Main pool - most assets reduce at **18% annually**. 2. Special rate pool - long-life assets like integral features in a building and some cars reduce at **6% annually**.

Answer 627

**Taxable:** 1. Savings income. 2. Foreign income of UK residents. **Exempt:** 3. Social security benefits. 4. Child benefit *(subject to the person’s income level)*. 5. Tax credits. 6. Individual savings accounts (ISAs).

Answer 628

If they have: * Trading profits. * Rental profits. * Dividends on shares they own.

Answer 629

Gross amount.

Answer 630

Consider both: 1. Online returns - by **31 January** 2. Paper returns - by **31 October**

Answer 631

If they have *either*: 1. A tax bill of £1,000 or more. 2. Not had more than 80% of their tax deducted at source.

Answer 632

**31 January** of the *current* tax year (50%). **31 July** of the *next* tax year (50%). | (and any balancing payment on 31 January of *next* tax year)

Answer 633

Non-savings tax bands: 1. Basic rate (20%). 2. Higher rate (40%). 3. Additional rate (45%).

Answer 634

Savings income bands: 1. Basic rate (20%). 2. Higher rate (40%). 3. Additional rate (45%). (*after* any **personal savings allowance (PSA)** is reduced from the savings income, which also depends on whether individual is basic, higher, or additional rate taxpayer).

Answer 635

* Basic rate - **£1,000** * Higher rate - **£500** * Additional rate - **£0**

Answer 636

Dividends are always taxed as the top or last slice of a taxpayer's income.

Answer 637

1. Total income - **gross income** from all sources (non-savings, savings, dividends etc.). 2. Net income - total income *minus* interest on **qualifying loans** and **pensions**. 3. Taxable income - net income *minus* the **tax-free personal allowance (PA)**.

Answer 638

To encourage entrepreneurship and taking personal responsibility for contributing to one's pension.

Answer 639

Any kind, although normally on non-savings income (e.g. salary).

Answer 640

True, it is only available on an annual basis.

Answer 641

Once someone's **net income** exceeds **£100,000** they lose £1 from their PA for every £2 more they earn. For example, if a taxpayer's income is £100,002, they'd lose £1 of their PA.

Answer 642

If they are registered blind.

Answer 643

The marriage allowance enables a person to **transfer** part of their **tax-free personal allowance (PA)** to their spouse or civil partner. This is beneficial where one partner earns nothing or very little (e.g. stay-at-home parent) and so is not, in practice, enjoying the benefits of the PA. Conditions to qualify: 1. The couple must be married or in a civil partnership. 2. The transferring partner’s income is less than the PA (i.e. not all PA is used). 3. The recipient partner is a basic rate taxpayer.

Answer 644

Because they won't qualify for the allowance. Conditions to qualify are: 1. The couple must be married or in a civil partnership. 2. The transferring partner’s income is less than the PA (i.e. not all PA is used) - **not satisfied**. 3. The recipient partner is a basic rate taxpayer - **not satisfied**.

Answer 645

False, the recipient's tax liability will instead reduce to **20% of the current allowance**.

Answer 646

* Calculate **Total Income** (all sources). * Calculate **Net Income** (Total income – allowable deductions). * Calculate **Taxable Income** (Net income – Personal Allowance (PA) if applicable). * Split Taxable Income into non-savings, savings and dividend income and consider any **reliefs** available such as a personal savings allowance and any dividend allowance. * Apply the relevant **tax rates** to the different types of income in the order of non-savings, savings and dividend income. * Add the amounts calculated for each type of income together to work out the **total tax liability**. * Deduct any **tax paid at source** to work out how much tax is due.

Answer 647

The EIS is designed to encourage taxpayers to **invest in EIS companies** by giving generous income tax and capital gains tax advantages. Where a taxpayer subscribes for new shares in a qualifying EIS company, they may **deduct 30%** of the value of the shares purchased from their **income tax liability** either: 1. For the same tax year in which the EIS shares were purchased, or 2. The previous tax year.

Answer 648

* Up to **£1 million** in share subscriptions (so **£300,000** in annual relief). * Up to **£2 million** in share subscriptions for "knowledge intensive companies" doing lots of R&D (so **£600,000** in annual relief).

Answer 649

The taxpayer must be **unconnected** to the EIS company, meaning they do not own more than **30%** of the ordinary shares nor are an employee or associate of an employee.

Answer 650

If the individual has an income tax liability in the previous tax year, this can be retrospectively offset by EIS relief.

Answer 651

When employees and company directors have tax deducted from their pay via PAYE which is then paid to HMRC.

Answer 652

A self-employed person or business is taxed on the profits made during the **tax year** to 5 April. However, as businesses often have a different **accounting year (the basis period)** this meant that this was **not aligned** to the tax year. Consequentially their earnings were **taxed twice** in the first year of operating. **Overlap profit relief** was used to address this but it was complex and difficult to administer.

Answer 653

Usually by dividing by the days in the year (i.e. 365 days or 366 in a leap year).

Answer 654

False, while they will be entitled to tax relief, this is *not* automatic and they need to **apply**.

Answer 655

Carrying *forward* the trading losses and setting against future profits on the same trade, because it **delays relief** for losses.

Answer 656

**All** losses sustained in the **first 4 tax years** of trading, which can be carried back beginning with earlier years first (first in, first out).

Answer 657

Terminal loss relief allows a loss to be deducted from trading profits (if any) in the **tax year of cessation** and then carried back to the **3 preceding years** beginning with the later years first (last in, first out).

Answer 658

1. Early trade loss relief - starting with the earliest years first (first in, first out). 2. Terminal loss relief - starting with the later years first (last in, first out).

Answer 659

1. Early trade loss relief - the **first 4 years** of trading. 2. Terminal loss relief - the **3 years preceding cessation**.

Answer 660

When a sole trader or partner transfers the business to a company and **receives shares** in return, they can **set-off any unused trading losses** that remain against salary or dividend payments received from the company for any year in which they own those shares.

Answer 661

1. **Targeted Anti-Avoidance Rules (TAARs)** - define specific transactions that are unacceptable. 2. **General Anti-Abuse Rule (GAAR)** - an overriding rules applying to all tax to deter taxpayers from participating in schemes that abuse the tax system and promoters of such schemes.

Answer 662

HMRC can only set aside tax arrangements if it can prove that the arrangement cannot ***reasonably*** be regarded as a ***reasonable*** course of action. | (a high threshold)

Answer 663

HMRC may make a **tax adjustment** which is **just and reasonable** in the circumstances, such as taxing the income in a legitimate way.

Answer 664

To prevent taxpayers from receiving the 30% EIS tax deduction for their investment and selling it immediately afterwards, anti-avoidance provisions exist to ensure that the shares are kept for at least **[1] 3 years**.

Answer 665

The **settlement rules** prevent a parent from shifting income to their child to take advantage of the child’s personal allowance or their lower rates of tax. Should a parent gift to their child who is under 18 **[1] and unmarried** any income generated in excess of **[2] £100** in any tax year, the income arising from the gift is taxed as the income of the parent.

Answer 666

True, they only apply to parent-child (where the child is an unmarried minor).

Answer 667

Non-savings and non-dividend income so: * Income from employment and self-employment. * Rental income. * Pension income. * Taxable social security benefits.

Answer 668

UK residents in the relevant tax year who either: 1. Have a close connection to Wales. 2. Spent more days in Wales than in other parts of UK in that tax year. 3. Are a Welsh MP or politician.

Answer 669

Their PAYE tax code will begin with a "C". Or they tick the box in their self-assessment.

Answer 670

As all of these constitute remuneration, they will all be taxable. Employers are obliged to deduct an employee's income through PAYE so they'll pay these taxes as often as they are paid (often monthly).

Answer 671

**Interest** - none as their personal savings allowance is £1,000 as a basic rate taxpayer. **Dividends** - a dividend allowance of £500 may also be applied irrespective of the tax band they are in. This leaves £1,300 to be subject to the basic rate.

Answer 672

Shareholders are liable to pay income tax on dividends, but only above the dividend allowance of **£500** which is available to all taxpayers and is **not means-tested**. That said, above the allowance, the rate payable corresponds to what taxpayer band they are in.

Answer 673

£1 million.

Answer 674

1. Trading profits. 2. Non-trading profits. 3. Property income. 4. Capital gains.

Answer 675

Trading income *minus:* 1. Cost of sales. 2. Trading losses. 3. Capital allowances.

Answer 676

False, dividends are just a *distribution* of profits *after* tax so cannot be deducted.

Answer 677

Sale proceeds *minus:* 1. Allowable expenditure. 2. Indexation allowance. 3. Capital losses from current period. 4. Unused capital losses from last period. 5. Trading losses.

Answer 678

Income receipts are income received by a company and include: * Trading profits. * Rental income. * Interest received. They do *not* include dividends received by the company unless certain anti-avoidance provisions apply.

Answer 679

1. **Golden Rule:** Wholly and exclusively incurred for the purpose of the business. 2. **Permitted by law:** Not prohibited by statute e.g. not doubtful debt. 3. **Revenue Expenditure:** Of an income nature with an element of regularity e.g. rent or wages. Cannot be capital-related.

Answer 680

Only companies.

Answer 681

1. **Super deduction** first-year allowance - new plant and machinery enjoyed relief at 130% of the qualifying cost of investment (well above the usual 18% writing down allowance). 2. **Special rate** first-year allowance - long-life assets enjoyed relief at 50% of the qualifying cost of investment (well above the usual 6% writing down allowance).

Answer 682

1. **First-year allowance:** 100% deduction for investment in environmentally friendly products in the accounting period in which it was incurred. 2. **Annual Investment Allowance (AIA):** 100% deduction for expenditure on plant and machinery (excluding cars). Any expenditure going over the limit for AIA can be subject to the writing-down allowance. 3. **Writing-down allowance:** Plant and machinery (including cars) can be reduced over time. The 'main pool' is at a rate of -18%pa; the 'special rate pool' for long-life assets is -6%pa.

Answer 683

The annual investment allowance (AIA).

Answer 684

1. **Deduct from current profits:** Setting it against total profits in the current accounting period (if there are any). 2. **Deduct from previous profits:** Carrying it back and setting it against total profits in the preceding 12 months. 3. **Carry forward:** Carrying it forward to set it against total profits of a later accounting period.

Answer 685

Deducting from total profits in the preceding 12 months is only available *after* a **current period set-off** (i.e. exhausting (1)).

Answer 686

Sale proceeds *minus:* 1. **Allowable expenditure** i.e. original acquisition cost of asset. 2. **Indexation allowance** i.e. adjustments for inflation although frozen since Dec 2017. 3. **Capital losses** i.e. costs associated with selling. 4. **Trading losses** i.e. business-wide losses.

Answer 687

Taxable income profits + taxable chargeable gains = taxable total profits.

Answer 688

**Tax return** - 12 months after end of accounting period. **Tax due** - 9 months and 1 day *after* the end of the corporation's accounting period. *Exception:* High-profit corporations (profit >£1.5m) have to pay tax in quarterly instalments.

Answer 689

**Cash** - paid into bank account. **"in specie"** - transferring property, machinery etc. instead.

Answer 690

No, this is why owner-directors of smaller companies often pay themselves a small salary and then extract the majority of their remuneration as a dividend instead (dividend tax rates are lower than for both non-savings and savings income).

Answer 691

True, the same applies to any employers' national insurance contributions.

Answer 692

1. Company pension contributions. 2. Rent paid for use of a building owned by a shareholder / director. 3. Interest payments on a loan from a shareholder / director.

Answer 693

A close company is a company which is resident in the UK and is controlled by *either:* 1. **Five or fewer participators** (shareholders or persons with the right to acquire shares). 2. Any number of **participators who are also directors** (including shadow directors).

Answer 694

“Control” means ownership of **> 50% of shares** *or* **> 50% of voting power** *or* have the **right to acquire > 50%** of the shares of the company.

Answer 695

1. **Tax legislation** - e.g. where a close company makes a loan to a participator and no interest is charge or interest is charged below the official rate of interest on beneficial loans, this classes as a taxable benefit if it is over £15k. 2. **General Anti-Abuse Rule (GAAR)** - an overriding rules applying to all tax to deter taxpayers from participating in schemes that abuse the tax system and promoters of such schemes.

Answer 696

**Taxable loans to participators** * There is no interest charged on the loan *or* interest is charged below the official rate of interest on beneficial loans **and** * The loan is > £15,000. *Exceptions:* The loan is made in the ordinary course of a money lending business (e.g. bank loan) and the borrower does not have a material interest (> 5%) in the company.

Answer 697

**Transfer pricing adjustment** - If a transaction is found not to be made at arm's length, and a potential tax advantage has (because of the transaction) been made, anti-avoidance legislation enforces an adjustment. This means that the outcome of the transaction will be that which would have occurred on an arm's-length basis thereby removing the tax advantage.

Answer 698

If HMRC consider that a “major change in the nature or conduct” of the trade or business has taken place, they will stop the carried forward losses from being used.

Answer 699

* The **dividends** that a company pays to its shareholders are a distribution of profits to its shareholders and are not an allowable trading expense. * The **qualifying charitable donations** are deductible from **total profit** not *trade* profit.

Answer 700

**Increase profit (so reduce trading loss)** (i.e. disallowed expenditure): * Entertainment. * Depreciation. **Decrease profit (so increase trading loss)** (i.e. allowed expenditure): * Capital allowances.

Answer 701

When a **chargeable person** makes a **chargeable disposal** of a **chargeable asset**.

Answer 702

* Individuals, including personal representatives and trustees. * Companies except that they pay corporation tax on chargeable *gains* instead.

Answer 703

1. **UK residents:** Chargeable to CGT on disposal of *worldwide* assets. 2. **Non-UK residents:** Not chargeable to CGT even if they sell an asset *within* the UK except if it is a land transaction.

Answer 704

**Chargeable assets** 1. Land and buildings. 2. Goodwill. 3. Shares. **Exempt from CGT** 1. Cars. 2. Wasting chattel (life of ≤ 50 years). 3. Wasting chattel with a gain upon disposal of ≤ £6,000. 3. Government bonds.

Answer 705

* Sales. * Gifts (or whole or part). * Loss or destruction (e.g. in insurance context).

Answer 706

False, the person who is left the assets by the deceased will inherit them at **market value** (known as **"probate value"**). If anything, they will pay inheritance tax.

Answer 707

When spouses (or civil partners) transfer assets freely between themselves, without incurring a charge to CGT. The recipient spouse is deemed to have acquired the asset at the same cost as the donor spouse.

Answer 708

CGT is a tax on the profit or gain that a chargeable person/entity makes when they sell, or dispose of, a chargeable asset that has increased in value since they acquired it. It is the **chargeable gain** that is taxed, not the amount of money that is received.

Answer 709

The market value is used.

Answer 710

The market value is used.

Answer 711

1. Incidental **costs of disposal** e.g. legal fees, valuation fees, advertising costs. 2. **Acquisition costs** from when originally acquired e.g. purchase price, legal fees, SDLT. 3. **Enhancement costs** e.g. building costs to extend the property (unless demolished by time of disposal).

Answer 712

CGT is generally payable in full on 31 January following the year in which the gain was made. They are included in the individual's tax return. *Exception:* For disposals of UK residential property on or after 27 October 2021, any CGT due must be reported and paid within **60 days** of completion.

Answer 713

1. Business asset disposal relief. 2. Hold-over (gift) relief. 3. Replacement of business assets (rollover) relief. 4. Incorporation relief. 5. Private residence relief. 6. Enterprise investment scheme (EIS) relief.

Answer 714

BADR is available on gains made by individuals on the **sale or gift** of certain of certain **business assets**, including: 1. All or part of a **trading business** carried on as a sole trader or in partnership for *at least 2 years* before disposal. 2. **Shares** in a trading company, if the individual owns at least 5% of the ordinary voting shares of the company and was an officer or employee of the company for *2 years* before disposal. 3. **Assets** were owned and used by the trading company or trading business in the *2 years* before disposal. It reduces the CGT liability.

Answer 715

Gift hold-over relief enables an individual to give away certain types of business assets without paying CGT. This is achieved through a joint election by the donor and donee. The gain that is otherwise chargeable on the donor is deferred. When the donee disposes of the asset, they will be charged CGT, not only on their own gain but also the donor’s **deferred** gain as well.

Answer 716

1. Assets used for the purposes of a trade or profession carried on by the transferor or their personal company. 2. Shares in an unquoted trading company. 3. Shares in the transferor’s personal company. 4. Assets that qualify for agricultural property relief for inheritance tax.

Answer 717

Rollover relief enables a sole trader or partner to defer the gain – and thus payment of CGT – on the disposal of qualifying business assets (including land, buildings and plant and machinery), provided the proceeds of sale are reinvested in other qualifying assets and the business was trading when the old assets were sold and the new ones purchased. The charge to CGT is **deferred** until the disposal of the new asset and no new qualifying assets are purchased.

Answer 718

The reinvestment must be within either **1 year before, or 3 years after**, the asset is sold and the old and new assets were used in the business although they do not need to be of the same type.

Answer 719

Yes, but only to the extent it was partially reinvested again.

Answer 720

Incorporation relief applies when an individual transfers their business or partnership interest as a going concern to a company. The gain is **deferred** by **reducing the acquisition cost** of the shares being received as **consideration** for the interest transferred to the company. The CGT liability is deferred until a later disposal of the shares.

Answer 721

Private residence relief (PRR) exempts all or part of a gain arising on a property (which includes land or a garden of up to half a hectare or larger in some instances) which an individual has used as their home. PRR provides an **exemption relief** by reducing the capital gain, rather than deferring it to a later date.

Answer 722

Exempt gain = Gain × (Period of occupation of property/Period of ownership) | (i.e. if they've always lived in it, they'll be 100% exempt)

Answer 723

The last **9 months** of ownership, provided they occupied the property at some point over the whole course of ownership.

Answer 724

1. The owner is abroad by reason of employment. 2. The owner was working elsewhere (up to 4 years). 3. Any absence for any reason up to 3 years. They are **cumulative**.

Answer 725

To encourage investment in small companies, an individual can defer payment of CGT on any chargeable gain by investing in shares in a qualifying unquoted trading company (known as an enterprise investment scheme (EIS) company), either up to **1 year prior** to the gain being made or in the **3 years after** it is made. The **deferred** gain will become chargeable when the EIS shares are sold.

Answer 726

**Taxable chargeable gain** = chargeable gain remaining after all reliefs (except BADR) minus annual exempt amount (AEA). | (BADR charged at different rate separately)

Answer 727

Every individual has an annual exempt amount (AEA) for CGT which can be set against capital gains made in the relevant tax year. For the tax year 2024/2025: £3,000. For the previous tax year 2023/2024: £6,000.

Answer 728

As of TY 25/26, the CGT tax rate on all property and assets is 18% (lower rate taxpayer) and 24% (higher rate taxpayer & most personal representatives and trustees).

Answer 729

No, it is lost at the end of each tax year.

Answer 730

True, and "tax advantage" could mean paying less or no tax, enjoying a relief or deferral from paying tax, or an increased tax repayment.

Answer 731

No, because a yacht is a wasting chattel, and as such, is exempt.

Answer 732

**Output tax** - tax on *consumer spending*, collected on business transactions at each stage in the supply of goods and services. **Input tax** - a tax credit received by a customer for any VAT they paid if they are registered for VAT and use the goods or services with which they have been supplied for taxable business purposes.

Answer 733

Any trade, profession or vocation.

Answer 734

A person who makes or intends to make taxable supplies and who is required to be registered under the *Value Added Tax Act 1994*. This includes partnerships and LLPs.

Answer 735

Any transfer of the whole property in goods is a supply of goods, including transfer of consumer goods, supply of power or heat, the grant of an interest in land or the gift of goods.

Answer 736

Anything that is not a supply of goods is a supply of services, if provided for consideration, including the provision of a lawyer’s services for a fee.

Answer 737

1. Supply of residential land. 2. Insurance. 3. Financial services. 4. Education. 5. Health services. 6. Postal services

Answer 738

1. **Value Threshold Reached:** The value of taxable supplies made by the person in the previous *12 months* exceeds the VAT registration threshold (a rolling test undertaken at the end of each month). 2. **Value Threshold *Will* Be Reached:** At any time when there are *reasonable grounds* for believing that the value of taxable supplies to be made in the next 30 days on their own will exceed the VAT registration threshold.

Answer 739

As of 1 April 2024, £90,000 in any rolling 12-month period.

Answer 740

**Pro:** Businesses can recover VAT paid on their own purchases (input tax). **Con:** Business must charge their customers VAT, making the product or service more expensive for them.

Answer 741

1. If its taxable turnover falls below the de-registration threshold for a 12-month period. 2. If it stops trading or supplying goods/services that are subject to VAT.

Answer 742

1. If its taxable turnover falls below the de-registration threshold for a 12-month period - **permitted but not required**. 2. If it stops trading or supplying goods/services that are subject to VAT - **required within 30 days**.

Answer 743

As of 1 April 2024, the VAT de- registration threshold in the UK is **£88,000**.

Answer 744

1. Food (other than in catering). 2. Books and newspapers. 3. Water and sewerage services. 4. Transport. 5. Resident construction.

Answer 745

1. Domestic fuel. 2. Installation of energy-saving materials. 3. Child car seats.

Answer 746

Once the option to tax (OTT) is exercised, it applies to all future supplies relating to *that* land or building, including selling it or leasing it to a tenant. Specifically: * **Standard VAT rate** is charged on sale or lease (premium and rents). * Any inputs relating to the supply may be recovered, including heating costs, cleaning, and repairs.

Answer 747

It means the landowner can offset some or all of VAT expended in developing the land, such as building works. However, it may be a problem of buyers or tenants who are not VAT registered as the land will become more expensive.

Answer 748

* If the taxpayer changes their mind within **6 months**, HM Revenue and Customs (HMRC) will revoke the option provided that the OTT has not been put into practice e.g. by charging rent inclusive of VAT. * An OTT may also be revoked after **20 years** with the consent of HMRC.

Answer 749

False, an OTT is made by the owner of the land or building and does not transfer with the land or building on any future disposal.

Answer 750

1 month and 7 days after the end of each accounting period i.e. VAT quarter in respect of the taxable supplies made in that quarter. | (different businesses are assigned different VAT quarters by HMRC)

Answer 751

**Goods** - the time the goods are removed or when they are made available to the person to whom they are supplied (unless the VAT invoice or payment is made earlier). **Services** - when the services are performed (unless the VAT invoice or payment is made earlier). If a VAT invoice is issued within 14 days after the basic tax point, then the invoice date becomes the new tax point.

Answer 752

False, VAT can be reclaimed for the business proportion. *Exception:* Card purchases or business entertaining due to potential for personal use.

Answer 753

* A person who makes zero-rated supplies will be able to reclaim input tax from HMRC, often monthly. * If a person makes a combination of zero-rated and exempt supplies (a partially exempt trader), normally only a proportion of their input tax will be recoverable.

Answer 754

* VAT number * Tax point * Value of the supply * Rate of VAT charged Required in order to backup any VAT return.

Answer 755

The amount payable is the VAT charged on all supplies of goods and services (output tax) less any VAT paid on purchases of goods and services (input tax). If input tax exceeds output tax, HMRC will issue a rebate or may require a person to make monthly returns.

Answer 756

**CIVIL** 1. Interests on late or under-declared payments up to 15%. 2. For late or non-registration, a penalty charge based on a % of the VAT due from when they should have registered (increasing the longer the delay). **CRIMINAL** 1. For dishonest tax evasion, a penalty up to the amount of VAT evaded. 2. Unlimited fine. 3. Up to 7 years' imprisonment.

Answer 757

31 October The basic tax point is the date the goods are supplied (31 October). This can be superseded if payment is received before this date or if an invoice is issued within 14 days (that is, by 14 November).

Answer 758

* A sole-trade business or a partnership interest. * Shares in an unquoted trading company (no minimum holding).

Answer 759

* Shares in a quoted trading company if the donor has voting control of the company. * Land or buildings or plant and machinery owned by an individual and used either by a partnership of which they are a member or a company of which they have voting control.

Answer 760

A business which holds or makes investments or deals in property e.g. rental property company.

Answer 761

At least 2 years before the transfer. Exceptions: 1. Replacing one business property asset with another with an overall period of ownership of 2 years. 2. Quick succession. 3. Inheriting business property assets from a spouse or civil partner (automatically credited the ownership period of the deceased i.e. date of acquisition is date the transferring).

Answer 762

As a general principle, for the relief to be available when calculating tax on the donor's death, the donee must either have: * Retained the property until the death of the donor **or** * Sold the original property and *wholly* replaced it with other business property (no partial relief).

Answer 763

It is applied **before** annual exemptions and is **automatic** (assuming the conditions are satisfied).

Business Flashcards

(836 cards)