Summary Detailed Notes for SQE 1 Business Law & Practice

BUSINESS LAW AND PRACTICE
BUSINESS MODELS AND COMPANIES
BUSINESS / COMPANY
Incorporated Business = a Company  Companies have separate legal
personalities

Limited liability  Liability limited to the contribution to the Company

Corporate Personality  A company is a legal entity separate from its owners and
becomes a legal person from the date of incorporation (Salomon v Salomon)

Piercing the Corporate Veil  Situations in which the courts may go behind the
corporate framework to make the shareholder’s liable

 Must be a façade or sham
 Evasion Principle – deliberately evades responsibility by interposing a
company
 Concealment – usually establishes another legal wrong such as tort.

BUSINESS MODELS
Businesses:

 Sole Traders – individual, filing taxes alone.
 Partnerships – Governed by the partnership act. Two or more persons working
together with a view to making a profit.

Companies/ LLP (All having separate legal personality):

 Limited Liability Partnership (LLP)
 Private Limited Company (Ltd) , by shares
 Public Limited Company (Plc), by shares  £50,000 minimum share capital




Sole traders General Limited Private Limited Public Limited
Partnerships Liability Companies Companies
Partnerships


Separate legal No No No Yes Yes
personality?

Liability Personal Personal Liability Liability limited Liability limited
liability liability limited to to member to member
(Who and for
unlimited unlimited member contribution contribution
how much?)
contribution
Joint and
several

, Sole traders General Limited Private Limited Public Limited
Partnerships Liability Companies Companies
Partnerships


Owners One sole Two minimum Two One minimum One minimum
trader partners minimum shareholder shareholders
(Who and how
members
many?)
Must also
have two
designated –
additional
admin duties

Managers One sole Two minimum Two One minimum Two minimum
trader partners minimum director directors
(Who and how
members
many?) Optional Must have a
secretary secretary


Decision- Decisions Decisions Decisions The Board of The Board of
making made freely made made Directors - day Directors –
by sole together by together by to day day to day.
trader. partners. partners
Shareholders
By default, on By default, for important
a majority/ on a decisions. Shareholders
partnership majority/LLP for important
agreement. agreement. decisions.


Ownership of Sole Trader Own all Property and Property and Property and
property and assets assets assets owned assets owned
other assets between the owned by the by the by the
partners LLP as a company as a company as a
legal entity separate legal separate legal
entity entity

Accounts (Are Account Accounts Accounts Accounts Accounts
they information information information information information
produced, private. private audited as audited as audited as
audited, and registered at registered at registered at
No Keep
published?) Companies Companies Companies
requirement accounts but
and publicity House House House
for accounts. will not be
of information
audited. Some No exceptions Accounts
exceptions information
highly
regulated as
shares can be
made public.

, Sole traders General Limited Private Limited Public Limited
Partnerships Liability Companies Companies
Partnerships


Security Floating Floating Floating Floating Floating and
charge charge charge charge and fixed charge
(What types
cannot be cannot be cannot be fixed charge can be granted
can be
granted but granted but granted but can be granted
granted?)
fixed charge fixed charge fixed charge
can can can

Duties No duties Governed by LLP Directors Directors
imposed on Partnership Agreement Duties – Duties –
managers by Act but free to likely statutory under statutory under
law agree further CA 2006 CA 2006
Owe fiduciary
duties
duties to
through an
each other
agreement.
and the LLP
Owe fiduciary itself.
duties

Termination Stop trading One partner Apply to Apply to Apply to
giving notice Companies Companies Companies
to terminate House to be House to be House to be
struck off struck off struck off
Partner dying
or becoming Possible Possible Possible
bankrupt liquidation liquidation liquidation
process process process.

Constitution (if No Partnership LLP Articles – MA if Articles – MA if
any) Agreement Agreement not amended. not amended.

CA 2006 CA 2006.

Incorporation No Two or more LLIN01 + fee LLIN01 + Fee LLIN01 + Fee
formalities (if people + +
any) working memorandum memorandum
together with + articles + articles
a view to
£50,000
make a profit.
minimum
share capital.

Type of tax Income Tax Income tax Income tax Corporation Corporation
tax tax

, CONSTITUTION
Companies formed before Oct 2009 are governed by CA 1985, however CA 2006 now
prevails.

Incorporation under CA 2006 : Memorandum, Articles of Association

 CA 2006: Default Model Articles unless amended (by special res at least 75%)
or tailored
 CA 1985: Table A articles (if unchanged the company may still have these)
 Articles are binding on the company and its members as well as between
members.

INCORPORATION

 From scratch  registration at Companies House
o Form IN01 + Incorporation fee
o Articles + memorandum
 Purchasing a shelf company
 Conversion from private to public  RR01 form, special resolution, registration
fee, revised articles etc.


PARTNERSHIPS
PARTNERSHIPS AND THE PA 1890
Partnership  Two or more persons carrying on a business with a view to
making a profit.

PA 1890 provides a default contract, however most firms will desire to change these
default terms given that the Act dates back to 1890 so older provisions are no longer
relevant  Most provisions can be overwritten with the exception of a few. Such as that
governing liability for debts to third parties.

Any agreement can be written, oral or implied by conduct.

Advantages:

 Few formalities for set up
 Privacy
 May be tax advantages.

Starting a Partnership:

 Can be started with no formalities at all
 Best to implement a partnership agreement and seek legal advice

PARTNERSHIP AGREEMENT

 Name
 Place and Nature of Business
 Commencement and duration – some partnerships are fixed term. However, if
they carry on in business after the expiry of the fixed term, and do not enter into
a new agreement, they are presumed to be on the same terms as before.