BUSINESS LAW AND PRACTICE NOTES
The Different Types of Business ............................................................................................................................2
The Limited Company ...........................................................................................................................................9
General Partnerships ...........................................................................................................................................12
Limited Liability Partnerships ...........................................................................................................................19
Trading: Calculating Profits and Paying VAT...................................................................................................21
Income Tax ............................................................................................................................................................26
Company Decision Making .................................................................................................................................31
Shareholders .........................................................................................................................................................37
Directors ................................................................................................................................................................44
Equity Finance......................................................................................................................................................55
Types of Debt Finance ..........................................................................................................................................63
Companies: comparison between debt and equity finance ..............................................................................67
Security on Debt Finance ....................................................................................................................................68
Partnerships and Companies: Accounts and Regulation .................................................................................73
Accounting formats and principles ....................................................................................................................78
Capital Gains Tax .................................................................................................................................................82
Corporation Tax ...................................................................................................................................................90
Insolvency .............................................................................................................................................................99
Corporate Insolvency .........................................................................................................................................100
Personal Bankruptcy .........................................................................................................................................107
,The Different Types of Business
Incorporated and unincorporated businesses
• Incorporated businesses:
o These exist as a separate legal entity from their owners.
o Owners generally have limited liability, meaning they are not personally responsible for business
debts
o E.g., LLPs, Ltds, Plcs
• Unincorporated businesses:
o No separate legal identity from their owners, who have full personal liability for debts.
o E.g., sole traders and partnerships.
Separate legal personality
• Legal person, separate from owners/managers (members/directors)
• Owns assets, enters into contract, employs people, can sue/be sued, unlimited liability to debts
• Owners are separate from managers
Limited liability for members
• Liability limited to contributions to company
Incorporated and unincorporated
• Incorporated – separate legal entity from owners and managers
o Various requirements to set up
o Owners not personally liable for business dets
o Common, Ltd.
• Unincorporated – individuals run, no separate legal entity
Limited liability for members
• Liability limited to contributions to company
Sole traders
• Run unincorporated business, on own, as self-employed person
• Most common form of business medium in UK
• Any profession – e.g., dog walker to architect
• Sometimes known as sole proprietors/practitioners
• Can have employees
• Sole trader = owner, benefit from profit, bears losses
• Income tax paid as self-employed person
• Unlimited liability for debts – business and personal assets are the same
• Business bad, made bankrupt
o Legal proceedings against the person
• Sole trader retires/dies – business ceases
o Business assets or business itself can be sold
• No one dedicated piece of legislation – different bits govern different areas
o E.g., tax or sale of goods
Partnerships
• ‘Partnership’, Partnership Act (PA) 1890 met – when two or more people are ‘carrying on a business in
common with a view of profit’
• Unincorporated BUT multiple people
• Any profession – e.g., gardening or multinational law firm
• ‘General partnership’ can be used – distinguishing from LLP
• PA 1890 gives default partnership agreement BUT can enter agreement, disapplies some provisions in
• Not separate legal entity
• ‘Partnership assets’ – assets in partnership business, partners own
o Personal liability for all debts of partnership, personal assets at risk
• Profits and losses divided between partners
• Taxed separately as self-employed individuals – income tax on share of profits of partnership
• Own business, will work for
,• Sometimes ‘sleeping partners’ – not involved in day-to-day matters, only in fundamental decisions
Limited partnerships (LP)
• 50,000+ in existence
• S 4(2) LPA 1907,
o Need be at least one general partner with unlimited liability for debts – designated partner
o Limited partners, liability limited to amount initially invested in business
§ s 6A LPA 1907, Must not
• Controlling/managing the LP
• Power to take binding decisions on behalf of LP
• Remove contribution to LP, as long as is in business
o Breach results in loss of protection of limited liability, treated as general partner
• Limited Partnerships Act 1907 – formation and operation
• Creation to encourage entrepreneurs to set up businesses – reduction of liability
o In fashion for specialist financial businesses – e.g., investment funds and venture capital funds
• S 5 LPA 1907, need be registered with Registrar of Companies through LP5 form
o There is a fee involved of £71
Companies
• Different types – private/public, limited by shares or guarantee
• Separate legal personality – piercing the corporate veil
o Salomon v A Salomon and Co Ltd [1897] AC 22 – confirms full extend of separate legal
personality
§ CoA claim, one person owned and entitled to all benefits, not a separate legal person,
should be personal liability
§ HoL rejection, legally incorporated, treat like any other independent person, with rights
and liabilities
• Acceptable to use a company to manage risks and avoid liability
o Pierce the corporate veil – look behind the company and impose liability
o Prest v Petrodel Resources Limited and others [2013] UKSC 34 – veil only pierced when person
under existing legal obligation/liability/subject to existing legal restriction which is evading OR
enforcement deliberately frustrates through interposing company under control
§ Veil only be pierced so as to deprive company/controller of advantage that would
otherwise obtain by separate legal personality
o Rare for court to ignore separate legal personality, specific to facts
• Adams in this? – read textbook again…
Private companies limited by shares
• Need to register documents on Registrar of Companies, Companies Act (CA) 2006 – before can commence
trading
• Range – household names to smaller (one to four employees)
• Separate legal personality – defendant is company not person
o Owning shares in, not liable for debts, usually – liability limited to amount paid/agreed to pay for
shares
o Enables directors to take more risks for a business to expand
• Decision-making
o Needs humans to make decisions on own behalf – directors or shareholders or someone in
delegated position
o Ss 250, 170-177 CA 2006 Directors – run company, day-to-day, decisions at board meetings or in
writing
o Shareholders – provide money, in return for shares, allow company to operate, make decisions at
general meetings or in writing
§ S 112 CA 2006, ‘member’ not shareholder – can apply to companies limited by guarantee
as well as shares
§ Prohibited from offering to public, s 755 CA 2006
§ Offer shares to person already connected to company/other targeted individuals, s 756 CA
2006
o Often same people – act in different capacities according to role fulfilling
• Formalities involved, not present in partnerships
o Less regulation to private company – shares only to involved/expert parties
, Public companies limited by shares
• Complied with CA 2006 to be ‘plc’
• Need
o Constitution – rules to govern, state that is public
o ‘plc’ at end of name
o Company’s owners must invest specified minimum amount of money for use by company
§ At least authorised minimum, s 761 and 763 of CA, £50,000
§ Each share paid up to at least quarter of nominal value, plus whole of any premium on, s
586 CA 2006
• Can be original incorporation or be private then public
• Advantages
o More prestigious
o Can raise money offering shares to public, private companies prohibited from, s 755 CA 2006
o Apply to join stock market
§ >25% have joined stock market
§ Main markets are London Stock Exchange’s Main Market and Alternative Investment
Market (AIM)
§ Can raise large sums of money, enable to buy shares easily
o Can only be ‘plc’ when reached a certain size, reputation, level of growth
• More regulated – protection of public investing in
Limited liability partnerships
• Formed under Limited Liability Partnerships Act (LLPA) 2000
• Is partnership + limited company
o Separate legal personality
o Owner protection from liability
o Informality/flexibility of a partnership
• Many law firms are
• Formed – two + members, carrying out lawful business, view to profit
o Series of documents filed with Registrar of Companies at Companies House
o Paying the applicable fee
o More expensive same-day registration available
• Gain certificate of incorporation
• No need for express partnership agreement, default in Limited Liability Partnerships Regulations 2001
• Individual members of LLP need register with HMRC as self-employed
Other types of business medium
• Companies limited by guarantee – organisations not seeking profit, e.g., professional society
o Shareholders guarantee company debts up to specified amount, usually £1
• Unlimited companies – rare in practice, most running with unlimited liability run as sole trader/partnership
• Community interest company – limited liability, using profits and assets for public good, not private
• Charitable incorporated organisations (CIO) – reduced risk of personal liability, no burden of dual
regulation between Registrar of Companies and Charity Commission
• Overseas companies – Overseas Companies Regulations 2009, under authority of CA 2006, must register
selected details of establishments within a month of opening
• Companies established by Act of Parliament or Royal Charter – historic, often for public utilities, 45 still in
existence, RBS was Royal Charter, right to form in this manner remains in CA 2006
• Joint ventures – commercial enterprise, multiple parties, retain separate identity but pool resources, e.g.,
Google and NASA developing Google Earth
o Governed by contract or corporate structure for venture with joint control
o Not a separate business medium in itself
Insolvency Act 1986
Section 74(1): Liability of Members on Winding Up
• When a company is wound up, every present and past member is liable to contribute to its assets.
• Liability is to an amount sufficient to cover:
o The company's debts and liabilities.
o The expenses of the winding-up process.
o Adjustments of rights among the contributories themselves.
The Different Types of Business ............................................................................................................................2
The Limited Company ...........................................................................................................................................9
General Partnerships ...........................................................................................................................................12
Limited Liability Partnerships ...........................................................................................................................19
Trading: Calculating Profits and Paying VAT...................................................................................................21
Income Tax ............................................................................................................................................................26
Company Decision Making .................................................................................................................................31
Shareholders .........................................................................................................................................................37
Directors ................................................................................................................................................................44
Equity Finance......................................................................................................................................................55
Types of Debt Finance ..........................................................................................................................................63
Companies: comparison between debt and equity finance ..............................................................................67
Security on Debt Finance ....................................................................................................................................68
Partnerships and Companies: Accounts and Regulation .................................................................................73
Accounting formats and principles ....................................................................................................................78
Capital Gains Tax .................................................................................................................................................82
Corporation Tax ...................................................................................................................................................90
Insolvency .............................................................................................................................................................99
Corporate Insolvency .........................................................................................................................................100
Personal Bankruptcy .........................................................................................................................................107
,The Different Types of Business
Incorporated and unincorporated businesses
• Incorporated businesses:
o These exist as a separate legal entity from their owners.
o Owners generally have limited liability, meaning they are not personally responsible for business
debts
o E.g., LLPs, Ltds, Plcs
• Unincorporated businesses:
o No separate legal identity from their owners, who have full personal liability for debts.
o E.g., sole traders and partnerships.
Separate legal personality
• Legal person, separate from owners/managers (members/directors)
• Owns assets, enters into contract, employs people, can sue/be sued, unlimited liability to debts
• Owners are separate from managers
Limited liability for members
• Liability limited to contributions to company
Incorporated and unincorporated
• Incorporated – separate legal entity from owners and managers
o Various requirements to set up
o Owners not personally liable for business dets
o Common, Ltd.
• Unincorporated – individuals run, no separate legal entity
Limited liability for members
• Liability limited to contributions to company
Sole traders
• Run unincorporated business, on own, as self-employed person
• Most common form of business medium in UK
• Any profession – e.g., dog walker to architect
• Sometimes known as sole proprietors/practitioners
• Can have employees
• Sole trader = owner, benefit from profit, bears losses
• Income tax paid as self-employed person
• Unlimited liability for debts – business and personal assets are the same
• Business bad, made bankrupt
o Legal proceedings against the person
• Sole trader retires/dies – business ceases
o Business assets or business itself can be sold
• No one dedicated piece of legislation – different bits govern different areas
o E.g., tax or sale of goods
Partnerships
• ‘Partnership’, Partnership Act (PA) 1890 met – when two or more people are ‘carrying on a business in
common with a view of profit’
• Unincorporated BUT multiple people
• Any profession – e.g., gardening or multinational law firm
• ‘General partnership’ can be used – distinguishing from LLP
• PA 1890 gives default partnership agreement BUT can enter agreement, disapplies some provisions in
• Not separate legal entity
• ‘Partnership assets’ – assets in partnership business, partners own
o Personal liability for all debts of partnership, personal assets at risk
• Profits and losses divided between partners
• Taxed separately as self-employed individuals – income tax on share of profits of partnership
• Own business, will work for
,• Sometimes ‘sleeping partners’ – not involved in day-to-day matters, only in fundamental decisions
Limited partnerships (LP)
• 50,000+ in existence
• S 4(2) LPA 1907,
o Need be at least one general partner with unlimited liability for debts – designated partner
o Limited partners, liability limited to amount initially invested in business
§ s 6A LPA 1907, Must not
• Controlling/managing the LP
• Power to take binding decisions on behalf of LP
• Remove contribution to LP, as long as is in business
o Breach results in loss of protection of limited liability, treated as general partner
• Limited Partnerships Act 1907 – formation and operation
• Creation to encourage entrepreneurs to set up businesses – reduction of liability
o In fashion for specialist financial businesses – e.g., investment funds and venture capital funds
• S 5 LPA 1907, need be registered with Registrar of Companies through LP5 form
o There is a fee involved of £71
Companies
• Different types – private/public, limited by shares or guarantee
• Separate legal personality – piercing the corporate veil
o Salomon v A Salomon and Co Ltd [1897] AC 22 – confirms full extend of separate legal
personality
§ CoA claim, one person owned and entitled to all benefits, not a separate legal person,
should be personal liability
§ HoL rejection, legally incorporated, treat like any other independent person, with rights
and liabilities
• Acceptable to use a company to manage risks and avoid liability
o Pierce the corporate veil – look behind the company and impose liability
o Prest v Petrodel Resources Limited and others [2013] UKSC 34 – veil only pierced when person
under existing legal obligation/liability/subject to existing legal restriction which is evading OR
enforcement deliberately frustrates through interposing company under control
§ Veil only be pierced so as to deprive company/controller of advantage that would
otherwise obtain by separate legal personality
o Rare for court to ignore separate legal personality, specific to facts
• Adams in this? – read textbook again…
Private companies limited by shares
• Need to register documents on Registrar of Companies, Companies Act (CA) 2006 – before can commence
trading
• Range – household names to smaller (one to four employees)
• Separate legal personality – defendant is company not person
o Owning shares in, not liable for debts, usually – liability limited to amount paid/agreed to pay for
shares
o Enables directors to take more risks for a business to expand
• Decision-making
o Needs humans to make decisions on own behalf – directors or shareholders or someone in
delegated position
o Ss 250, 170-177 CA 2006 Directors – run company, day-to-day, decisions at board meetings or in
writing
o Shareholders – provide money, in return for shares, allow company to operate, make decisions at
general meetings or in writing
§ S 112 CA 2006, ‘member’ not shareholder – can apply to companies limited by guarantee
as well as shares
§ Prohibited from offering to public, s 755 CA 2006
§ Offer shares to person already connected to company/other targeted individuals, s 756 CA
2006
o Often same people – act in different capacities according to role fulfilling
• Formalities involved, not present in partnerships
o Less regulation to private company – shares only to involved/expert parties
, Public companies limited by shares
• Complied with CA 2006 to be ‘plc’
• Need
o Constitution – rules to govern, state that is public
o ‘plc’ at end of name
o Company’s owners must invest specified minimum amount of money for use by company
§ At least authorised minimum, s 761 and 763 of CA, £50,000
§ Each share paid up to at least quarter of nominal value, plus whole of any premium on, s
586 CA 2006
• Can be original incorporation or be private then public
• Advantages
o More prestigious
o Can raise money offering shares to public, private companies prohibited from, s 755 CA 2006
o Apply to join stock market
§ >25% have joined stock market
§ Main markets are London Stock Exchange’s Main Market and Alternative Investment
Market (AIM)
§ Can raise large sums of money, enable to buy shares easily
o Can only be ‘plc’ when reached a certain size, reputation, level of growth
• More regulated – protection of public investing in
Limited liability partnerships
• Formed under Limited Liability Partnerships Act (LLPA) 2000
• Is partnership + limited company
o Separate legal personality
o Owner protection from liability
o Informality/flexibility of a partnership
• Many law firms are
• Formed – two + members, carrying out lawful business, view to profit
o Series of documents filed with Registrar of Companies at Companies House
o Paying the applicable fee
o More expensive same-day registration available
• Gain certificate of incorporation
• No need for express partnership agreement, default in Limited Liability Partnerships Regulations 2001
• Individual members of LLP need register with HMRC as self-employed
Other types of business medium
• Companies limited by guarantee – organisations not seeking profit, e.g., professional society
o Shareholders guarantee company debts up to specified amount, usually £1
• Unlimited companies – rare in practice, most running with unlimited liability run as sole trader/partnership
• Community interest company – limited liability, using profits and assets for public good, not private
• Charitable incorporated organisations (CIO) – reduced risk of personal liability, no burden of dual
regulation between Registrar of Companies and Charity Commission
• Overseas companies – Overseas Companies Regulations 2009, under authority of CA 2006, must register
selected details of establishments within a month of opening
• Companies established by Act of Parliament or Royal Charter – historic, often for public utilities, 45 still in
existence, RBS was Royal Charter, right to form in this manner remains in CA 2006
• Joint ventures – commercial enterprise, multiple parties, retain separate identity but pool resources, e.g.,
Google and NASA developing Google Earth
o Governed by contract or corporate structure for venture with joint control
o Not a separate business medium in itself
Insolvency Act 1986
Section 74(1): Liability of Members on Winding Up
• When a company is wound up, every present and past member is liable to contribute to its assets.
• Liability is to an amount sufficient to cover:
o The company's debts and liabilities.
o The expenses of the winding-up process.
o Adjustments of rights among the contributories themselves.
