BORP - FLK Flashcards

Question

Calculation of Trading Profits - Relief for Trading Losses - Carry Across/Back One Year Relief / Trade Loss Relief Against General Income

Answer 1

The amount of loss may be deducted from any other income taxable in that year (carry across) and/or the preceding tax year (carry back) - Can be used against any other income - Carry across can be used against chargeable gains in the same tax year if the loss isn't absorbed - Time limit = must be claimed on/before 1st anniversary of 31 January following the end of the loss-making tax year - Cap applies

Answer 2

The amount of the loss may be deducted from future income profits of the same trade - Se against earlier years first - Can only be used against trading profits from the same trade - Can be carried forward indefinitely - Taxpayer is required to notify HMRC no more than 4 years after the end of the loss-making tax year - No caps apply

Answer 3

A loss made during the last year of trade may be set off agains trading profits connected to the same trade in the final year and int eh three tax year prior to the final tax year - Set against later years first - Can only be used against income profits from same trade - Time limit = must be made no more than 4 years after end of the loss-making tax year - Involves claiming a rebate on tax paid - No cap applies

Answer 4

Allows trading losses to be set off against any income received from the company when an unincorporated business is transferred to a company wholly / mainly in return for shares (shares must be ≥ 80% of consideration) - Can be carried forward indecently - Time limit = claim must be made no more than 4 years after the end of the loss-making year - No caps apply

Answer 5

The greater of £50K / 25% of the taxpayer's income from other sources in the tax year to which the relief is claimed

Answer 6

Charged on any supply of goods / services made in the UK, where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him

Answer 7

A supply is taxable unless it is exempt

Answer 8

- Someone who makes taxable supplies - They must register for VAT with HMRC if the value of their taxable supplies exceed £90K in the previous tax year - Otherwise, registration is voluntary - Not possible to register if the business only makes exempt supplies

Answer 9

Upon registration a VAT number is assigned to the business

Answer 10

- Businesses charge VAT on the value of goods + services provided (output tax) - Businesses can deduct any VAT paid on the goods + services it uses (input tax) - Businesses must account to HMRC for any difference - Current rate is 20%

Answer 11

- Non-catering food, books + water - 0% VAT - Person who makes a zero-rated supply can register for VAT and recover input tax paid

Answer 12

- Domestic fuel - 5% VAT

Answer 13

- Education, health services, residential land + insurance - Person who makes an exempt supply cannot register for VAT + cannot recover input tax paid

Answer 14

- VAT return must usually be submitted to HMRC and VAT paid within one month from the end of each quarter - Rebate will be payable if input tax exceeds output tax - Full records must be kept

Answer 15

- VAT invoices (including VAT number, value of supply + rate of tax) must be provided for a taxable supply to a taxable person - Important as required to deduct input tax

Answer 16

Penalties for failing to adhere to legislation: - Repayment with interest - Unlimited fine + imprisonment for up to seven years for tax evasion - Fixed financial penalties for failing to keep records - Default surcharge of 15% of the tax for persistent default in filing

Answer 17

People who are liable to pay Income Tax: - Individuals (including sole traders) - Individual partners - Trustees - Personal representatives

Answer 18

Tax levied on a chargeable person's income

Answer 19

Includes: - Salary - Dividends - Interest received/Savings Income (e.g., savings account) - Trading profits (for sale traders + partners) - Profit element of rent received Hallmark is that it is usually recurring in nature, unlike a capital agin which accumulates over time b/c of an increase in an asset's value

Answer 20

- 6 April in one year to 5 April next year - Named after the two years it straddles

Answer 21

1. Calculate total income 2. Deduct allowable reliefs 3. Deduct personal allowances 4. Calculate tax for each source of income 5. Add together tax for each source of income + deduct any tax previously paid / deducted at source to give IT liability

Answer 22

- Income after deduction of allowable reliefs + personal allowances - From this figure we automatically know if someone is a basic rate, higher rate or additional rate taxpayer

Answer 23

- Threshold = £37,700 - Person whose taxable income doesn't exceed the basic rate threshold

Answer 24

- Threshold = £125,140 - Person whose taxable income exceeds the basic rate threshold but doesn't exceed the additional rate threshold

Answer 25

- Threshold = £125,140 - A person whose taxable income exceeds the additional rate threshold

Answer 26

Taxable income after deduction of savings income + dividend income

Answer 27

- Basic Rate (1-37,700) = 20% - Higher Rate (37,701 - 125,140) = 40% - Additional Rate (125,141) = 45%

Answer 28

- Basic Rate (1-37,700) = 20% - Higher Rate (37,701 - 125,140) = 40% - Additional Rate (125,141) = 45%

Answer 29

- Basic rate = 8.75% - Higher rate = 33.75% - Additional rate = 39.35%

Answer 30

Aggregate gross income from each source (without an IT deducted) Includes: - property income - profits of a trade or profession - savings income - employment + pensions income Excludes: - child benefit - interest paid on national savings certificates - interest from ISAs - interest on damages for personal injuries / death

Answer 31

- All benefits that derive from the office or employment are liable to tax - Employees are usually taxed on the cost to the employer of providing the benefit - Director is generally liable to tax on the benefits of rent-free + low-rent accommodation - A lump sum payment that is made to compensate a director/employee for an early termination of their contract will be taxable if they are contractually entitled to it - Any payment on retirement / removal from office that isn't otherwise chargeable to tax may be taxable, although first £30k is usually exempt

Answer 32

1. Interest payments on qualifying loans - Interest paid on a loan to buy a share in a partnership; or - Interest paid on a loan to invest in a close trading company 2. Employee pension scheme payments

Answer 33

Total income after deductions of allowable reliefs BUT before deduction of personal allowances

Answer 34

- Personal Allowance - Marriage Allowance - Blind person's allowance - Property and Trading allowances

Answer 35

- £12,570 - Subject to income limit of £100k - Cannot be carried forward to new tax year Exceeding £100k - Personal allowance is reduced by 50% (£1 for every £2) to the extent that income exceeds £100k - Calculation = 12,570 - ((net income - £100k) / 2)

Answer 36

Up to £1,260 of an individual's personal allowance may be transferred to a spouse / civil partner (who must be a basic rate taxpayer)

Answer 37

People who are registered blind receive an additional £3,070 personal allowance

Answer 38

- Up to £1k gross property income + £1k gross trading income will not be subject to IT - For amounts over £1k limit, the allowance may be deducted from the gross figure as an alternative to deducting actual expense

Answer 39

Income tax is a progressive tax + there is a clear order of calculation 1. Non-savings + non-dividing income 2. Savings income 3. Dividends income

Answer 40

- Basic rate taxpayer = £1000 tax free - Higher rate taxpayer = £500 tax free - Additional rate taxpayer = no allowance

Answer 41

- First £500 of a taxpayer's dividend income will be free from tax - Applies to all taxpayers irrespective of their taxable income

Answer 42

- Sole trader will prepare accounts for the business for an 'accounting period' (usually 12 months) to show how much profit/loss has been made - Accounting period won't alway match the income tax year

Answer 43

In the first tax year in which the business trades, income tax will be assessed on the taxable profits made by the business from the date it starts trading to the following 5 April

Answer 44

- In the second tax year in which the business trades, IT will usually be assessed on the taxable profits of the 12 month accounting period that ends in the second tax year - Applies to third + subsequent tax years, until the final year of the business

Answer 45

In the final tax year in which the business trades, IT will be assessed on the taxable profits made from the end of the last accounting period to the date the business stops trading, less a deduction of any overlap profit

Answer 46

- Income profits of a business which are assessed for income tax more than once in the opening years of the business' trade - It is deducted from the income profits assessable to IT in the business' final year of trade

Answer 47

- A partnership will be charged income tax on the income profits the business makes in the same way as sole traders - Same basis of assessment as sole traders (opening year rule, normal year + closing year rules) - Taxable profit is apportioned between the partners as agreed between them for the relevant accounting period (default provisions, formal partnership agreement or some other express/implied agreement between them) - Partners are separately taxed on their own share of the partnership's profits + each partner is liable to pay their own tax - If a partnership has made a loss, each partner may choose what type of relief to claim in respect of their share of the loss

Answer 48

- Opening year rule (sole trader) will apply to that partner only - As far as that partner is concerned they are starting a new business - The existing partners will continue to be assessed on the current year basis

Answer 49

- Closing year rule (sole trader) will apply to that partner only - As far as that partner is concerned they are ceasing to trade - The remaining partners will continue to be assessed on the current year basis

Answer 50

- Form submitted to HMRC annually in circumstances where not all of an individual's IT has been deducted at source - Form sets out the income the individual has received + a self-assessment of the amount of tax payable

Answer 51

- If an individual is liable for self-assessment, HMRC must be notified within 6 months of the relevant tax year OR they will be fined - Tax returns must be submitted by 31 January (online) or 31 October (paper) following the end of the relevant tax year - Payment is made by way of two payments on account

Answer 52

- Two payments, generally representing half of the individual's tax bill from the previous year - Made on the 31 January int he tax year + 31 July after the tax year - Final balancing statement must be made by the following 31 January

Answer 53

- those who have already paid > 80% of their tax bill through deduction at source; OR - those with a small self-assessment liability in the previous tax year (< £1k) Don't need to make payments on account

Answer 54

- Interest on late payments - Fixed penalties if tax isn't paid / paid late - Penalties for those not keeping accurate records - Appeals made to the First-Tier Tribunals

Answer 55

Working, usually within the law, to minimise tax liability

Answer 56

- Deliberately misinterpreting or misapplying the law to minimise tax liability - Illegal

Answer 57

- A rule that applies to certain taxes (including Income Tax) to combat abusive tax avoidance arrangements that go beyond lawful tax avoidance - Taxpayer will be notified if an ATAA is uncovered and a request for tax adjustments will be made - GAAR advisory panel deals with any representations made by the taxpayer - Any person who enabled the scheme as part of their business may be fined - Taxpayers have a right of appeal to a tax tribunal

Answer 58

Tax arrangement is abusive if it cannot reasonably be regarded as a reasonable course of action having regard to the all circumstances

Answer 59

- Doesn't have its own legal identity or separate personality - No legal distinction between the business + its owner(s) and manager(s) - Sole traders + partnerships

Answer 60

- Has its won legal identity or separate personality - There is a legal distinction between the business + its owner(s) and manager(s) - Companies + LLPs

Answer 61

- Someone who is self-employed + owns and runs their own unincorporated business - May have employees - May be involved in any trade, business or profession - No legal separated between the business and the sole trader's personal affairs / assets - Unlimited liability - No specific formalities or legal processes required to set up the business - Self-employed people do need to register with HMRC + some sole traders may be required to register for VAT - No onerous ongoing formality, decision-making, filing and disclosure requirements - Private + less expensive - Pay income tax on their trading profits + capital gains tax on their capital gains

Answer 62

- A business owner is personally and directly responsible for all debts and liabilities incurred - Their personal assets (any property they own / money held in bank accounts, even if unrelated to the business) will be at risk, and they can be made bankrupt if the business is unsuccessful

Answer 63

- 2 or more people carry on a business in common with a view of profit - May have employees - Partners are the owners of the business - No specific formalities required to set up the business - Can arise through oral agreement or through conduct - Often desirable to have a formal partnership agreement setting out terms of the partnership - Many of the default provisions can have undesirable consequences - No legal separation between the business and the partners' personal affairs/assets - Partners = personally liable + directly responsible for all debts + liabilities incurred whilst they are partners - Personal assets are at risk and they may be made bankrupt if the business is unsuccessful - Partners do need to register with HMRC + partnerships may be required to register for VAT - Additional costs of forming a company are avoided - No onerous on-going formalities, decision-making, filing and disclosure requirements - Individual partners pay income tax on their share of the trading profits and capital gains tax on their share of the capital gains for the partnership

Answer 64

- Separate legal personality + owners usually have limited liability - Companies may be limited by shares or guarantee - Can be public or private - Creation of a legal process and documents must be filed at Companies House for the company to be 'born' - Isn't possible for a company to exist without the involvement of Companies House - Separation of membership (ownership) and management - Limited liability

Answer 65

- Company is a person separate from its members/shareholders and directors - Company can own property, enter into contracts and be a party to legal proceedings - As an artificial person, it can have perpetual succession (continue indefinitely) - Company is NOT an agent of its members/shareholders; it acts in its own right

Answer 66

- Own the shares in the company - Members

Answer 67

- Have general management power to control what the company does on a day-to-day basis - Run the company

Answer 68

- Members have a limit n their liability to contribute towards the company's debts - Limited by shares = liability of members is limited to any amount unpaid on their shares - Limited by guarantee = liability of members is limited to any amount they promise to pay in the event the company is wound up

Answer 69

- Separate personality - Limited liability - Perceived as more prestigious to both owners and clients/customers - Main format for most big businesses - Recognised internationally - Companies can grant floating charges (more flexible form of security which can improve the banking facilities available to companies)

Answer 70

- Ongoing onerous formality, decision-making, filing and disclosure requirements - Public information (most information kept at Companies House)

Answer 71

- Certificate of Incorporation states that it is a public limited company - May be limited by shares - General public can be invited to subscribe for shares - Minimum capital requirements = £50k - Shares must be at least one-quarter paid up - Subject to more stringent/onerous rules (particuarly disclosure) as public money is involved - Company may apply for shares to be officially listed for trading on a recognised investment exchange - Officially listed companies are subject to additional disclosure rules

Answer 72

- A company that isn't a public company - May be limited by shares or guarantee - Shares cannot be offered to the general public - No minimum capital requirements

Answer 73

- Cross between a company and a partnership - Formed under the LLPA 2000 - Has a combination of the features of both partnerships + limited companies - Every member is deemed to be an agent of the LLP - Has a separate legal personality + members have limited liability / aren't directly liable for its debts - LLP Regulations 2001 provide provisions that apply between the partners in default of express / implied agreement to the contrary - More flexibility to management than in companies - May grant fixed + floating charges over their assets - Subject to ongoing administrative requirements - Not as well recognised internationally as limited companies - LLP members pay income tax on their share of the trading profits + capital gain tax on their share of the capital gains for the partnership

Answer 74

- Formal document setting out the terms of a partnership - Usually deals with the relationship between the partners + their relationships with third parties - Often vary or amend key default provisions under PA 1980

Answer 75

- Any legally capable person may enter into a partnership - Companies + individuals may be partners with other companies/individuals - No limit on the number of partners in a partnership

Answer 76

- No restrictions if the partnership name consists only of the surnames of all the partners (with/without forenames or initials) - Other case = CA will apply + certain words/expressions forming part of the business name will require prior approval, including: - Any partnership that uses a business name must also comply with the prescribed disclosure requirements = details about the partners must appear at the main place of business + on partnership stationery

Answer 77

Not a strict requirement but does have clear benefits: - Provides evidence of partners' relations and of the partnership's terms - Overrides some of the provisions of the PA, which will automatically apply, except to the extent that there is contrary agreement

Answer 78

- The parties - Commencement date - Nature + place of business - Partnership name - Duration - Capital - Income - Partnership property - Management - Retirement - Death + bankruptcy - Expulsion - Payment for outgoing partner's share - Restrictive covenants - Administrative provisions

Answer 79

- Parties = partners - No new partners may be admitted without the consent of all the partners (may be unworkable for larger ones)

Answer 80

- Existence of partnership = question of fact - Partnership will exist from date criteria are satisfied - An agreement subsequent to that date will only govern rights and responsibilities from that date

Answer 81

- Unanimity is required by the partners to change the nature of the business - Usually specifies the place(s) at which the business will be carried on

Answer 82

- Partnership may run for a specific venture or a fixed term - A fixed term partnership that continues after expiry will be presumed to continue on terms that are consistent with a partnership at will OR it will be dissolved (leaving open option for technical dissolution) - Usual to prove int he agreement that the partnership will continue despite the retirement, death, expulsion or bankruptcy of a partner

Answer 83

- Partnership where no specific duration or fixed term is set - Most common type of partnership

Answer 84

- Any partner may determine the partnership (i.e., bring it to an end) at any time on giving notice to the other partners (no requirement for written notice, UNLESS partnership agreement was made by deed) - Partnership shall be dissolved from the date specified in the notice or if none, the date of communication of the notice (could be on date of notice = technical dissolution)

Answer 85

- In the absence of express / implied agreement to the contrary, the PA provides that capital losses + profits will be shared equally - It may be implied that unequal contributions of capital result in the right to make unequal withdrawals of capital - Agreement may provide for interest to be paid on partners' capital contributions - No right to interest on capital - Provision should be made for how future capital contributions will be made

Answer 86

- Absence of express / implied agreement to the contrary income profits and losses will be shared equally - PA doesn't provide for salaries to be paid to partners - Agreement should deal with how + when drawing are made and provide for repayment (with interest) if too much is taken

Answer 87

- Assets belonging to the firm should be specified so they are clearly distinguishable from those assets tha belong to the individual partners - Failure to deal with this properly can lead to disputes on dissolution + problems with taxation

Answer 88

- All partners are entitled to take part in the management - All matters connected with the partnership business may be decided by a majority of the partners (except for changing nature of the business = unanimity)

Answer 89

- i.e., leaving the partnership - PA doesn't provide for the possibility of a partner leaving a partnership without the partnership being dissolved - Agreement should include a mechanism for a partner to leave, following appropriate notice, and get what is owing to them, without dissolving the firm

Answer 90

- Unless otherwise agreed by partners, a partnership will be dissolved by the death / bankruptcy of any partner - Provision should be made in agreement for continuation of the firm by the surviving / solvent partners and for payment of the deceased / bankrupt partner's share

Answer 91

- PA = no majority will expel another partner - An express power to expel a 'problem' partner should be included in the agreement, specifying groups for expulsion + providing for payment of the expelled partner's share in the partnership - Include provision that partnership should continue as regards the remaining partners

Answer 92

Specific provision should be made for: - The remaining partners to have the option to purchase the outgoing partner's share - Valuation of the outgoing partner's share - Payment of the outgoing partner's share - Dissolution, if the option to purchase isn't exercised Full dissolution PA = - Repay third party creditors - Repay partner creditors - Repay partners' capital entitlements - Any balance is then divided between the partners in accordance with their profit-sharing ratios Partnership losses are met from: - Income profits - Capital - Contributions made by the partners in the same proportion as their profit-sharing ratio

Answer 93

- Consider placing restrictions on ex-partners competing with the partnership business, approaching employees or former clients or dealing with former clients - No such covenants will be implied by the general law / PA - Careful drafting of covenants is required for them to be enforceable - The more limited / reasonable the clause, the more likely it will be upheld

Answer 94

- Partnership agreement will need to contain sufficient administrative provisions to make it workable - E.g., definitions and interpretation, services of notices, costs + arbitration in the event of dispute

Answer 95

PA provides for three fiduciary duties: - Duty to provide true accounts and full information on partnership matters - Duty to account for profits derived from the position as partner - Duty to account for profits from competing business PA additional provisions: - Right to respect partnership books - The payment of 5% interest on loans made by the partners

Answer 96

- Starting Point = each partner is an agent of their fellow partners + so a partner acting within the scope of their actual authority OR apparent/ostensible authority will bind the partnership as a whole - If a partner has entered into a transaction with actual OR apparent authority then the partnership will be bound by the act - If a partner hasn't entered into a transaction with either actual or apparent authority, then the partnership won't be bound by that act and only the partner concerned will be fully liable - If a partner has entered into a transaction with only apparent authority, he will be liable to his fellow partners for breach of warranty of authority

Answer 97

Partner is actually authorised to bind the partnership in the circumstances, whether under any partnership agreement or through authority given outside of one (specifically or through a course of conduct)

Answer 98

It would appear to the third party that the transaction is authorised by teh partnership in the circumstances

Answer 99

4 Key Questions: - Is the transaction related to the partnership business? - Would a partner usually be expected to have authority to enter into the transaction? - Does the third party know that the partner has no actual authority? (if yes, transaction will be voidable) - Does the third party know the 'partner' concerned, is not a partner of the firm or do they have suspicions that this is the case? (if yes, transaction will be voidable)

Answer 100

- Partners are jointly + severally liable for the debts and obligations of the partnership without limit - Where partnership is unable to pay its debts out of partnership assets, a creditor is entitled to obtain payment from the private assets of the partners

Answer 101

- Partner is liable for the debts incurred whilst they are a partner - A new partner is not liable for debts incurred by the partnership before they became a partner - A retiring partner isn't released from debts incurred by the partnership whilst they were a partner

Answer 102

1. Deed of release from willing creditors - A release of the outgoing partner from any outstanding debt/liability - Release of outgoing partner 2. Novation agreement from willing creditors - A tripartite arrangement between (1) the creditor (2) the partnership as constituted before the retirement and (3) the partnership as constitute following the retirement - Consideration of deed will be required for it to be valid/binding - Newly constituted partnership stands in the shoes of the old one as regards to debts/liability 3. Indemnity from the continuing partners - A bipartite arrangement between (1) the outgoing partner and (2) the continuing partners - Not binding on third parties - Outgoing partner will still be liable but will be able to seek indemnity from the continuing partners

Answer 103

- PA = retiring partners must give notice to third parties of their leaving the partnership - People who deal / who have dealt with the firm are entitled to assume there has been no change in composition of the partnership unless they have notice of it

Answer 104

- Actual notice = to existing / former clients by informing them directly (send out standard letters) - Constructive notice = potential / future clients by placing advertisement in London Gazette (for partnerships in England and Wales)

Answer 105

A retiring partner must avoid being held out as a partners - involves: - Doing something / allowing something to be done or represented that suggests one is a partner - Which is relied upon by someone - Who gives credit to the firm as a result

Answer 106

1. Is the partnership liable? - Actual OR apparent/ostensible authority 2. Which partners are liable? 3. Liability for existing debts - Release / Novation / Indemnity 4. Liability for future debts - Actual / Constructive Notice OR Holding Out

Answer 107

- Registered office is the official correspondence address for a company + where the key documents must usually be kept - Form IN01 will state whether the company's registered office is situated in: England and Wales, Wales, Scotland or Northern Ireland - Registered office must be consistent with where the company is registered - Once registered a company's registered office may be changed by board resolution + form AD01 must be filed at Companies House

Answer 108

- Constitutional document for a company - A contract between (1) a shareholder and the company (2) a shareholder and other shareholders Not compulsory to use the Model Articles +companies have the option of adopting: - The MAs in their entirety - The MAs with specific amendments - A specifically drafted (bespoke) set of articles - A copy of the company's articles must accompany the application UNLESS the company intends to adopt the MAs in their entirety - MAs will automatically apply by default unless they are excluded or modified in the company's articles - Even if a company registers articles on incorporation, the MAs will still form part of the company's articles insofar as they aren't specifically excluded or amended by the registered articles - Special resolution is required to change the articles - Special resolution + company of amended articles must be filed at Companies House within 15 days

Answer 109

- Company's internal rulebook dealing with directors, shareholders, meetings and key administrative requirements - Contract between (1) a shareholder and the company (2) a shareholder and other shareholders

Answer 110

- Standard sets of articles for different types of company, set out in The Companies (Model Articles) Regulations 2008, which were introduced on 1 October 2009 - Model articles for private companies limited by shares (the MAs) are set out in Schedule 1 of the regulations

Answer 111

- Usual to find Table A as the basis for articles - Table A = equivalent of the MAs for companies registered under the Companies Act 1985

Answer 112

- Person responsible for keeping records + filing documents at Companies House - Not a requirement for a private limited company to have a company secretary - If there is one, their name + address for service must be given - No particular qualifications are required to act as a company secretary of a private limited company

Answer 113

- Name, month + year of birth, nationality and business occupation of all directors must be set out - Address for service + usual residential address must be given - Directors may apply for an exemption (for giving residential address) if they would be at risk of violence / intimidation if their residential address were to be made publicly available - Private company must have at least 1 director, public company must have at least 2 directors - Human directors must be at least 16 years old + although corporate directors are permitted, at least one director must be a natural person (not possible for a company to be the sole director of another company) - No limit of the number of directors unless provided for in the articles - Possible for a director to also hold position of company secretary

Answer 114

Statement of capital + initial shareholdings show the following: - Initial share capital = the number of shares of each type + their nominal value - Rights attaching to the different types / classes of shares; and - Initial shareholdings = name + address of shareholders, details of their individual shareholdings + any amount unpaid on their shares Minimum of one shareholder is required

Answer 115

Only applicable for companies limited by guarantee

Answer 116

- Details of people with significant control must be set out - The relevant Companies House PSC Forms (PSC01-09) must be filed whenever changes are made - PSC01 = appoint a new individual PSC

Answer 117

These people meet one of the following conditions: - They hold > 25% of the shares - They have > 25% of the voting rights - They have the right to appoint or remove the majority of the board

Answer 118

Rather than maintaining statutory books, subscribers can agree to keep the information that would be contained within them solely on the central register held by Companies House

Answer 119

Registers that must usually be maintained by the company: - Register of secretaries - Register of directors - Register of directors' residential addresses - Register of members - PSC register

Answer 120

The subscriber(s) must make a statement that the proposed officers (director(s) + company secretary) have consented to act in the relevant role(s)

Answer 121

Subscribers must make a statement that the PSCs know their details have been provided as part of the application

Answer 122

Confirms that the requirements of the CA as to registration have been Complied with

Answer 123

- Statement of intention of the subscriber(s) to form a company + become shareholders, taking at least one share each - Prescribed form of memorandum is set out in the Companies (Registration) Regulations 2008 - Under CA 1985, memorandum of association was an important ongoing constitutional document, setting out the objects of the company (objects have been moved to the articles + may be changed by special resolution)

Answer 124

Documents are examined by Companies House + provided that they are in order, a certificate of incorporation will be issued including: - Company name - Company number - Date of incorporation - It is essential that the company's 'birth certificate' and its number remain consistent through its life - Company cannot enter into contracts until the Certificate of Incorporation has been issued

Answer 125

- Order the company seal (optional) = optional alternative way of executing documents + can make them look more official - Publicise the company's name = outside the company's office(s) OR place(s) of business and in all its correspondence - Including the correct particulars on business stationary = company stationery must include the company's name, registered office + number - Register for VAT with HMRC - Deal with all matters relating to the company's employees = contracts of employment, setting up PAYE and NI for employees - Arrange insurances = building insurance, public liability, employers' liability + professional indemnity policies - Open company bank account - Obtain all requisite licences/consents to operate the business - Maintain the statutory books - Keep other documents at the registered office = copies of charges, directors' service contracts and minute books

Answer 126

Company should call its first board post-incorporation to determine following matters: - Appointing chairperson of the board - Adopting the company seal - Adopting bankers/formalising bank mandates - Appointing auditors (if the company needs to file audited accounts) - Fixing an accounting reference date OR it will be the last day of the month of incorporation (change must be filed at Companies House using AA01 form) - Awarding directors' service contracts - Authorising use of business/trading name - Allotting shares + issuing share certificates - Approving the cost of formation - Registering with HMRC for corporation tax, PAYE, National Insurance and VAT - Taking out insurances - Calling a GM is required

Answer 127

Meetings of directors who pass board resolutions to make decisions

Answer 128

Meetings of members/shareholders who pass ordinary resolutions and special resolutions to make decisions

Answer 129

Directors can make most day-to-day decision but some key decisions must be approved / authorised by the members first Order of Meetings: 1. Directors call first BM 2. Pass BR to call GM 3. Members pass relevant resolution(s) in GM to sanction decision(s) 4. GM closed 5. Directors call second BM / reconvene first BM (if adjourned) 6. Directors pass BR(s) to implement decision(s) and deal with administrative / filing matters 7. BM closed

Answer 130

- Powers of directors are laid down in the company's articles + MA3 - Directors have wide powers to manage the business of the company - Generally directors make decisions at BMs by majority vote or otherwise by unanimous decision - Common to give the directors the right to delegate any of their powers

Answer 131

Calling + Notice - Any director may call a BM at any time OR require the company secretary to do so - Reasonable notice must be given (not necessarily in writing unless articles provide) - All directors must be given notice, wherever they are - Notice contents: date, time, place + means of communication - Permitted forms of communication: telephone calls, video calls, text messages + instant messaging - Directors can waive the right to notice - Agenda isn't a legal requirement - Implications of failure to give notice = a new meeting can be demanded Quorum = 2 Voting - Show of hands / oral assent - Chairperson's casting vote in the event of deadlock Resolutions and Majority - BRs = simple majority required

Answer 132

- Minimum number of people required to be present for valid decisions to be made - Minimum number isn't present then the meeting isn't 'quorate' and decisions cannot be made

Answer 133

- MA14 = prevents a director from voting and counting towards the quorum on any decision in which they have a personal interest -MA14(3)(a) allows a company to suspend or relax the general application of MA14 by ordinary resolution Exceptions: - Director's interest cannot be reasonably regarded as likely to give rise to a conflict of interest - Director's interest arises from a permitted cause (including director subscribes for shares in the company) - S 177 + 182 CA require a director to declare a personal interest in a proposed or existing transaction or arrangement - Exceptions: director's service contract is being considered - Breach = criminal offence

Answer 134

Minutes must be kept for all BMs for at least 10 years + will usually be signed by the chair of the BM

Answer 135

- MA 8 = provides that a procedure unanimous decision-making may be used instead of holding a BM - Enables directors to make decisions in writing / more informally provided that they all agree

Answer 136

Types of GM: - AGM - (E) GM Types of Resolution: - Ordinary resolution - Special resolution

Answer 137

- Annual general meeting - Private company formed on/after 1 October 2006 doesn't need to have an AGM, unless a special article provides so - Company formed before that date is required to hold an AGM, unless its articles have been amended - AGMs can be useful if there is a number of shareholders who aren't directors

Answer 138

- Any general meeting other than an AGM - GMs use to be referred to as extraordinary general meetings - CA 2006 = general meetings

Answer 139

Simple majority (> 50%) of shareholders attending + voting at a GM

Answer 140

Requires a 75% majority (≥ 75%) of shareholders attending + voting at a GM

Answer 141

Calling + Notice - Usually the directors call a GM - Written or electronic notice may be given - Shareholders power to requisition a GM - 14 clear days' notice is required to all members + directors - 14 clear days = 18 days is serving notice by email / post - Short notice may be agreed by (1) a majority in number of members AND (2) holding at least 90% of the company's voting shares - Content: date, time, place + nature of business, full text of any SR proposed and sufficient details of ORs, and reasonably prominent proxy notice (informs shareholder of their right to send someone to attend the vote in their stead) Quorum - 2 (unless one-member company) - Meeting must remain quorate throughout Voting - Show of hand (one vote per member) UNLESS poll vote is demanded - Poll vote may be demanded by (1) chairperson, (2) at least two voting members), (3) any member(s) holding at least 10% of the voting shares - One vote per share on a poll vote Resolutions + Majorities - OR = > 50% majority of those voting - SR = ≥ 75% majority of those voting

Answer 142

s 303 Request - Directors must all GM when members holding ≥ 5% of the company's paid up share capital with voting rights requisition them to do so - Directors have 21 days from the date of the requisition to call a GM which must be held within 28 days from the date the GM is called - If meeting isn't called, shareholders may call the meeting themselves + recover costs from company

Answer 143

- Alternative to holding GM - Private company may pass resolutions in writing with shareholders having one vote per share

Answer 144

- Minutes must be kept of all GMs for at least 10 years - Signed copy of every SR and some ORs (e.g., authorising issue of shares) must be filed at Companies House within 15 days of being passed - Resolution altering company's articles = amended document must be filed at Companies House - Where appropriate company's statutory books must be updated

Answer 145

- Directors must file accounts each financial year with Companies House - Criminal offence not do to so - Small companies are exempt from the requirement for accounts to be audited - Directors must also prepare a financial report for each financial year - Small companies and micro entities are exempt - Accounts for private companies must usually be filed with Companies House within 9 months from the end of the accounting reference period

Answer 146

Those who satisfy 2/+: - Turnover of not more than £10.2 mill - Balance sheet of no more than £5.1 mill - Not more than 50 employees

Answer 147

- A confirmation statement (Form CS01) must be filed each year within 14 days of the anniversary of the company's incorporation - Form confirms that all information required to be delivered to Companies House has been duly filed + provides details of any changes - Ensure that Companies House has the most up-to-date information about the company + its composition - Failure = criminal offence - Formally known as annual return

Answer 148

Any person occupying the position of director, by whatever name called

Answer 149

- A person who, although not properly appointed as a director, exercises a major influence on the directors - Directors are accustomed to act in accordance with their instructions

Answer 150

- Director who hasn't properly been appointed under CA BUT performs the role of director; or - Person who continues in the role of director after their term of office has expired

Answer 151

- Private company must have at least one director - Public company must have at least two directors - Possible for a company to be a director, although there must be at lest one director who is a 'natural person' - Human directors must be ≥ 16 years of age, not disqualified from being a director, physically + mentally capable, and not bankrupt

Answer 152

The first director(s) named in Part 2 of the IN01 form are automatically appointed on incorporation

Answer 153

- Company's articles may specify the permitted minimum and any maximum number of directors - Model articles assume a minimum of two directors b/c of the quorum requirement, although sole directors may act alone - Company's articles will provide for the appointment of subsequent directors - Directorship is an office (non-executive position) but can also be an executive position

Answer 154

- Person who holds the office of director - Have rights, duties, restrictions and obligations under the CA - DON'T work for the company in a paid position - Don't have an employment/service contract BUT will be entitled to fees for their duties

Answer 155

- Person who, as well as holding the office of director, also works for the company in a paid position - Usually have an employment/service contract AND will be entitled to a salary - Will often have a particular role + job title linked to their duties or specialism (managing director, finance director, sales director or marketing director)

Answer 156

MA 17 - Ordinary resolution of the shareholders; or - Board resolution of the directors

Answer 157

MA 19 - Board resolution Post-Appointment: - Update register of directors + register of directors' residential addresses - File form AP01 (individual directors) or AP02 (corporate directors) as appropriate with Companies House within 14 days

Answer 158

Directors owe fiduciary duties to their company - Duty not to make a secret profit out of their position - Duty to act in the best interests of the company CA 2006 statutory general duties: - s 171 = Act within the company's constitution + to exercise their powers for proper purpose - s 172 = promote the success of the company - s 173 = exercise independent judgment - s 174 = exercise reasonable care, skill + diligence - s 175 = avoid conflicts of interest - s 176 = not to accept benefits from third parties - s 177 = declare interest in a proposed transaction with the company

Answer 159

- Directors must adhere to the provisions of the company's articles + exercise their powers in the best interests of the company - Their own personal interests shouldn't sway them

Answer 160

- Directors must act in a way that they consider, in good faith, would be most likely to promote the success of the company, for the benefit of the members as a whole - Directors must have regard to factors and the need to promote the success of the company will normally take precedence - Breach may be difficult to prove due to subjective test Subjective test + in acting directors must have regard to six factors: - the likely long-term consequences - employees' interests - the need to foster good business relationships - impact on the community and the environment - the desirability of maintaining a reputation for high standards of business conduct - the need to act fairly between members

Answer 161

- A director must not do anything to fetter (compromise or undermine) their right to exercise independent judgment UNLESS it is done in good faith + in the best interests of teh company - Directors may take legal or financial advice without being in breach of this duty

Answer 162

- Standard of care = reasonably diligent person - Minimum objective standard = standard knowledge, skill + experience that may reasonably be expected of a director - May be raised on the actual knowledge, skill and experience that the director has / holds themselves out to have (subjective standard)

Answer 163

- Usually involves taking advantage of property, information or opportunities that belong to the company (whether or not the company was in a position to exploit these) - Directors of a private company may authorise a breach of this duty by BR (interested director's vote won't count)

Answer 164

- There will be no breach of this duty if the acceptance of the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest - e.g., It is minimal / related to normal corporate hospitality - However, receipt of a benefit may constitute bribery under the Bribery Act 2010, which is a criminal offence

Answer 165

- As directors' duties are owed to the company, the company is the proper claimant in any action for their breach - Shareholders may consider taking 'derivative action' if the directors fail to act - Remedies include: an account for profits (payment to the company), damages or an injunction - Shareholders may ratify a breach of duty by Ordinary Resolution - The votes of any interests director who is also a shareholder and those persons they are connected with won't count

Answer 166

Directors will be personally liable to third parties dealing with the company where the director: - has given a person guarantee; or - guilty of wrongful trading; - guilty of fraudulent trading; or - guilty of misfeasance

Answer 167

- Lenders often insist upon personal guarantees from director-shareholders, particuarly when a company is newly formed - Makes them personally liable for the liabilities of the company + takes away the real benefit of limited liability

Answer 168

- Director of an insolvent company may be liable to contribute to the assets of a company where the company continued to trade, and they knew, or ought to have concluded that, there was no reasonably prospect of the company avoiding insolvency proceedings - Test = combined objective / subjective (like duty to take reasonable care, skill + diligence) - Defence = if director took every step to minimise potential loss to creditors as ought to have been taken - Civil offence

Answer 169

- Director of an insolvent company may be liable to contribute to the assets of a company where the company carried on business with intent to defraud creditors / any fraudulent purposes - Harder to prove than wrongful trading due to need to show 'intention to defraud' (requires proof of actual dishonesty - Ivey v Genting test) - Criminal + civil offence

Answer 170

- A breach of directors' duties discovered on winding up - Personal liability may be imposed in these circumstances

Answer 171

- Set out in the company's articles - Directors' wide powers of management are subject to any instruction given to the board by special resolution of the members - Directors' powers are exercised either by making decisions at board meetings or by unanimous agreement - Directors have a wide power of delegation - Articles can make provisions for the appointment of an alternate director but the MAs don't make for such provision

Answer 172

- Companies must maintain a register of directors + a register of director's residential addresses UNLESS they have applied for exemption - If a director's particulars change, they must be reported to Companies House using Forms CH01 (individual director) and CH02 (corporate directors) - Company registered name must be displayed at its registered office + appear in certain communications - Registered number + registered office in business letters - Directors do not need to be named in business letters BUT if they are, all of them must be included - Copies of directors' service contracts or a memorandum of their terms must be kept by the company for up to one year after expiry / determination - Members have a right to inspect directors' service contracts

Answer 173

- Directors' Service Contracts - Substantial Property Transactions - Loans to Directors - Payments for loss of office

Answer 174

- Service contracts for executive directors are usually granted by directors under their general management powers + power to make executive appointments - Shareholders' approval by ordinary resolution is required for directors' service contracts of a guaranteed fixed term of > 2 years duration - Only the guaranteed term requires shareholder approval - If the guaranteed term isn't duly approved by ordinary resolution, the service contract will be terminable on reasonable notice + the provision is void - Although director won't need to declare their interest in the proposed service contract they will be unable to vote + count towards the quorum in the board meeting where it is approved - Approval isn't required by members of a wholly owned subsidiary of another company - Memorandum of the proposed terms must be made available for inspection for at least 15 days prior to the meeting + at the meeting itself

Answer 175

- Contractual term of > 2 years AND company cannot terminate contract/can only terminate in specific circumstances; or - the period of notice to be given by the company

Answer 176

- Directors under their general management powers may approve most property transactions involving the company - Substantial property transactions require shareholders' approval by ordinary resolution - If the value of the transaction is ≤ £5,000 = it will never be substantial - If the value of the transaction is > £100,000 = it will always be substantial - If the value of the transaction is between £5,001 and £100,000 it will only be substantial is the value exceeds 10% of the company's net assets - Breach, transaction is voidable - Approval ≠ required, if company is a wholly-owned subsidiary of another company

Answer 177

An SPT involves the acquisition or disposal of a non-cash asset where: - Parties involved are the company AND a director / person connected to a director; AND - The asset is substantial (≠ ≤ £5,000 AND is > £100,000 / > 10% company's net asset value)

Answer 178

- Family = spouse, civil partner, romantic partner in an enduring relationship, children, stepchildren, parents and children of romantic partners - Family ≠ brothers, sisters, grandparents, grandchildren, uncles, aunts, nephews and nieces - Body corporate = director + persons connected with the director who own ≥ 20% of the company's voting shares

Answer 179

1. Acquisition / disposal of non-cash asset? 2. Between the company + a director / someone connected with a director? 3. Is the transaction worth £5,000 or less? 4. Is the transaction worth more than £100,000? 5. Is the transaction worth more than 10% of the company's net value? Yes - STP = ordinary resolution

Answer 180

- Transactions will require ordinary resolution if made to directors or directors of holding company (excludes to connected persons) - Failure = transaction will be voidable (subject to normal contract rules) UNLESS ratified by ordinary resolution of the shareholders within a reasonable time - A memorandum of the proposed terms must be available for inspection for 15 days prior to the meeting and at the meeting itself

Answer 181

- OR isn't required where the company is a wholly-owned subsidiary - Expenditure on company business (≤ £50,000); - Loans for defending proceedings brought against director; - Loans for defending regulatory actions/investigations; - Loans/quasi-loans ≤ £10,000 (minor/business transaction) - Credit transactions ≤ £15,000 (minor/business transaction) - Intra group transactions – transactions between companies in same corporate group - Money lending companies (loan made in ordinary course of business)

Answer 182

- Certain payments to directors for loss of office (on termination of their role) requires approval of the members by OR if they > £200 - Doesn't include payments properly due under existing contracts / pursuant to a legal obligation (as part of an employment law claim)

Answer 183

- Death - Voluntary retirement - Removal - Disqualification

Answer 184

- Director may resign by serving notification of resignation on the company - An executive director will also have to adhere to the terms of any service contract / general employment law

Answer 185

Director's office ceases in following circumstances: - Bankruptcy order - Entering into a composition with creditors - Physical or mental incapacity

Answer 186

- Right of shareholders to remove director by ordinary resolution - Special notice of the ordinary resolution is required to be given to the company of the proposed resolution - Director concerned has the right to be informed + to make representations to argue their removal (written representations AND oral at the meeting itself) - Written resolution cannot be used - Company must serve notice of GM - Members will often service special notice + s 303 notice at same to to ensure the requisition a GM - Removal of director is without prejudice to any right to compensation which director may have under service contract (check first) - Check if the company's articles have Bushell v Faith clauses - Consult shareholders agreement to see it is contains an agreement as to how powers are to be exercised

Answer 187

At least 28 days notice of the proposed resolution must be given to the company, otherwise the resolution will be ineffective

Answer 188

Clause gives shareholder-directors weighted voting rights on a resolution to remove them as a director + usually on a resolution to amend the relevant provision in the articles

Answer 189

- Update register of directors + the register of directors' residential addresses - File form TM01 (individual directors) or TM02 (corporate directors) as appropriate with Companies House within 14 days

Answer 190

Directors may be disqualified by the court from acting as director (without the leave of court) for any period from 2 -15 years Potential grounds: - Conviction of an indictable offence - Persistent breaches of companies legislation - Fraud in winding-up - Summary convictions on failure to comply with companies legislation - Wrongful or fraudulent trading - Being an unfit director of an insolvent company (court will consider whether the director has breached their duties or the requirements of the CA and has particular personal responsibility for dubious behaviour or transactions) It is a criminal offence to breach a disqualification order + the director will be personally liable

Answer 191

The person who is usually responsible for: - Keeping the various records of the company - Filing documents at Companies House - The general administration of the company

Answer 192

- If a company does appointed a secretary, its first secretary, named in Part 2 of the Form IN01 is automatically appointed on incorporation - Company must confirm on Form IN01 on behalf of the secretary that he consents to act as such - It is possible for another company to act as company secretary (must act through officers) - No specific qualifications are required for company secretary in a private company - Form CH03 (individual) and CH04 (corporate) are requried to change the particulars of a company secretary - Directors have the power to remove an existing company secretary + appoint a replacement by BR

Answer 193

- Update register of secretaries - File Form AP03 (appointment - individual) or AP04 (appointment - corporate) or TM02 (termination) with Companies House within 14 days

Answer 194

- Every private company must have at least one member - No legal maximum - Possible for a company to be a shareholder in another company - First members = subscribers who signed the company's memorandum prior to incorporation and have agreed to become members of the company - Subsequent members = those who acquire shares int eh company + who are registered as such in register of members

Answer 195

- Every company must keep a register of its members UNLESS an election is made to keep the records centrally - Shareholders may inspect the register + criminal offence to refuse to allow them to do this

Answer 196

- Different classes of share may be issued, with different rights attaching to them - Holders of ordinary shares, usually have the right to vote + receive dividends - Holders of preference shares usually have preferential rights - It is for the company to decide the rights that will attach to the different classes of share

Answer 197

- May be entered into between shareholders to govern their relationship in a private way - E.g., agreements as to how voting rights will be exercised, to protect minority shareholders

Answer 198

- Company is a legal person in its own right + is liable for its own debts - In the absence of personal guarantees, the liability of a member is limited to the extent of their investment in that company

Answer 199

- Receive a share certificate(s) - Receive notice of GMs, vote at GMs (provided shares are voting shares) or appoint a proxy - Receive a copy of the company's annual accounts - Inspect minute of the GMs, the company books + directors' service contracts - Receive dividends where payable + declared - Request the court hold a GM - Bring winding-up proceedings - Claim minority shareholder protection

Answer 200

Those who individually hold > 50% of the company's voting shares

Answer 201

Those who individually hold ≤ 50% of the company's voting shares

Answer 202

- 100% shares = control the company - 75 % shares = can pass a SR - 50% shares = can block an OR - > 50% shares = can pass an OR - > 25% shares = can block a SR - Majority in number holding at least 90% of the voting shares = can consent to short notice of a GM - Any two voting members or any member(s) holding at least 10% voting shares = can demand a poll vote - > 10% = may refuse consent to short notice procedure - ≥ 5% = may circulate written resolutions + may circulate a written statement as to proposed resolutions - 5% = may requisition a GM

Answer 203

- Petition for unfairly prejudicial conduct - Derivative action - Winding up on the just + equitable Ground

Answer 204

- Member may petition to the court for an order that the company's affairs have been / are proposed to be conducted in a way that is prejudicial AND unfair to them - Shareholder is the proper claimant - Includes: refusing to pay dividends when they are properly payable, exclusion from management (quasi-partnership) or excessive pay being awarded to directors - Most popular order of the court is usually that the prejudiced shareholder be bought out (valuation procedure in articles OR determined by the court)

Answer 205

- Claim brought by a shareholder for an act / omission of a director (usually in breach of directors' duties) - Claim brought for wrong done to the company, where the company is the proper claimant - Designed to enable non-director shareholders to take action Procedure: 1. Permission from the court (prima facie case ≠ if someone acting to promote the success of the company wouldn't continue the claim) 2. Court considers the claim (any compensation or remedy is for company)

Answer 206

- Most drastic remedy of all + enables a member to apply to wind up the company on the basis that it is just + equitable - Could be on the basis of a total breakdown of communication / total deadlock/inability to make a decision

Answer 207

- Can be authorised by the board of directors by BR - Excluding conflicting director

Answer 208

- Issue of new shares in exchange for consideration received by a company - Generates money / assets for a company

Answer 209

- Borrowing money in order to finance a business - Debt may be secured or unsecured

Answer 210

- Process whereby new shares are allotted in exchange for consideration received by the company + the member is entered onto the register of members in respect of those shares - Can change the control of the company, as the number of shares increases

Answer 211

- MA 3 = in private companies with unamended MAs and only one class of shares, before and after issue, directors are free to issue further shares of the same class by board resolution - Can be done without prior reference to the members - Otherwise proposed issue of shares by the directors will require the advance authority of the members by ordinary resolution OR by provision in the company's articles - Ordinary resolution passed must be filed at Companies House within 15 days Any authority to issue (from articles or OR) must state: - maximum number of shares the directors are allowed to issue - the date when the authority will expire (generally no more than 5 years from the date the authority is given)

Answer 212

- Companies incorporated prior 1 October 2009 = articles will include an authorised share capital provision. This must be amended by an ordinary resolution + this must be filed at Companies House - Companies incorporated on/after 1 October 2009 = necessary to check the articles for restrictions and amend if necessary with a special resolution (no restrictions in the MA)

Answer 213

- If it is proposed to issue shares wholly for cash the statutory pre-emption rights may apply - Applies only if the shares are equity securities = any shares which are don't have either fixed/capped preference shares for preference to dividends OR preference to winding up capital - Statutory pre-emption rights dictate that generally, on an issue of new shares, they must be first offered to the existing members, on the same or more favourable terms, in proportion to their existing shareholding - They have a right of first refusal that lasts for 14 days Statutory rights may be: - Varied / removed for private companies by contrary provision in the articles either on incorporation or subsequently by SR - Disapplied by SR of the members - Formally waived in relations to a specific issue (if all members intend to decline the offer)

Answer 214

- If shares are issued for non-cash assets wholly / partly the transaction may be a substantial property transaction - Pre-emption rights wouldn't apply here

Answer 215

- Shares may be issued fully paid or partly paid - For private companies with MAs, MA 21 = shares must be fully paid - Any premium paid must be shown in the share premium account on the balance sheet - Shares may not be issued at a discount (i.e., below nominal value)

Answer 216

- Return of allotments (form SH01) must be sent to Companies House within 1 month of the share issue - Copies of any OR or SR must be sent to Companies House within 15 days - Any relevant PSC forms must be filed - Register of members must be updated + share certificates issued within 2 months - PSC register should also be updated

Answer 217

- Involves dealing with existing shares - No new money or assets are generated for teh company, as it is essentially a transaction between the transferor and the transferee = ownership changes - Number of shares remains the same - There is a potential for an individual's control of the company to change

Answer 218

- Transfer of shares by operation of law - Death = to PRs - Bankruptcy = to trustees - When shares are transmitted, PR/TIB may receive the dividends but they don't become shareholders - They may apply to be registered as a member or sell in their capacity as PR/TIB

Answer 219

1. Transferor completes + signs a stock transfer form (STF) and sends it with the share certificate(s) to the transferee 2. Transferee pays stamp duty on the STF (0.5% of the consideration paid, rounded up to the nearest £5) 3. Transferee sends the stamped STF and the share certificate(s) to the company 4. Directors pass BR to approve / reject the transfer (Directors have absolute discretion) 5. Transfer must be registered and the new share certificate sent to the new member within 2 months of the application (unless directors have the right to refuse to register the transfer) 6. Company will update details of shareholders annually on the Confirmation Statement

Answer 220

- Transferee will become a member when entered onto the register of members - Until then the transferor holds them on trust for the transferee - If the directors exercise their discretion not to register, the transferee may never be the legal owner - Transferor must vote according to the wishes of the transferee + must hold any dividends on trust for them

Answer 221

A payment the company makes to its members, which provides them with a turn on their financial investment in the company

Answer 222

- May only be made out of profits available for the purpose - Company must calculate its accumulated realised profits to date (actual net profits to date) and deduct its accumulated realised losses to date - A dividend may be paid even if a loss have occurred in that year, provided that over the years the accumulated profits exceed the accumulated losses - If a company doesn't declare a dividend when it is properly payable, this may be grounds for unfairly prejudicial conduct - However, a company will often wish to ensure that it has sufficient reserves available to deal with future liability

Answer 223

1. Check profits are available 2. Check special articles (see if company has further regulated when + how a dividend is to be paid) 3. Directors decide whether a dividend ought to be declared and make recommendation to the members in the GM 4. Members vote (by ordinary resolution) to pay themselves the amount as recommended by the directors or less (they cannot vote to pay themselves more than the recommended sum)

Answer 224

Where a company buys back its own shares and the shares are cancelled

Answer 225

Fundamental principle which states that capital provided by shareholders must be maintained and must not be returned to them as creditors rely on it

Answer 226

1. Check shares are fully paid 2. Check articles don't prohibit buyback 3. Directors should consider their duties under ss 172 + 174 4. Check profits are available by producing accounts (distributable profits must be available or payment made from a fresh issue) 5. Copy buyback contract OR summary of it must be sent with written resolution or made available for inspection at least 15 days before the GM + at GM 6. Ordinary Resolution required to approve contract. Holders of shares being bought cannot vote + their vote doesn't count 7. Payment must be made at time of buyback

Answer 227

- File SH03 + SH06 forms within 28 days - Cancel shares, update register of members, file relevant PSC forms + update PSC register - Make contract / summary available for inspection for 10 years at the registered office once complete

Answer 228

1. Check shares are fully paid 2. Check articles don't prohibit buyback 3. Directors should consider their duties under ss 172 + 174 4. Check whether profits are available by producing accounts (prepared no more than three months before the statement of solvency) 5. No earlier than one week before the meeting, directors must make a Statement of Solvency (with auditors' report annexed) that the company will remain solvent for a year after the transaction. They may face personal liability + criminal sanctions if they do this negligently. Auditors report must confirm that the SOS isn't unreasonable. 6. Copy of buyback contract / summary of it with the auditors must be sent with the written resolution OR made available for inspection at least 15 days before GM and at the GM (if copy of SOS and auditors report aren't available for inspection before and at meeting the resolution will be ineffective) 7. Ordinary Resolution required to approve contract AND Special Resolution required to approve buyback from capital. Holders of shares being bought cannot vote + their votes don't count 8. Notice must be published in London Gazette as well as national newspaper or actual notice to each creditor within 7 days of the SR stating where the SOS and auditors' report will be available and that creditors have 5 weeks to apply for an order preventing the buyback. Before, or at the same time. the SOS and auditors' report must be filed at Companies House 9. Copy of SOS and auditors' report must be available for inspection until 5 weeks after the SR 10. Payment must be made in the two weeks following five weeks of the SR

Answer 229

- File form SH03 + SH06 within 28 days - File SR at Companies House within 15 days - Cancel shares, update register of members, file relevant PSC forms and update PSC register - Contract/summary available for inspection for 10 years at the registered office once completed

Answer 230

1. Does the company have unamended MA? - Yes - Directors may approve by BR 2. NO, Company formed before 1 October 2009? - Yes - check memorandum + amend by SR - No - check articles + amend by SR

Answer 231

- Hybrid between a loan and an overdraft - Business can borrow to a certain amount + repay and re-borrow when needed

Answer 232

- Charge document (e.g., debenture) will usually provide a lender with security for a loan - In the event of default the charge holder will have priority over unsecured creditors + may sell the charged assets to settle sums owed

Answer 233

- Process of investigation by the lender to ensure its interests are protected, the security will be validly granted and enforceable, and that title to the assets over which the charge will be made will be sound - May involve company, Land Registry, bankruptcy and winding-up searches, as well as investigation of title

Answer 234

- The highest form of security - Involves the transfer of legal title to the mortgagee (lender) with a re-conveyance/transfer back to the mortgagor (borrower) when the debt is satisfied - It gives the lender an immediate right to possession - In the case of land, a mortgage is usually created by a fixed charge by deed

Answer 235

Provides the lender with an interest in the property BUT doesn't transfer legal title (unlike mortgage)

Answer 236

- Charge taken over a particular assets / assets - Consent of the lender is required to deal with the asset(s)

Answer 237

- Charge taken over a particular class of asset(s) owned from time to time (tangible) and can only be granted by a company or LLP - Company/LLP can deal with the asset(s) without the consent of the lender until crystallisation (until then it 'floats over' rather than 'fixes on' the assets)

Answer 238

- On crystallisation, a floating charge 'fixes' on the assets in the particular class at that time (becomes a fixed charged) - Usually occurs when a company becomes insolvent OR any other event occurs which the charge specifies will cause crystallisation - Give borrower flexibility to deal with assets that are constantly changing - Common for charge to be over the whole 'undertaking' / business - Lender takes risk that assets won't be replaced and the security will usually be postpones to fixed charge holders and preferential creditors OR may even be set aside

Answer 239

- A document which includes security in the form of a floating charge or sometime both fixed + floating charges - B/c they contain a floating charge, they can only be granted by a company / LLP

Answer 240

General Rules: - Between validly created charges of the same type, the first in time (date of creation) will have priority - Between a validly created fixed charge or mortgage and a floating charge, the fixed charge or mortgage will take priority (even if granted later) UNLESS: - Document creating floating charge contains a negative pledge clause; and - The later fixed charge has notice of this prohibition at the time when it takes its charge Possible for lenders to agree to a different arrangement as to their relative priority by entering into a deed of priority

Answer 241

Clause in a debenture which prohibits the creation of later fixed charges without permission

Answer 242

- Generally all charges created by a company may be registered at Companies House - Although registration isn't compulsory, the potential consequences of non-registration for a secured lender are so serious that registration is routine

Answer 243

Process involves submitting following to Companies House within 21 days of creation of the charge: - Form MR01 - Certified copy of the charge document - Relevant fee Company will receive a certificate of registration AND must update its register of charges

Answer 244

- Charge not registered in time is void against a liquidator, administrator or any creditor of the company - Debt will be payable immediately but will be unsecured - Potential for negligence on the part of the solicitors who fail to register a charge - Provision for court to extend the deadline, but this isn't guaranteed and priority will only be enjoyed from date of registration

Answer 245

- Copy of a charge + MR01 should be made available for inspect - When a charge is redeemed, Form MR04 should be completed and sent to Companies House

Answer 246

If a company / LPP defaults on repayment of the loan, the debenture holder may: - sue as a creditor - petition for the winding-up of the company - utilise any powers in the debenture document (e.g., appointment of receiver) Fixed charge holder will usually exercise their power to sell the charged asset

Answer 247

Return on Investment - Dividends may be paid if profit is available - Capital value may decrease as well as increase - Share issue may reduce both dividends + value of shares, as the shareholding is diluted Membership Rights - Yes Investment Repaid - Usually on sale / termination Transferability - May be restrictions on transfer Regulation - Heavy regulation (CA 2006) Taxation - Dividends not deductible for corporation tax purposes

Answer 248

Return on Investment - Interest will be paid under contract terms - Capital value will remain constant - Security may be taken to protect the lender - Other remedies may be available Membership Rights - No (a creditor) Investment Repaid - Under terms of agreement Transferability - Usually transferable Regulation - Contact law (less stringent) Taxation - Debenture interest is deductible for corporation tax purposes

Answer 249

- Business accounts are based on the double-entry system - Begin with a trial balance = obtaining all the credit and debit balances from the various account ledgers - Figures are then used to prepare the final accounts of the profit + loss account and the balance sheet

Answer 250

- Shows whether the business has made a profit or a loss in the relevant period (usually a financial year) - Income less expenses = net profit

Answer 251

- Usually recurring - Includes: sales (trading business), profit costs (service business), interest receive and rent received

Answer 252

- Usually incurred and exhausted over a short period of time - Necessary to keep the business running - Include: stock purchased, wages, utilities, rent, interest paid, insurance, repairs, petrol and hire charges

Answer 253

- Part 1: value of the business at a particular point in time = assets less liability - Current assets - less current liability = net current assets - Total assets - total liabilities = net assets - Part 2 (unincorporated business): what is owed to the owner at a particular point in time = capital plus net profit less drawrings

Answer 254

- Result of expenditure, but benefit is spread over a longer period of time - Non-current/fixed assets: land, vehicles + machinery - Current assets: cash + debtors

Answer 255

- Sums owed by the business - Current liabilities: those repayable within a year - Non-current/long term liabilities: those repayable beyond a year

Answer 256

Sum invested in the business by owners

Answer 257

Money withdrawn by the owner(s) of an unincorporated business on account of profits owed to them

Answer 258

- Business accounts are usually based on the accruals methods of accounting = items within the accounts should properly relate to the relevant period (e.g., the financial year) - It may be necessary to make adjustments to the accounts after the trial balance has been prepared to ensure that they are an accurate reflection of the position - Adjustments are usually made to both the profit + loss account AND the balance sheet to reflect these

Answer 259

- Payments that the business has made to advance, on account of a service or something that own't be used until the next financial year - Deducted as an expense in the profit + loss account - Included as a current asset in the balance sheet

Answer 260

- Payments the business will make in arrear, for services used in the financial year, but not yet paid - Included as expense in profit + loss account - Included as current liability in balance sheet

Answer 261

- Stock (trading business) and work in progress (services business) that hasn't been used / billed in the current financial year - Included as income in the profit and loss account - Current asset in the balance sheet

Answer 262

- Relates to closing stock /work in progress from the previous year - Deduct from income in profit and loss account - No entry on balance sheet

Answer 263

- Hidden expense + also has impact on the value of the business - Current year's depreciation is included as an expense in the profit and loss account - The accumulated depreciation to date is deducted from the value of the asset in the balance sheet ('net book value')

Answer 264

- A debt the business resolves will never be paid, so is written off - Included as an expense int he profit + loss account - Deducted from the debtor's figure (current asset) in the balance sheet

Answer 265

- Debt that the business decides is unlikely to be paid - Included as an expense in the profit and loss account - Deducted from the debtor's digure as a separate entity

Answer 266

- Profit + Loss account and the top half of the balance sheet is the same as for a sole trader - Appropriation account is added to the bottom of the profit + loss account - Second part of the balance sheet is adjusted to reflect that there is more than one owner of the business (comprises the capital account AND the current account for each partner)

Answer 267

- Amount of capital invested in the business by the partner - Usually kept separate from the current account so that the partner's investment can always be seen

Answer 268

- Extension of the profit + loss account - Shows the division of profits between the partners - Profit is divided into salaries, which are paid first, then interest on capital - Anything left (residual profit) is shared according to the profit-sharing ratio

Answer 269

- Partner's share of the business - Opening balance (what remains undrawn) + net profit share (from appropriate account) - drawings

Answer 270

- Differ to those of unincorporated businesses due to separate legal personality of company + regulation concerning shares - Main differences: share capital account + share premium account

Answer 271

Funds contributed by shareholders in exchange for shares at their nominal / par value

Answer 272

Funds contributed by shareholders in exchange for shares over their nominal / par value

Answer 273

Shown as expenses of the business rather than appropriation of the business

Answer 274

1. Corporation tax (profits are shown before and after tax) 2. Dividends 3. Retained profits

Answer 275

- Second part of balance sheet is usually headed 'capital' and 'reserves' - Shows what is owed to the shareholders

Answer 276

- Capital reserves = capital + share premium - Not usually distributable when company is solvent due to principal of capital maintenance

Answer 277

- Distributable - Most important is the profit + loss reserves (shows profit after tax and dividends)

Answer 278

- Directors must file annual accounts each year - Group companies may produce consolidated accounts, showing financial position of the whole group - Company accounts must comply with FRS102 (best practice guide produced by the accounting profession) + International Financial Reporting Standards of the International Accounting Standards Board

Answer 279

An individual may be insolvent when: - a debt is payable immediately or at some certain time in the future; and - the debtor appears either unable to pay it OR to have no reasonable prospect of being able to pay it

Answer 280

Three ways to show inability to pay: 1. A statutory demand has been served for a liquidated and unsecured sum of at least £5,000 or more, payable immediately AND after three weeks, it remains unsatisfied / no application to set it aside 2. A statutory demand has been served for a liquidated and unsecured future liability of at least £5,000, and three weeks have passed without reasonable prospect of payment being shown / an application to set it aside 3. Attempt has been made to enforce a judgment debt of at least £5,000 but it remains unsatisfied (bailiffs / sheriffs sent in to recover cash or items to satisfy the debt, but have been unsuccessful)

Answer 281

A formal written demand for payment

Answer 282

An exact sum, rather than one that needs to be calculated or assessed, that isn't secured

Answer 283

A debt that is deemed due following a judgment of the court

Answer 284

- Judicial process whereby most of the bankrupt's assets pass to a trustee in bankruptcy and the bankrupt becomes subject to restrictions - Majority of bankrupts are usually discharged and free of restrictions after one year

Answer 285

- Qualified insolvency practitioner who takes control of most of the bankrupt's property - Under a duty to maximise the funds that will be available to the creditors and to distribute the bankrupt's property

Answer 286

Bankruptcy process usually starts with a creditor's petition, although the debtor may seek to make a debtor's application

Answer 287

- A creditor owed a liquidated and unsecured sum of £5,000 or more may present a bankruptcy petition if a debtor is unable to pay their debts - Creditor will need to prove this by having followed one of the three methods to show inability to pay debts - If a creditor has a secured sum owed to them, they must relinquish their security to pursue the bankruptcy process - Joint petitions are possible if a creditor is owed less than £5,000 - Court fee and deposit to cover the costs of the trustee in bankruptcy must be paid - Petition must usually be filed at the debtor's local county court with bankruptcy jurisdiction, and then served on the debtor

Answer 288

- Debtor is unable to pay their debts, an online application for bankruptcy may be made - Will be decided on by an adjudicator (an official acting for the Insolvency Service) - Application fee and deposit to cover the costs of the adjudicator/official receiver must be paid - A bankruptcy order must usually be made within 28 days - An individual will usually make a debtor's application as a self-help measure, to avoid pressure from creditors where a creditor's petition is inevitable

Answer 289

- When a bankruptcy order has been made, the official receiver (officer of the court) takes control of most of the bankrupt's assets and acts as trustee in bankruptcy - Bankrupt must produce a statement of affairs, setting out their financial position to assist the trustee - Trustee has wide powers to realise assets - Trustee may also investigate and unwind transactions to maximise the available funds to creditors

Answer 290

- Title to the bankrupt's property vests in the trustee, with the exception of tools of the trade + everyday items (clothing and furniture) - If exceptional items are of high value, trustee may insist that they are sold + substituted with cheaper items to increase funds available to creditors - If the bankrupt's salary is more than is needed for reasonable needs, an income payments agreement may be agreed OR an income payments order made - Under agreement, bankrupt must make contributions to funds available to creditors for any period of up to three years

Answer 291

- Bankrupt's interest in his home will pass to the trustee - Where the bankrupt has sole legal + beneficial interest in the home + no one else has an interest / right of occupation, a court order won't be required to sell it - Other case = court order required - Court will consider factors such as: interests of creditors, spouses / civil partners and children - After one year the creditor's interests are paramount UNLESS there are exceptional circumstances - Three years after the bankruptcy order, ownership reverts to the bankrupt UNLESS alternative arrangements have been made

Answer 292

Trustee in bankruptcy may investigate past transactions: - Disclaiming onerous property - Transactions at an undervalue - Preferences - Transactions defrauding creditors - Extortionate credit transactions

Answer 293

- Trustee may disclaim onerous property to reduce liability - I.e., property of the bankrupt that is essentially a liability / drain on resources, rather than an asset (e.g., rent, land that is heavily polluted or contracts that are making a loss) - Disclaimer = liabilities cease - Anyone who suffers as a result of such disclaimer may claim as an unsecured creditor for what is owed to them - Can also push the trustee into making a decision to disclaim = ask trustee to disclaim within 28 days, after which it will no longer be possible for the trustee to do so

Answer 294

- Trustee may investigate and set aside transactions at an undervalue - I.e., a gift/sale of a property where the consideration received is significantly less than the value of the property - Trustee can set aside undervalue transactions going back up to five years Transaction between 0-2 year prior date of insolvency: - No additional pre-conditions Transaction between 3-5 years prior date of insolvency: - Insolvency needs to be proved - Insolvency is presumed in favour of an associate (rebuttable presumption)

Answer 295

- Relatives = including brother, sister, uncle, aunt, nephew, niece, lineal ancestor or lineal descendant - Spouse / civil partner and their relatives - Spouse / civil partner of relatives - Business partners and employees/employers - Company controlled by a person either alone OR together with their associate

Answer 296

- Trustee may investigate and set aside voidable preferences - I.e., an arrangement that places a creditor / guarantor in a better position than they would otherwise have been in in the event of an individual's bankruptcy (repaying them as priority or giving them security over other creditors) Transaction made between 0 - 6 months from date of insolvency: - Insolvency must be proved - Desire to prefer must be proved - Desire to prefer presumed if in favour of associate Transaction made between 6 months - 2 years from date of insolvency: - Must be in favour of an associate - Insolvency must be proved - Desire to prefer presumed in favour of associate

Answer 297

- Trustee may investigate and set aside transactions defrauding creditors - I.e., an undervalue transaction where there is an intention to put assets beyond the reach of someone / prejudice their interests in relation to a potential claim - No time limit - Section often used where the relevant time for undervalue transactions has expired - Harder to prove than simple undervalue b/c intention required

Answer 298

- Trustee may investigate and set aside or vary the terms of extortionate credit transactions - Provision seldom used + lack of case law on requirements Requirements: - Credit transaction entered into within 3 years of relevant date; AND - Grossly exorbitant payments OR grossly contravenes ordinary principles of fair dealing

Answer 299

1. Secured creditors (sum realised by charged asset(s) exceed secured debts, must pay any surplus to the trustee) 2. Costs of bankruptcy 3. Preferential creditors 4. Unsecured creditors 5. Postponed creditors (spouse/civil partner of bankrupt) If there are insufficient funds to settle preferential debts or unsecured creditors those within the category receive amount via pari passu method

Answer 300

Primary Preferential Debts: - wages for work carried out in the four months preceding the bankruptcy order (max £800) - accrued holiday pay Secondary Preferential Debts: - HMRC for PAYE and VAT owed

Answer 301

- Bankrupts are subject to numerous restrictions on activities until discharged from bankruptcy - May face criminal liability in event of breach Restrictions: - Must disclose their bankruptcy if obtaining credit > £500 - Cannot act as a director - Must disclose their bankruptcy if trading under a different name - Cannot be a partner - Cannot be involved in the company management, promotion or formation without leave of court - Require the leave of the SRA to practice as solicitor

Answer 302

- Most bankrupts are discharged after one year - Bankruptcy restriction orders (BROs) or bankruptcy restriction undertakings (BRUs) may continue to apply - Liability to repay student loans will continue

Answer 303

- Provide additional restrictions for particuarly 'culpable' bankrupts for any period between 2 - 15 years - Aim to protect the public from financially reckless - BRUs = entered into by agreement - BROs = issued by court

Answer 304

- Individual voluntary arrangment - Debt Relief Order - Debt Respite Schemes

Answer 305

- Binding agreement to settle between debtor + unsecured creditors - Avoids the stigma of bankruptcy and may give the creditors a better result than on bankruptcy - Debtor appoints nominee (insolvency practitioner) to become supervisor of the IVA - Debtor produces a statement of affairs + applies to court to obtain a moratorium (stay on further proceedings / enforcement of usually 14 days) - ≥ 75% creditors in value must agree to the proposals AND ≥ 50% of non-associates of debtor must approve - If approved binding on every ordinary, unsecured creditor - If debtor defaults, petition may be made for their bankruptcy - Preferable to informal agreement with a creditor which could be viewed as a voidable preference

Answer 306

DRO involves the write-off of debts and is only available where assets + liabilities are low: - unsecured liabilities ≤ £30k - gross net assets ≤ £2k - ≠ car worth > £2k - ≠ disposal income of > £75 per month - ≠ have a DRO in the proceeding six years - ≠ be subject to other insolvency proceedings Debtor is usually discharged and free of debt after one year

Answer 307

- Commenced in May 2021 - Provides breath space for up to 60 days (generally) OR 30 days plus any treatment period (for a mental health crisis) - Provides time during which no further action can be taken against the debtor

Answer 308

4 ways to show: - Cash flow tests (unable to pay debts as they fall due) - Balance sheet test (liabilities > assets) - Statutory demand has be served for a liquidated dum of ≥ £750 and has been unsatisfied after 21 days - Attempt has been made to enforce a judgment debt against company, but remains unsatisfied

Answer 309

Insolvent company may go into: - Liquidation (winding-up) - Administration - Formal agreements: CVA + restructuring plan Secured creditors may have additional options

Answer 310

- Most drastic insolvency procedure for companies - Involves company ceasing to trade - Liquidator (insolvency practitioner) takes control to review past transactions, sells assets + distributes the proceeds to creditors - Company is then dissolved Three Types: - Compulsory liquidation - Creditors' voluntary liquidation - Members' voluntary liquidation

Answer 311

- Commenced by a creditor presenting a 'winding-up petition' when a company is insolvent - Corporate equivalent of a bankruptcy petition - Creditor will usually prove inability to pay by showing that a statutory demand has been unsatisfied for 21 days - Debt disputed = petition will be unable to proceed + court may adjourn the hearing if the company says it will be able to pay the sum due within a reasonable period - When winding up order is made by court, official receiver (officer of the court) becomes the liquidator

Answer 312

- Corporate equivalent of a debtor's application for bankruptcy - CVL commenced by an insolvent company usually as a response to creditor pressure and/or by concern of the directors as to personal liability Procedure: 1. SR to place company into CVL (winding up commencement) + OR to appoint nominated liquidator 2. Within 14 days, company must ask creditors to approve nominated liquidator OR put forward liquidator (takes precedence) 3. Directors draw up statement of company’s affairs + send to company’s creditors - Dissolution = 3 months after filing final accounts + return with Companies Registrar

Answer 313

- Commenced by a solvent company - Often used for corporate re-structuring or for closing down a company that is no longer needed Procedure 1. Directors swear declaration of solvency: company can pay creditors in full with interest within 12 months AND provide statement of company’s assets & liabilities. Doesn’t have reasonable grounds to sign declaration of solvency = fine/imprisonment (presumed where debts aren’t paid) 2. SR to place company into MVL (winding up commencement) + OR to appoint a liquidator - Dissolution = 3 months after filing final accounts + return with Companies Registrar

Answer 314

- Liquidator takes over company + directors' powers cease - Liquidator has wide powers to manage and wind-up company - Include ability to investigate and unwind past transactions - After submission of final accounts, liquidator may apply to be released + company will be dissolved three months later

Answer 315

- Floating charges - Preferences - Transactions at an Undervalue - Extortionate Credit Transactions - Transactions Defrauding Creditors

Answer 316

- A floating charge will automatically be void if granted at the 'relevant time' before insolvency without company receiving fresh consideration - Relevant time = 2 years (connected person) or 12 months (unconnected person) Transaction 0 - 1 year before date of insolvency: - May be in favour of a connected or unconnected person - Insolvency must be proved in favour of unconnected person - Insolvency presumed in favour of connected person Transaction 1 - 2 year before date of insolvency: - Must be in favour of a connected person - Insolvency is presumed in favour of connected person

Answer 317

CREDITOR / GUARANTOR Transaction 0 - 6 months before date of insolvency: - Insolvency needs to be proved - Desire to prefer needs to be proved - Desire to prefer is presumed as in favour of a connected person Transaction 6 months - 2 years before date of insolvency: - Must be in favour of a connected person - Insolvency needs to be proved - Desire to prefer is presumed as in favour of a connected person

Answer 318

Defence = transaction was entered into in good faith for the purpose of carrying on business AND there is reasonable grounds for believe it would benefit the company Transaction 0 - 2 years before date of insolvency: - Insolvency must be proved - Insolvency presumed if in favour of a connected person

Answer 319

1. Liquidator fees 2. Fixed charge holder 3. Liquidator fees 4. Preferential debts 5. Prescribed part fund 6. Floating Charge holders 7. Unsecured creditors (must usually complete a form to prove their debt) 8. Interest 9. Shareholders

Answer 320

- First £10k = 50% - Balance = 20% Caps: - Granted on/after 6 April 2020: £800k - Granted before 6 April 2020: £600k

Answer 321

- Administration - CVA - Moratorium - Receivership

Answer 322

- Administrator (insolvency practitioner) runs the company with the aim to rescue it and/or enable it to be sold as a going concern - Must act in the interest of the creditors - General priority is to achieve a better result than on winding up - Creates a moratorium which prevents proceedings or the continuance of proceedings against the company - Can appointed through the court OR out of the court

Answer 323

Available if company is likely to be unable to pay its debts administration is likely to achieve its purpose 1. Apply to Court - Where company is/likely to become unable to pay its debts - Application by: company/directors/creditor/supervisor of CVA/liquidator 2. Interim Period - Interim moratorium: temporary freezes creditor action 3. Hearing + Order - Court considers if appointment of administrator is likely to achieve the purpose of the administration Qualifying Charge Holders was well as those entitled to appoint an administrative receiver must be notified

Answer 324

1. File NOI + serve QFCH 2. Wait 5 business days 3. Appoint + file Notice of Appointment – within 10 business days after NOI has been filed at court 4. Administrator appointed

Answer 325

1. Enforce security per terms of the QFC 2. Appoint + file Notice of Appointment 3. Administrator appointed

Answer 326

Floating charge with: - Power to appoint, - Relates to whole / substantially the whole of the company's property; and - Purports to empower the QFC holder to appoint an administrator / administrator receiver

Answer 327

- Administrator has duty to all creditors + moratorium will continue whilst they act - Majority in value of creditors, present + voting at meeting convened by administrator, must vote in favour of proposals - Resolution won't be passed if > 50% in value of creditors who are unconnected to the company vote against proposals - Administrator manages the company + moratorium continues - Directors' powers cease BUT remain employed - Administration ends after one year unless extended / ended earlier by administrator or creditor

Answer 328

- Binding agreement between company + creditors - Formal compromise agreement whereby creditors accept part payment and/or delay in payment - Outcome for creditors can be better than on winding up - Usually cheaper than administration Approval: - ≥ 75% in value of company's creditors; and - ≥ 50% unconnected creditors If approved proposal is binding on all unsecured creditors in respect of past debts

Answer 329

- Introduced by CIGA 2020 - Permits company to enjoy a moratorium of 20 business days to give it breathing room - Can be extend by directors for +20 business days - Further extension requires consent of a requisite majority of creditors and/or court order - Maximum period = 1 year – subject to court order for further extension

Answer 330

Secured creditors may appoint an: - LPA receiver: fixed charge holder may appoint an LPA receiver, usually to sell the property (power to appoint in charge document); OR - Administrative receiver: appointed by floating charge holder for charged created before 15 September 2003 (power to appoint in charge document and usually run company + sell charged assets)

Answer 331

- Individuals (including sole traders) - Individual partners - Trustees - PRs

Answer 332

- Tax on the increase in an asset's value during a period of ownership - Charged on a chargeable gain made by a chargeable person on disposal of a chargeable asset

Answer 333

- Most forms of property are chargeable assets (apart from sterling) - Includes tangible and intangible property (e.g., land and shares) - Won't usually include plant / machinery and motor vehicles b/c these are wasting assets

Answer 334

- Includes sale (whether a full value or undervalue) or a gift - Death will usually give rise to a charge of IHT NOT CGT

Answer 335

The part of the gain which is liable to tax (after apply any reliefs or exemptions)

Answer 336

- An individual's home is usually exempt from CGT under the PPRE - CGT is always payable on second homes and investment properties

Answer 337

- Tax year is same as income tax (6 April one year to 5 April next year) - Capital gains builds up over a period, as an asset appreciates in value - CGT is paid on the genuine increase in an asset's value NOT b/c of capital improvements

Answer 338

1. Calculate Basic Gain Disposal Value [Acquisition Cost/Value] [Allowable Expenditure] = Basic Gain 2. Apply Exemptions + Reliefs = Chargeable Gain 3. Charge CGT at appropriate rates

Answer 339

Usually sale price BUT can be the market value where: - A gift - A sale at an undervalue with a gift element OR actual sale price will be used for a sale at an undervalue as a result of a bad bargain - Disposal to a connected person

Answer 340

- Spouse and civil partners - Close relatives - i.e., parents, children, grandparents, grandchildren and siblings, NOT uncles, aunts and nieces and nephews - Close relatives of one's spouse / civil partner

Answer 341

CGT is charged on a genuine increase in an asset's value, following three categories are of allowable expenditure may be deducted: - Incidental costs of acquisition (e.g., solicitor's fees + surveyors fees) - Subsequent expenditure - cost of capital improvements that increase the size of the property. DOESN"T cover the cost of repair, redecoration or replacement of item - Incidental costs of disposal (e.g., estate agents' and solicitor's fees)

Answer 342

Gain that has been made after the acquisition cost + allowable expenditure have been deducted from the disposal value BUT before application of reliefs + exemptions

Answer 343

- Partnerships are transparent for CGT purposes and each partner is treated as owing a fractional share of each of the chargeable assets of the firm - On disposal by the partnership, each partner is considered to be making a disposal of their fractional share in an asset 1. Identify the fractional share of capital gain for the partner (capital gains are shared equally unless there is an express / implied agreement to the contrary) 2. Calculate the gain by apportioning the relevant fractional share of the acquisition cost, disposal proceeds and allowable expenditure to the partner - When paying CGT, reliefs and rates apply to the individual partners - When a partner leaves, they are treated as disposing of their proportionate share to the other partners - When a new partner joins, each partner is treated as disposing of part of their existing share to accommodate the new partner

Answer 344

- 18% – basic rate (including residential property gains) - 24% – higher rate (including residential property gains) - 10% for gains qualifying for Business Asset Disposal Relief

Answer 345

- CGT is a progressive tax = rate increases as capital gains increases - Individuals may make use of the lower rate(s) first but pay CGT at the higher rate(s) as their CG increases

Answer 346

- Business Asset Disposal Relief (BADR) - Annual Exemption - Hold-Over Relief - Roll-over Relief on Replacement of Business Asset (ROR) - Deferral Relief on Reinvestment in EIS Shares (DR) - Investor's Relief (IR) - Roll-over Relief on Incorporation of a Business - Transfers between spouses - Buyback of shares

Answer 347

Applies where there is a qualifying business disposal: 1. The sale / gift of the whole or part of the business carried on the sole trader or partnership, provided that the business has been owned for at least 2 years prior to disposal 2. Sale / gift of shares in a company provided that: - company is a trading company, - shareholding represents are least 5% of the company's ordinary voting shares with the right to at least 5% of the profits/assets or sale proceeds of the company - the individual is an employee / officer of the company - these conditions have been satisfied for at least 2 years prior to disposal 3. Sale or gift of assets using by such a trading company or partnership business but are owned individually by the partner/shareholder. Assets must have been owned for at least 3 years AND used by the business throughout the previous 2 years - For qualifying gains, an allowable lifetime limit of £1mill is taxed at a flat rate of 10% - Qualifying gains made above this allowable lifetime limit of £1mill will be taxed at the appropriate rate - If applicable, the annual exemption can be used against qualifying gains, as tax is being paid - Time limit = on/before the first anniversary of the 31 January following the tax year of disposal

Answer 348

- The amount of capital gain that na individual can make each year without being subject to CGT - £3,000 (can use previous year if unused) - Only possible to use AE when tax is paid (not when liability to tax is being held-over or rolled-over or deferred) - AE available to anyone who hasn't made any previous capital disposals in the relevant tax year

Answer 349

- Effect = postpone the potential payment of CGT until the eventual disposal by the transferee of the business asset concerned - Available to an individual who disposes of a business asset by way of a gift (or at an undervalue if there is a gift element) provided both parties (transferor and transferee) elect for it to apply - Election must be made within 4 years from the end of teh tax year in which the disposal was made - Neither AE or BADR can be used in conjunction with HOR b/c gains is being held-over, so tax isn't being paid - If available, both AE and BADR can be applied when disposing of the asset

Answer 350

Includes assets used int he transferor's trade, shares in a trading company not listed on a recognised stock exchange, shares in a trading company where the transferor owns at least 5% of the vote shares ('personal company') and assets owned by a shareholder and used in his 'personal company'

Answer 351

- Effect: postpone the potential payment of CGT until the replacement asset is sold - Available if a qualifying business asset is sold and the proceeds of sale are then used to buy another qualifying business asset (within 1 year before or 3 years after the sale of the original asset) - Neither AE or BADR can be used in conjunction with ROR b/c the gain is being rolled over so tax isn't being paid - Both available on the subsequent disposal of the asset - can be claimed within 4 years from the end of teh tax year in which the replacement asset is acquired

Answer 352

- Include most business assets used to trade - Includes assets owned by a shareholder but used by a company (provided shareholder has at least 5% of the voting shares) - ≠ Company shares - It isn't requirement for teh assets disposed of and replaced to be of the same type

Answer 353

- Effect = postpone the potential payment of CGT until Enterprise Investment Scheme shares are sold Deferral Relief = available following a disposal of any asset by an individual (not just business assets) who then reinvest the proceeds of sale in buying EIS shares within one year before or three years after the sale of the original asset Enterprise Investment Scheme (EIS) = offers tax reliefs to individual investors who buy new shares in a company whose shares are part of the scheme - Neither AE nor BADR can be used in conjunction with DR b/c the gains is being deferred, so tax isn't being paid - If available, both can be applied on the subsequent disposal of the asset

Answer 354

IR can be used for gains made on the disposal of qualifying shares in unlisted trading companies: - Shares must be fully paid ordinary shares - Issued to the investor in return for cash on/before 17 March 2016 - Must have been held by investor for at least three years from 6 April 2016 Special rate of 10% applies to the gain (subject to lifetime cap of £1mill)

Answer 355

- Applies to postpone the potential CGT when an unincorporated business is incorporated - I.e., where there is a transfer of a business as a going concern (a business which is operating and making a profit) with all of its assets. - Only applies to the extent that the business is transferred in consideration for shares - AE and BADR cannot be used in conjunction with it - If available both can be applied on the subsequent disposal of the asset

Answer 356

- Transfers between spouses are deemed to be made with no gain / loss - Any liability to tax is deferred until the eventual disposal of them

Answer 357

- Involves the the payment of income tax by the shareholder as the consideration is taxed as a dividend - In some circumstances, CGT will be payable instead Occurs where: - The company is an unlisted trading company, - The buyback is to benefit the trade, - The shares have been owned for at least 5 years, and - The shareholding must be reduced by at least 25% to a max of 30% of the company's shares

Answer 358

- Part of the self-assessment scheme - Usually payable by 31 January following the end of the tax year - Provision calculation must be made and tax paid within 30 days of completion of a residential property, where CGT is payable - Instalment options are available in some circumstances

Answer 359

- General anti-avoidance rule (GAAR) applies to CGT - HMRC may make adjustments to liability where required

Answer 360

- Death will usually give rise to a charge for IHT and not a charge to CGT - PRs acquire property at market value on the date of death of the original owner

Answer 361

Requirements for relief: - Assets owned for at least 2 years prior to transfer OR be a replacement for assets with a combined period of ownership of > 2 years On death there is no charge (100% relief) to IHT in respect of: - An interest in an unincorporated business - The value of unlisted company shares relevant to trading activities On death there is a 50% relief on the value transferred for IHT purposes: - Listed company shares where the transferor had voting control immediately prior to the transfer (> 50%) - Land, buildings, plant and machinery owned by the transferor but used either (a) int he business in which they were a partner or (b) a company in which they have voting control Control (> 50%) takes into account the shares of spouse/civil partner Transfer to spouse: - Any spouse / civil partner is deemed to have owned the property from the original acquisition date (except if lifetime transfer) - If spouse subsequently transfers relevant property, BPR may apply even if they haven't themselves owned teh assets for the relevant period Lifetime Transfer: - If the transferor dies within 7 years of a lifetime transfer, BPR will be withdrawn unless the business property / substituted business property is still owned by the transferee - If sold + proceeds are used to pay off debts + make home improvements ≠ BPR Death Estate: - BPR won't apply if there is a binding contract for the sale of the relevant property rather than an option for the continuing partners to buy - The interest will be in the proceeds of sale rather than relevant business property

Answer 362

Tax chargeable on a company's income profits and capital gains

Answer 363

- Companies pay corporation tax on both their income profits and capital gains - Income profits of companies are calculated according to income tax principles - Capital gains of companies are calculated according to CGT principles - Companies are assessed for corporation tax of their income profits and capital gains during the corporation tax financial year - Corporation tax financial year = 1 April to 31 March next year - If the company's accounting period differs from the CTFY and the rate changes, the company's profits will have to be apportioned

Answer 364

- Companies with taxable profits of up to £50,000 = 19%. - Companies with taxable profits of more than £250,000 = 25% (on the taxable profits in their entirety). - Companies with taxable profits above £50,000 but not exceeding £250,000 = marginal relief

Answer 365

1. Calculate income profits 2. Calculate chargeable gains 3. Add together the income profits and chargeable gains to give total profits 4. Apply reliefs 5. Calculate tax

Answer 366

- Any gains made from disposing of copyrights, patents and trademarks are treated as income, rather than capital gains - Expenditure on them is treated as a deductible expense

Answer 367

- Once basic gain has been calculated, the indexation allowance may be applied BUT only on certain allowable expenditure - Indexation allowance = adjustment(s) to account for any increase in value that is simply a result of inflation between 31 March 1982 - 31 December 2017 - Applies too: acquisition cost, incidental costs of acquisition and subsequent expenditure - DOESN'T apply to: disposal value or incidental costs of disposal

Answer 368

- Same as above - Although treated as income, roll-over relief will be available for goodwill + IP if such assets are sold and replaced with other goodwill or IP

Answer 369

- Carry-across / carry-back relief for trading losses - Terminal carry-back relief for trading losses - Carry-forward relief for trading losses

Answer 370

- Carry-across = set trading loss against total profits for the same accounting period - Carry-back = if the full loss isn't absorbed with carry-across, set trading loss against total profits of the same trade during the accounting period(s) in the previous 12 months Time limit for claim = within 2 years from the end of the loss-making accounting period

Answer 371

- For losses in the final year of trade - Set trading losses against total profits from the loss-making accounting period AND the previous three accounting periods before the start of the start of the final 12 months of trade Time limit for claim = within 2 years from the end of the loss-making accounting period

Answer 372

- Set trading loss against subsequent total profits (or profits of the same trade if the conditions are met) in the next accounting period AND subsequent accounting periods. until loss is absorbed - Conditions: company must continue to trade + certain trades are excluded (farming) Time limit for claim = within 2 years from the end of the accounting period where losses will be applied Cap = £5 mill plus 50% of remaining total profits after deduction of the allowance

Answer 373

Company may deal with profits in five main ways: - Retain them in the business - Pay them as dividends to its shareholders (not deductible expenses) - Use them to pay loan/debenture interest (deductible expense) - Pay directors' fees / remuneration to directors (deductible expense) - Make loans to directors/shareholders (not deductible expenses)

Answer 374

Close Company: - Controlled by ≤ 5 participators; OR - Controlled by any number of participators who are also directors Participator: - Shareholders and debenture holds Controlled: - Own / have right to acquire, a majority of voting shares; OR - Have the majority of voting powers When determining rights, must include spouse, parents, children, siblings and business partners into account

Answer 375

- Rules are designed to stop people involved in certain companies receiving loans which are untaxed - If a close company makes a loan to a participator or a participator's associate the company must make a levy to HMRC equivalent of 32.5% of the loan - If the loan is repaid, the levy will be refunded and there are not tax consequences for the recipient - If the loan is written off the levy is refunded to company BUT in the hands of the recipient it is taxed in the same way as a dividend

Answer 376

- Company is in the business of money lending AND the loan is made as part of the business - (1) Loan + any outstanding loan balances don't > £15k, (2) borrower works full-time for the company, and (3) owns ≤ 5% of the company's shares

Answer 377

For purposes of group relief for income profits and expenses, a group company is one: - that owns ≥ 75% of the other's ordinary shares; or - both companies own ≥ 75% of the ordinary shares in another company For purposes of group relief for chargeable gains, a group includes: - Companies that directly own ≥ 75% of another's ordinary shares - All of the companies must be entitled to ≥ 50% of the profits and assets of each company within the group

Answer 378

Allows certain income losses and expenses (not capital losses) to be transferred from one group company to another, to reduce the transferee's income profit, in an accounting year which overlaps between the two companies

Answer 379

- Self-assessment + HMRC must be notified within 3 months of the start of the first accounting period - Usually payable nine months and one day from end of the accounting period + tax return must be made by 12 months from the end of the accounting period - Companies with taxable profits ≥ £1.5 mill pay CT by 4 instalments (date set by HMRC) - Different dates for companies with annual taxable profits >£20mill

Answer 380

Method used by criminals to make it appear as though proceeds of crime derive from legitimate source

Answer 381

- Refers to the benefits that flow from criminal activity - E.g., property that has been stolen / fraudulently obtained

Answer 382

1. Placement = money from criminal activity is introduced into the financial system 2. Layering = money passes through a number of parties / transactions to distance it from criminal activity 3. Integration = money is integrated back into the financial system + criminal takes possession of the 'laundered money'

Answer 383

- Global money laundering + terrorist financing watchdog - Inter-governmental body that sets international standards designed to prevent money laundering

Answer 384

- Money Laundering, Terrorist Financing + Transfer of Funds Regulations 2017 (MLRs) + POCA - MLRs imposes a number of duties on firms

Answer 385

18 - Maintain a written risk assessment hat identifies + assess the risk of the firm being used for money laundering 19 - Firms must establish + maintain policies, controls and procedures to mitigate + manage the money laundering risks identified in the risk assessment 21 - Firms must appoint a money laundering compliance officer (MLCO) to be responsible for the firm's compliance with the MLRs. Firm must appoint a nominate officer (money laundering reporting officer / MLRO) who receives internal reports of suspicious activity and, where appropriate, must make Suspicious Activity Reports (SARs) to the NCA (National Crime Agency). The SRA must be notified of any changes to teh identity of the MLCO or MLRO 24 - Firms must provide staff with appropriate training on money laundering + maintain records of the training staff have undertaken 27 + 28 - Firms must verify the identity of each of their clients (customer due diligence). Verification must taken place as soon as possible after first contact + records of CDD and supporting docs must be retained for 5 years

Answer 386

Measures to identify and verify a client as to reduce risk of money laundering

Answer 387

- Forming a business relationship - Carrying out an occasional transaction that amounts/ exceeds approximately £15,000 - Solicitor suspects money laundering - Solicitor doubts the accuracy or adequacy of documents/information previously provided for CDD purposes

Answer 388

Where a client is a corporate body, solicitors must obtain + verify: - its name - its company number - the address of its registered office, and, if different, its principal place of business - Where corporate body isn't listed on a regulated market, the solicitor should ascertain the law the body is subject to, its constitution, the names of the board of directors + senior persons responsible for its operation

Answer 389

- Permitted where business relationship / transaction is a low risk of money laundering - e.g., company well known financial institution / whose securities are listed on a regulated market - Simplified CDD = e.g., obtain confirmation of the company's listing on the Stock Exchange

Answer 390

Where risk of money laundering is higher: - Person established in a high-risk third country - A politically exposed person (PEP): someone appointed by a community institution, international body of a state to a high-profile position within the last 12 months - A family member/known associated of a PEP - Any other situation that presents a higher risk of money laundering (e.g., never having met client in person) Enhanced CDD must involved: - Examining the background + purpose of the transaction - Increasing monitoring of the business relationship - Obtaining additional information from reliable sources

Answer 391

- Client being secretive, uncooperative or evasive - Client avoids personal contact, refuses to provide information or documentation or is known to associate with criminals - Unusual source(s) of funding - Unusual transactions or instructions - Unnecessary movement of monies between different jurisdictions or movement of monies to/from jurisdictions known to be high risk

Answer 392

- Solicitor knows / suspects money laundering activity = must make report to firm's nominate officer / MLRO - MLRO/nominate officer = must carefully consider report + whether or not to make a SAR to the NCA - MLRO / nominated officer knows or suspects of money laundering activity = must make a SAR to the NCA

Answer 393

- Solicitors + nominated officers are required to make a report / disclosure as soon as is practicable once they suspect possible money laundering activity - Ideally before relevant business takes place

Answer 394

- MLROs/nominated officers are responsible for submitting SARs to the NCA - NCA encourages nominated officers to use the SAR's securely encrypted online system wherever possible OR submit by post/fax - SAR should identify the suspect + give additional information about suspect (address, account numbers, NIN), details of any other party(s) involved + a clear description of reasons for suspecting money laundering activity

Answer 395

Solicitors + nominated officers who fail to report suspicion / knowledge of money laundering = commit offence under POCA

Answer 396

- General law that applies to everyone (including lawyers) - Direct involvement offences: D actually involved int he money laundering activity - Non-direct involvement offences: failure to respond appropriately to possible money laundering activity

Answer 397

s 327 - Solicitor commits an offence if he conceals, disguises, converts or transfers criminal property / removes it from the UK s 328 - Solicitor commits an offence if he enters into / becomes concerned in an arrangement which he knows/suspects facilitates the acquisition, retention, use or control of criminal property by or on behalf of another person s 329 - Solicitor commits an offence if they acquire, use or have possession of criminal property

Answer 398

s 330 - Solicitor commits an offence if they fail to disclose information about money laundering to the appropriate authorities - Solicitor must have know, suspected or had reasonable grounds to know/suspect of money laundering (looking @ information available from objective position) s 331 - Nominate officer commits an offence if they fail to disclose information about money laundering to appropriate authorities s 333A(1) - Offence to reveal to a third person that an internal or external disclosure/SAR has been made if such a revelation might prejudice an ensuing investigation s 333A(3) - Third party is made aware that an investigation into money laundering is being contemplated or carried out

Answer 399

- Consent Defence / defence against money laundering (DAML) - Reasonable excuse defence - Adequate consideration defence - Training defence - Privileged circumstances - Legal overseas conduct

Answer 400

- Nominated officer can request 'consent' for activities that would otherwise be prohibited under POCA when submitting SAR - If NCA grants consent, solicitor has a DAML but only applies to activities which NCA has specifically consented for - NCA doesn't respond to DAML request within 7 days, solicitor may assume they have deemed consent - NCA refuses consent, solicitor doesn't have DAML

Answer 401

- Solicitor / nominated officer intended to make an authorised disclosure but had a reasonable excuse for not doing so - No judicial guidance on reasonable excuse

Answer 402

- Applies only to s 329 - Solicitor received adequate consideration for their services - Doesn't apply where solicitor knew / suspected that their services may facilitate criminal activities - Defence ≠ apply if payment is disproportionately higher than value of the work undertaken

Answer 403

- Only s 330 - A firm's failure to provide anti-money laundering training may provide a solicitor with a defence - Doesn't apply where actual knowledge / suspicion existed

Answer 404

Only s 330 Information communicated (not for the intention of furthering a criminal purpose): - by a client, or a representative of a client, in connection with the giving of legal advice to the client - by a client or by a representative of a client, seeking legal advice; or - by a person in connection with legal proceedings or contemplated legal proceedings

Answer 405

- s 330 + s 331 - Criminal conduct occurred abroad + was lawful in country where it took place + had it occurred in the UK wouldn't be punishable by 12 months' imprisonment or more

Answer 406

- s 19 Financial Services + Markets Acts 2000 - No person may carry on a regulated activity in the UK unless authorised or exempt - A person / business will commit a criminal offence if they breach the general prohibition

Answer 407

- Financial Conduct Authority (FCA) = businesses, firms + financial advisors - relevant to solicitors - Prudential Regulation Authority (PRA) = financial institutions - banks + building societies

Answer 408

- Consumer protection = ensure appropriate degree of protection for consumers of financial services - Integrity objective = protecting + enhancing the integrity of the financial system - Competition objective = promoting effective competition in the market

Answer 409

Activities that can only be carried on by persons with appropriate authorisation / by persons exempt from such authorisation 1. An activity of a specified kind; and 2. Relates to a specified investment; and 3. Carried on by way of business

Answer 410

- Dealing in investments as agents - Arranging deals in investments - Managing investments - Advising on investments - Safeguarding and administering investments

Answer 411

- Solicitor buys, sells, subscribes for or underwrites an investments on behalf of a client; and - Commits that client to transactions

Answer 412

Solicitor acts as a contact between client + third party

Answer 413

- Managing investments on behalf of client - Solicitor must be actively involved in the management of the investment - Management must involved exercise of discretion

Answer 414

Solicitor gives specific advice on the merits of buying, selling, subscribing for or underwriting an investment

Answer 415

Protecting + administering investments belonging to a client

Answer 416

Includes: - Company stocks + shares - Debentures, loan stock + bonds - Government + public securities - Open-ended investment companies (OEICs) - Insurance contracts - Regulated mortgage contracts - Home reversion + home purchase plans - Deposits - Credit agreements Excludes: - Interests in land - certain National Savings products

Answer 417

- Solicitor must carry on the relevant activity in the course of business - e.g., Solicitor, acting in that capacity, providing services to a client

Answer 418

Activity that would regularly be considered a regulated activity isn't considered to be one - Introducing an authorised person (arranging investment) - Arranging or dealing through an Authorised Third Party (ATP): arrangement is based on advice of ATP/ATP deals with teh investment BUT not if solicitor receives any pecuniary award / other advantage for which solicitor doesn't account to client - Activities carried on in the course of the a profession or non-investment business (necessary part of services provided by a profession / business that doesn't otherwise carry on regulated activities in the UK) - Activities carried on in connection with a sale of a body corporate (≥ 50% shares AND acquisition are a body corporate / partnership / single individual / connected individual) - Acting as a trustee, nominee or PR + doesn't receive additional remuneration

Answer 419

- Activities which may be carried on by persons exempt from FCA authorisation by virtue of the designated professional body exemption of FSMA - Firm exempt = can carry on exempt regulated activities (won't breach prohibition)

Answer 420

- SRA, through the Law Society, is a DPB - Firms authorised by the SRA may carry on exempt regulated activities without being regulated by FCA if they meet s 327 conditions + follow Scope Rules

Answer 421

- Person is a member of a profession / controlled by 1/+ members - Person must not receive from anyone person other than his client any pecuniary reward / other advantage for which he doesn't account to his client - Provision of regulated activities must be incidental to the provision of professional services (scale, advertisement + impression created) - The activities must be the only regulated activities carried on by the person (cannot be used by firms authorised + regulated by FCA)

Answer 422

Rule 2 - Status Disclosure, including: - Statement that solicitor isn't authorised by FCA - Solicitor's name + practising address - Nature of the regulated financial services activities carried out by solicitor - Statement that the firm is authorised + regulated by FCA - Statement that complaints + redress mechanisms are provided through the SRA + Legal Ombudsman Rule 3 - Execution of Transfers - Solicitor must execute transaction as soon as possible - UNLESS reasonably believe it is in the client's best interest not to do so Rule 4 - Records of Transactions - Solicitor must keep record of the name of the client, details of their instructions / decision and the date on which instructions are received Rule 5 - Record of Commissions - Solicitor must keep record of amount of commission AND how solicitor has accounted to client Rule 6 - Safekeeping of Clients' Investments - When passed to third party = obtain an acknowledgement of receipt of the property - When passed to third party on client's instructions = obtain instructions in writing Rule 7 - Execution Only Business, send client written confirmation stating: - client hadn't sought + wasn't given any advice from the solicitor in connection with the transaction; or - client was given advice from solicitor in connection with transaction BUT persisted in wishing the transaction to be effected, AND - transaction effected on client's explicit instructions Rule 8 - Retention of Records - All records retained for 6 years from date the record was made

Answer 423

- Person must not in the course of business communicate an invitation or inducement to engage in investment activity (breach = criminal offence) - EPFs may be able to rely on exemption in Financial Promotion Order but not DPB

BORP - FLK Flashcards

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