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Summary SQE1 | BUSINESS LAW
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Summary notes to prepare for your SQE assessment. Prepare for your SQE exam for less. I achieved a 77% on my first sitting of the SQE1 relying solely on these notes.
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Business -> legally organised organisation designed to provide goods and/or services toconsumers
Sole - owned by one person
proprietorship - No legal distinction between owner and business
- Unlimited liability
Partnership - two or more people operate for a common goal
- Each partner has personal liabilities for the debts incurred by the business
Company - either limited liability
- Unlimited liability
- separate legal personality from its shareholders/members
Cooperative - limited liability entity that can organise for profit or non-for-profit
- It has members who share decision making authority
- Consumer co-operatives // worker co-operatives
- the most tax efficient use of the company’s profits will occur when the company retain its
profits in the business rather than pay them out as fees or dividends
VARIOUS TYPES OF COMPANIES
companies limited by - members are those whose names have been entered on the Register of
shares Members
- Once the members have paid in full nominal value of their shares, they
cannot require to pay more
Companies limited by - formed mainly for charitable, social or non-trading purposes
guarantee - Formed without a share capital
- Receive income from subscription
Unlimited companies - unlimited personal liability
- They do not have to file accounts
Public company - company limited by shares whose certificate of incorporation states that
it is a public company
- Two members required
- £ 50,000 minimum issues capital // 1/4 paid up
- Name ends with public limited company
- At least 2 directors
- Company secretary
- may not start trading/borrowing until it has received a certificate
Private company - Name ends with ltd
- At least 1 director
- Easier to administer
Community interest - limited liability company with the aim of providing benefit to a
company community
- There is a transparency of operation requirement (deliver annual
community interest report about its activities)
,A company is a separate legal entity from the date of its incorporation and registration at
Companies house.
The registered company is liable for its own debts. A company’s debts and liabilities are its
obligations alone and cannot generally be enforced against its members.
Salomon v Salomon -> at law a company is a distinct person with its own personality. Separate
from and independent of the persons who formed it, who invest money in it and who direct and
manage its operations.
However, various exceptional circumstances have been delineated when the courts can
legitimately disregard a company’s legal personality and “pierce the veil of incorporation” that
separates the company from its members/officers.
- fraudulent trading -> if it appears to the liquidator that fraudulent trading has occurred, they
may apply to the court for an order that any persons who were knowingly parties to the
fraudulent trading be liable to make any contributions to the company’s assets as the courts
sees fit
- Wrongful trading -> when a company has gone into insolvent liquidation a person who was
a director of the company at some time before the commencement of the winding up of the
company, knew or ought to have known that there was no reasonable prospect of avoiding
insolvent liquidation and did not take every step with a view to minimising the potential
losses to the company’s creditors
LIMITED COMPANIES
- promoter -> an individual who undertakes to form a company and takes the necessary steps
to accomplish that purpose. They owe the company duties of good faith, full disclosure and not
to make a secret profit.
Contracts entered by the promoter before the incorporation of the contract are pre
incorporation contracts.
A contract that purports to be made by or on behalf of a company at a time when the company
has not been formed has effect, subject to any agreement to the contrary, as one made with the
person purporting to act for the company or as agent for it, and he is personally liable on the
contract accordingly.
The promoter can waive personal liability but this requires clear and explicit wording and may
be deemed unfavourable by the other party. The promoter can protect his position :
a) including provisions in the contract
b) preparing drafts of the contract to be entered following incorporation of the company
c) entering into an agreement of novation
d) purchasing a shelf company so that the entity can contract
- Tailor made company-> establishing a company that meets the client’s specific requirements
- Shelf company -> companies that have been formed but not traded
The application to register a company must contain:
1. Proposed name
2. Proposed situation of its registered office
3. Limit of liability
4. private/public
, 5. Statement of share capital
6. Proposed officers
7. Statement of initial significant control
8. Statement of the intended significant control
9. Address of the company’s registered office
10. Copy of proposed articles of association
11. Statement of compliance
FACTORS TO CONSIDER FOR INCORPORATION
1. Memorandum of association
• a company's constitution, however after registration it's of no importance
• regulates a company's external dealings
2. Name of the company
Limitations
• names that are offensive or constitute criminal offence
• do not include the word "limited" or "ltd"
• a name under which a company already exists
• change of name is done by special resolution (75% of votes)
3. Registered office
• it determines the jurisdiction under which the company is formed
4. Company's object
• states the purpose for which a company is formed and the range of activities it's permitted
to carry out
• according to common law a company is limited to operate within its objects ; anything a
company does outside of those objects is "ultra vires"
• companies act -> unless a company's articles specifically restrict the objects of the
company, its objects are unrestricted
5. Articles of Association
• a company's constitution
6. Initial shareholding
• a company's capital determines its ownership and control
• at least one share must be issued for a company to exist
• maximum number of shares is unlimited, subject to restrictions in the articles of
association
POST INCORPORATION
Once incorporated, there will be a number of matters that the directors of the company will likely
deal with by way of the company's first board meeting such as:
• appoint bankers of the company and establish bank accounts
• appoint auditors of the company
• alter the company's automatically designated accounting reference date
• register the company for tax with HMRC
• approve execution of any service contracts with board members
• entries of the relevant registers of the company need to be updated
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