Contents Table of Statutes Table of Secondary Legislation Table of Cases Glossary Chapter 1: Business Media 1.1 Introduction 1.2 Partnerships, limited liability partnerships and companies compared 1.2.1 Personality 1.2.2 Formation and regulation 1.2.3 Liability for debts 1.2.4 Perpetual succession 1.2.5 Ownership of assets 1.2.6 Capital requirements 1.2.6.1 Management and agency 1.3 Summary Chapter 2: Nature of Partnership 2.1 Introduction 2.2 Definition of partnership 2.3 A business 2.4 Carried on in common 2.5 By two or more persons 2.6 Carried on with a view of profit 2.7 Summary Chapter 3: Formation of Partnerships 3.1 Introduction 3.2 Commencement of partnership 3.3 Variation of terms of partnership 3.4 Capacity 3.5 Illegal purpose 3.6 Number of partners 3.7 Discrimination 3.8 Legal status 3.9 Partnership name 3.10 Duration and dissolution of partnership 3.11 Summary Chapter 4: Relations Between Partners 4.1 Introduction 4.2 Fiduciary and contractual duties of partners 4.2.1 Duty to render accounts 4.2.2 Duty to account for private profits 4.2.3 Duty not to compete with the firm i
4.2.4 Contractual extension of duties of a fiduciary nature 4.3 The working relationship 4.3.1 Management 4.3.2 Decision making 4.3.3 Capital and profits 4.3.4 Interest on capital and advances to the firm 4.3.5 Partnership books 4.3.6 Indemnity 4.3.7 Summary 4.4 The relationship of joint ownership 4.5 Post-partnership relationship 4.5.1 Assignments of partnership shares 4.6 Summary Chapter 5: Partners Relations with Outsiders 5.1 Introduction 5.2 Liability for the debts of the business 5.3 Relationship between the authority of a partner and partnership decision making 5.4 Liability of apparent partners holding out 5.5 Liability for wrongful acts and omissions and for misapplication of money or property of a third party 5.6 Summary Chapter 6: Dissolution of Partnerships 6.1 Introduction 6.2 Statutory dissolution mechanisms 6.2.1 Automatic dissolution 6.2.2 Dissolution by the court 6.3 Dissolution by other events 6.3.1 Charge of share of partnership property 6.3.2 Dissolution by expiration of term or statutory notice 6.3.3 Express provisions relating to termination 6.4 Other terms relating to dissolution 6.4.1 Goodwill 6.4.2 Restraint of trade clauses 6.4.3 Expulsion 6.5 Management of dissolution 6.5.1 Introduction 6.5.2 Statutory provisions to regulate dissolution 6.5.2.1 Public notification of dissolution 6.5.2.2 Continuing authority of partners for purpose of winding up 6.5.2.3 Retiring or deceased partner s share as debt 6.5.2.4 Outgoing partner s right to share in profits made after dissolution 6.5.2.5 Right of partners as to application of partnership property 6.5.3 Contractual terms to manage retirement 6.6 Dissolution and the distribution of assets 6.7 Bankruptcy and the partnership 6.8 Summary ii
Chapter 7: Taxation Income Tax 7.1 Introduction 7.2 The tax year, and calculating taxable income 7.2.1 Self-employed individuals: some particular issues 7.2.2 Employees and office-holders: some particular issues 7.3 Calculating taxable income 7.3.1 Reliefs that reduce taxable income 7.3.2 Income tax loss relief for the self-employed 7.3.3 Personal pensions tax relief 7.3.4 Personal allowance and personal savings allowance 7.4 Dividend allowance 7.5 New property and trading income allowances deferred 7.6 Time for payment of income tax 7.7 Order in which income is taxed 7.7.1 The savings income 7.7.2 The dividend income 7.8 Summary Chapter 8: Taxation Capital Taxes 8.1 Introduction 8.2 Capital gains tax 8.2.1 Calculating the chargeable capital gain 8.2.1.1 The basic equation 8.2.1.2 Exemptions which reduce the basic gain 8.2.1.3 Reliefs which operate to defer payment of capital gains tax 8.2.1.4 Other significant reliefs 8.2.2 Rates of capital gains tax and calculating the tax 8.2.3 Disposal of shares on buy-back by company 8.2.4 Capital gains tax in context 8.3 Inheritance tax 8.3.1 Rates of tax a worked example 8.3.2 Reducing the liability for inheritance tax reliefs and exemptions 8.3.2.1 Reliefs and exemptions on lifetime transfers 8.3.2.2 Reliefs and exemptions for both lifetime transfers and transfers on death 8.3.2.3 Inheritance tax: residence nil rate band (RNRB) 8.3.3 Other inheritance tax issues 8.3.3.1 The relationship between inheritance tax and capital gains tax on gifts 8.3.3.2 Payment by instalments 8.3.3.3 Close companies 8.4 Summary Chapter 9: Taxation VAT and Stamp Duty 9.1 Introduction 9.2 Value added tax 9.3 Stamp duty and stamp duty land tax 9.4 Stamp duty reserve tax 9.5 Summary iii
Chapter 10: Forming a Company 10.1 Introduction 10.2 Taking instructions 10.2.1 Tailor-made or shelf? 10.2.2 Types of company 10.3 Steps leading to incorporation 10.4 Documents required for registration 10.4.1 Objects 10.4.2 Liability 10.5 The Memorandum of Association 10.5.1 Subscribers 10.5.2 Share capital 10.6 Articles of Association 10.6.1 Name 10.6.2 Model Articles of Association 10.6.3 Shareholders agreement 10.6.4 Directors power to allot shares 10.6.5 Statutory pre-emption rights 10.6.6 Lien 10.6.7 Calls 10.6.8 Communications to members 10.6.9 Directors 10.6.10 Rotation 10.6.11 Directors borrowing powers 10.6.12 Alternate directors 10.6.13 Directors interests in contracts 10.6.14 Redemption and purchase of shares 10.6.15 Transfer of shares 10.6.16 Removal of director 10.6.17 Other provisions 10.6.18 Subscribers 10.7 IN01 Application to register a company 10.8 Certificate of incorporation 10.9 The first board meeting 10.10 Pre-incorporation contracts 10.11 Names 10.11.1 Requirements for the use of a business name 10.11.2 Passing off 10.12 Summary Chapter 11: Corporate Decision Making 11.1 Introduction 11.2 Types of company meeting 11.3 Outline of the decision-making processes 11.4 Proceedings of directors meetings 11.4.1 Introduction 11.4.2 Constitutional provisions relating to directors meetings 11.4.2.1 Calling directors meetings 11.4.2.2 Regulation of proceedings 11.4.2.3 Quorum for directors meetings 11.4.2.4 Decision making 11.4.2.5 Resolving disputes in directors meetings iv
11.4.3 Directors written resolutions 11.4.4 Minutes of board meetings 11.4.5 Conduct of directors meetings 11.5 Decision making by shareholders 11.5.1 General meetings 11.5.2 Conduct of general meetings 11.6 Summary Chapter 12: Directors, Officers and Auditors 12.1 Introduction 12.2 Division of powers within a company 12.3 Number of directors 12.4 Appointment of directors 12.4.1 Subsequent appointments 12.4.2 Corporate directors 12.5 Disqualification of directors 12.5.1 Grounds for disqualification 12.5.2 Undischarged bankrupt 12.5.3 Contravention of a DDO 12.6 Termination of office 12.6.1 Automatic termination 12.6.2 Removal 12.6.3 Compensation 12.7 Alternate directors 12.8 Shadow directors 12.9 Directors powers 12.10 Delegation of directors powers 12.11 Managing director 12.12 Directors duties 12.12.1 Fiduciary duties 12.12.2 Duties of care and skill 12.12.3 Statutory duties 12.12.4 Duties to shareholders 12.12.5 Duties to third parties 12.12.6 Relief from liability 12.13 Statutory provisions concerning directors 12.13.1 Directors interests in contracts, transactions and arrangements 12.13.2 Directors service contracts 12.13.3 Substantial property transactions 12.13.4 Loans and guarantees 12.13.5 Other statutory provisions 12.14 The company secretary 12.14.1 Appointment and removal 12.14.2 Powers and duties 12.14.3 Liability for acts 12.14.4 Avoidance of acts dual capacity 12.14.5 Change of directors or secretary 12.15 Auditors 12.15.1 Powers and duties 12.15.2 Liability 12.15.3 Qualification v
12.15.4 Appointment and removal 12.15.5 Resignation 12.16 Summary Chapter 13: Members, Meetings and Disputes 13.1 Introduction 13.2 Membership of a company 13.2.1 Eligibility 13.3 Register of members 13.3.1 Notice of trusts excluded 13.3.2 Rectification 13.4 Powers of members 13.5 Duties of members 13.6 General meetings 13.7 Members resolutions 13.8 Convening general meetings 13.8.1 Statutory provisions 13.9 Notice of general meetings 13.9.1 Length of notice 13.9.2 Contents 13.9.3 Service 13.9.4 Special notice 13.10 Proceedings of general meetings 13.10.1 Quorum 13.10.2 Proxies 13.10.3 Corporate representatives 13.10.4 Chair 13.10.5 Voting rights 13.10.6 Chair s casting vote 13.10.7 Adjournment 13.10.8 Minutes of general meetings 13.11 Dispensing with formalities 13.11.1 Written resolutions 13.12 Internal disputes and minority protection 13.13 Removal of directors 13.14 Enforcement of personal membership rights 13.15 Actions by the company the rule in Foss v Harbottle 13.15.1 Exceptions to Foss v Harbottle 13.15.2 Reflective loss claims 13.16 Actions by members 13.16.1 Procedure 13.16.2 Derivative actions under the Companies Act 2006 13.17 Unfair prejudice 13.17.1 Powers of the court likely orders/outcomes of a successful petition 13.18 Just and equitable winding up 13.19 Summary Chapter 14: Altering the Constitution 14.1 Introduction 14.2 Change of name 14.2.1 Enforced change of name vi
14.3 Alteration of objects 14.3.1 Procedure 14.4 Registered office 14.5 Alteration of capital 14.6 Re-registration 14.7 Alteration of articles 14.7.1 Procedure 14.7.2 Limitations 14.7.3 Shareholders agreements 14.7.4 Entrenchment 14.8 Written resolutions of private companies 14.9 Summary Chapter 15: Share Capital Raising Finance and Shares 15.1 Introduction 15.2 Nature of shares 15.2.1 Share rights 15.3 Classification of shares 15.3.1 Variation of class rights 15.4 Allotment 15.4.1 Partly paid shares 15.4.2 Discount 15.4.3 Share premium 15.4.4 Returns 15.5 Transfer and transmission 15.5.1 Transfer 15.5.2 Transmission 15.5.3 Lost share certificate 15.6 Financial services 15.7 Summary Chapter 16: Share Capital Maintenance, Redemption and Reduction 16.1 Introduction 16.2 Distributions 16.2.1 Procedure 16.2.2 Tax consequences 16.3 Purchase of own shares 16.3.1 General prohibition 16.3.2 Penalties for breach 16.3.3 Redemption or buy-back? 16.3.4 Power of company to purchase its own shares 16.3.4.1 Conditions for purchase 16.3.4.2 Financing the purchase of shares 16.3.4.3 Use of capital 16.3.5 Tax consequences 16.3.6 Summary 16.4 Reduction of capital authorised by court 16.4.1 Procedure 16.5 Reduction of capital by the solvency statement procedure 16.6 Summary vii
viii Chapter 17: Borrowing 17.1 Introduction 17.2 The power to borrow 17.3 Security for borrowing company charges 17.3.1 Types of charge over company properties 17.3.2 Weaknesses of a floating charge 17.4 Priority of charges 17.5 Registration of charges 17.6 Register of charges 17.7 Other forms of registration 17.8 Steps for execution of a charge 17.9 Steps for the prudent lender who requires security 17.10 Discharge of charges 17.11 Enforcement of security 17.11.1 Recovery of borrowing from a company 17.11.2 Receivership 17.11.3 Administration 17.12 Guarantees 17.13 Tax considerations 17.14 Summary Chapter 18: Publication of Information 18.1 Introduction 18.2 Company searches 18.3 Official notification 18.4 Confirmation statement 18.5 Accounts 18.5.1 Publication 18.5.2 Form and content 18.5.3 Exemptions for small and medium-sized companies 18.5.4 Information about directors benefits: remuneration 18.5.5 Directors liability with regard to the accounts 18.6 Penalties for failure to make returns 18.7 Statutory registers 18.8 Prescribed forms 18.9 Business stationery 18.10 Electronic communications 18.10.1 General provisions relating to electronic communications 18.10.2 Documents and information sent by the company 18.10.3 Documents and information sent to the company 18.10.4 Companies details on websites and in electronic communications 18.11 Summary Chapter 19: Corporation Tax 19.1 Introduction 19.2 Calculation of corporation tax 19.2.1 Rate of corporation tax 19.2.2 Basis of assessment 19.2.3 Losses 19.3 Close companies
19.4 Distributions 19.4.1 Taxing distributions 19.4.2 Distributions by close companies 19.5 Tax avoidance 19.6 Summary Chapter 20: Limited Liability Partnerships 20.1 Introduction 20.2 The benefit of the LLP 20.3 The nature of the LLP 20.3.1 A separate legal entity 20.3.2 Capacity of the LLP 20.4 Incorporation 20.5 Name of the LLP 20.6 Registered office 20.7 Membership and members relationship with one another 20.7.1 The rights and duties of members 20.7.2 Former members 20.7.3 Designated members 20.7.4 Membership changes 20.8 Authority of members 20.9 Disclosure obligations 20.9.1 Accounts 20.9.2 Changes in membership 20.9.3 Confirmation statement 20.9.4 Name 20.9.5 Registration of charges 20.9.6 Electronic communications and websites 20.10 Insolvency of an LLP 20.10.1 Liability of members in an insolvent winding up 20.10.2 Liability of member for withdrawals before winding up 20.11 Disqualification 20.12 Taxation 20.13 Summary Chapter 21: Choice of Business Medium 21.1 Introduction 21.2 Legal considerations private company 21.2.1 Limited liability 21.2.2 Corporate personality 21.2.3 Floating charges 21.3 Legal considerations partnership 21.3.1 Formalities and cost 21.3.2 Privacy 21.3.3 Flexibility 21.4 Legal considerations limited liability partnership 21.5 Other issues 21.6 Tax considerations 21.6.1 Factors to consider 21.7 Summary ix
x Chapter 22: Transfer of a Business 22.1 Introduction 22.2 Taxation 22.3 Income tax 22.4 Capital gains tax 22.4.1 Roll-over relief 22.4.2 Relief for gifts to company 22.4.3 Replacement of business assets 22.5 Inheritance tax (IHT) 22.6 Stamp duty and stamp duty land tax 22.7 Allotment 22.8 Other matters 22.9 Summary Chapter 23: Corporate Insolvency Rescue Procedures 23.1 Introduction 23.2 Principal procedures 23.2.1 Administration 23.2.2 Administrative receivership 23.2.3 Company voluntary arrangement (CVA) 23.3 Definition of insolvency 23.3.1 Inability to pay debts 23.4 Insolvency practitioners 23.4.1 Creditors decision making and communications with creditors: the position under the Insolvency (England and Wales) Rules 2016 23.5 Administration 23.5.1 Purpose of administration 23.5.2 Appointing an administrator to a company 23.5.2.1 The out-of-court route: company or directors 23.5.2.2 The out-of-court route: qualified floating charge 23.5.2.3 The court route 23.5.3 Effect of administration 23.5.3.1 Curtailment of proceedings 23.5.3.2 Publicity 23.5.4 Process of administration 23.5.5 Functions of the administrator 23.5.6 Pre-pack sales 23.5.7 Ending administration 23.6 Receivers and administrative receivership 23.6.1 Receiver 23.6.2 Administrative receivers 23.6.3 Administrators and administrative receivers a comparison 23.7 Company voluntary arrangement 23.7.1 Setting up a CVA 23.7.2 Implementing the CVA 23.7.3 Optional moratorium 23.7.3.1 Eligible companies 23.7.3.2 The effect of the moratorium 23.7.3.3 Procedure for securing a moratorium 23.7.4 Approval of a voluntary arrangement 23.7.5 Responsibility of the nominee 23.7.6 Directors responsibilities
23.7.7 Completion of voluntary arrangement 23.8 Voluntary arrangement or administration a comparison 23.8.1 Procedural differences 23.8.2 Practical differences 23.8.3 Differences in powers 23.8.4 Advising the directors 23.9 Summary Chapter 24: Winding up, or Liquidation of, a Company 24.1 Introduction 24.1.1 Compulsory 24.1.2 Voluntary 24.2 Compulsory winding up by the court 24.2.1 Inability to pay debts 24.2.2 Just and equitable 24.2.3 Locus standi 24.2.4 Procedure 24.2.5 Liquidation committee 24.2.6 Effects 24.3 Voluntary winding up 24.3.1 Types 24.3.2 By members 24.3.3 By creditors 24.3.4 Effect 24.4 Proceedings against the company 24.5 Liquidators powers, duties, removal 24.5.1 Powers and duties 24.6 Collection of assets 24.6.1 Liability as contributories of present and past members: calls on shares 24.6.2 Property 24.6.3 Acceptance of shares 24.6.4 Penalties for misapplying company assets 24.6.5 Fraudulent trading 24.6.6 Wrongful trading 24.6.7 Misfeasance or breach of fiduciary duty 24.6.8 Re-use of company names 24.6.9 Prosecution of delinquent officers and members 24.6.10 Setting aside corporate transactions 24.6.11 Charges void for want of registration 24.6.12 Trust assets 24.7 Winding up continuing for more than a year 24.8 Distribution of assets 24.8.1 Proof and payment of debts 24.8.2 Application of assets 24.8.2.1 VAT bad debt relief 24.9 Dissolution 24.10 Summary xi
Chapter 25: Setting Aside Corporate Transactions 25.1 Introduction 25.2 Transactions at undervalue 25.3 Preferences 25.4 Relevant time 25.5 Extortionate credit transactions 25.6 Avoidance of certain floating charges 25.7 Transactions defrauding creditors 25.8 Summary Answers to Self-assessment Questions Appendix Index xii
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