Legal Practice Course (LPC) Business Law and Practice Syllabus

Business Law and Practice syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Business Law and Practice in Legal Practice Course (LPC), not a summary of it.

1. 1

   Business Structures and Formation

   4 topics

   • Choice of business medium
     • Sole trader characteristics and unlimited liability
     • Comparing partnership, LLP and private limited company
     • Tax, liability and administrative considerations driving choice
   • Incorporation of a private limited company
     • Registration at Companies House and the certificate of incorporation
     • Memorandum of association and model articles
     • Shelf companies versus tailor-made incorporation
   • The constitution under the Companies Act 2006
     • Articles as a statutory contract (s.33)
     • Entrenchment and amendment by special resolution
     • Shareholders' agreements and their interaction with the articles
   • Company name, registered office and constitutional documents
2. 2

   Directors, Shareholders and Company Decision-Making

   6 topics

   • Directors' powers and appointment
     • Appointment, removal under s.168 and disqualification
     • Board delegation and managing director authority
   • Directors' general duties (ss.171-177)
     • Duty to act within powers and promote success of the company
     • Conflicts of interest and declaration of interest in transactions
   • Board meetings and board resolutions
   • General meetings and shareholder resolutions
     • Ordinary versus special resolutions and required majorities
     • Written resolution procedure and notice periods
   • Substantial property transactions, loans and service contracts requiring approval
   • Filing and statutory registers (PSC register, confirmation statement)
3. 3

   Partnership and Limited Liability Partnerships

   5 topics

   • Formation and the Partnership Act 1890 default rules
   • Authority of partners and liability to third parties
   • The partnership agreement and variation of default terms
   • Dissolution, retirement and expulsion
   • LLPs: separate legal personality and the LLP Act 2000
4. 4

   Business Finance

   4 topics

   • Equity finance and share capital
     • Allotment of shares and pre-emption rights
     • Classes of shares and variation of class rights
     • Maintenance of capital and prohibition on financial assistance
   • Debt finance and security
     • Fixed and floating charges and crystallisation
     • Registration of charges and priority
     • Debentures and loan agreement terms
   • Dividends and distributions out of profit
   • Reading and interpreting company accounts
5. 5

   Business Taxation

   5 topics

   • Corporation tax computation and rates
   • Income tax and the taxation of partnerships and sole traders
   • Capital gains tax and Business Asset Disposal Relief
   • Value Added Tax in a business context
   • Taxation of distributions to shareholders
6. 6

   Corporate Insolvency and Distressed Businesses

   6 topics

   • Tests of insolvency: cash flow and balance sheet
   • Liquidation: compulsory, creditors' voluntary and members' voluntary
   • Administration and the moratorium
   • Company voluntary arrangements and receivership
   • Avoidance of transactions: preferences and transactions at an undervalue
   • Personal insolvency and bankruptcy basics

Business Law and Practice flashcards for Legal Practice Course (LPC)

22 of 64 cards from the Business Law and Practice deck — real questions with worked answers.

1. When choosing a business medium, what are the three main forms a business can take in England and Wales, and what is the key liability distinction?

   Sole trader, partnership (including LLP), and limited company. Sole traders and general partners have unlimited personal liability for business debts; shareholders of a limited company and members of an LLP benefit from limited liability (the company/LLP has separate legal personality).

2. What is the leading authority confirming that a company is a separate legal person distinct from its members?

   Salomon v A Salomon & Co Ltd [1897] AC 22. The House of Lords held that a properly incorporated company is a separate legal entity, so its debts are its own and shareholders are only liable up to any unpaid amount on their shares.

3. What documents must be sent to Companies House to incorporate a private company limited by shares under the Companies Act 2006?

   Form IN01 (application for registration, giving registered office, directors, secretary, statement of capital and initial shareholdings, and statement of compliance), a memorandum of association, and (optionally) bespoke articles. A registration fee is also payable. The Registrar then issues a certificate of incorporation.

4. Under the Companies Act 2006, what is the legal nature and function of a company's articles of association?

   The articles are the company's main constitutional document, forming a statutory contract between the company and its members and between the members themselves (s.33 CA 2006). They regulate the internal management of the company (e.g. directors' powers, meetings, share transfers).

5. What is the role of the memorandum of association under the Companies Act 2006, and how does it differ from its pre-2006 role?

   Under the CA 2006 the memorandum is a short historical document simply recording that the subscribers wish to form a company and agree to take at least one share each. Unlike under the Companies Act 1985, it no longer contains the objects clause or other ongoing constitutional provisions.

6. What are the Model Articles, and when do they apply to a private company limited by shares?

   The Model Articles are the default standard articles prescribed by regulations under the CA 2006. They apply automatically to a company limited by shares where the company does not register its own articles, or apply to the extent its bespoke articles do not exclude or modify them.

7. What are the statutory restrictions on a private limited company's name regarding its ending and prohibited words?

   A private limited company's name must normally end with 'Limited' or 'Ltd' (or Welsh equivalents). It must not be the same as an existing registered name, must not be offensive or constitute a criminal offence, and 'sensitive' words or words implying government/official connection require approval.

8. What is the purpose of a company's registered office, and what must be kept there or at a SAIL?

   The registered office is the company's official address for service of documents and correspondence. Statutory registers and records must be available for inspection there or at a Single Alternative Inspection Location (SAIL) notified to Companies House.

9. How are directors of a private company appointed under the Model Articles, and what is the statutory minimum number?

   Directors may be appointed by ordinary resolution of the shareholders or by a decision of the existing directors (Model Article 17). A private company must have at least one director, and at least one director must be a natural person (s.154 and s.155 CA 2006).

10. Where do directors derive their general power to manage the company, and what limits this power?

    Under Model Article 3, the directors are responsible for the management of the company and may exercise all its powers. This is subject to the articles and to any special resolution by which shareholders may direct the directors to take or refrain from specified action (Model Article 4).

11. List the seven general duties of directors codified in ss.171-177 of the Companies Act 2006.

    s.171 duty to act within powers; s.172 duty to promote the success of the company; s.173 duty to exercise independent judgment; s.174 duty to exercise reasonable care, skill and diligence; s.175 duty to avoid conflicts of interest; s.176 duty not to accept benefits from third parties; s.177 duty to declare an interest in a proposed transaction or arrangement.

12. What must a director have regard to under s.172 CA 2006 (duty to promote the success of the company)?

    A director must act in good faith to promote the success of the company for the benefit of its members as a whole, having regard (among other matters) to: long-term consequences; employees' interests; relationships with suppliers and customers; impact on community and environment; reputation for high standards of conduct; and the need to act fairly between members.

13. What standard of care is required of a director under s.174 CA 2006, and is it objective or subjective?

    A director must exercise reasonable care, skill and diligence to the standard of a reasonably diligent person with both: (a) the general knowledge, skill and experience reasonably expected of someone carrying out that director's functions (objective), and (b) the actual general knowledge, skill and experience the particular director has (subjective). The higher of the two standards applies.

14. Under s.177 CA 2006, what must a director do where they are interested in a proposed transaction, and what is the effect of the Model Articles?

    A director must declare the nature and extent of any direct or indirect interest in a proposed transaction to the other directors before it is entered into. Under the Model Articles an interested director generally cannot count in the quorum or vote on the relevant board resolution, unless the conflict has been authorised.

15. How is a board resolution passed under the Model Articles, and what quorum is required?

    A board resolution is passed by a simple majority of the directors voting at a quorate board meeting (the chair having a casting vote). The quorum for a directors' meeting is two, unless otherwise fixed (Model Article 11). Decisions may also be taken by unanimous written/informal agreement of all eligible directors.

16. What is the difference between an ordinary resolution and a special resolution of shareholders, including the required majority?

    An ordinary resolution requires a simple majority (over 50%) of the votes cast. A special resolution requires a majority of at least 75% of the votes cast. Special resolutions are needed for major matters such as amending the articles, changing the company name, or reducing share capital.

17. What notice and what majority are required to pass a written resolution of a private company under the Companies Act 2006?

    A private company may pass an ordinary resolution by written resolution with the agreement of members representing a simple majority (over 50%) of the total voting rights of eligible members, and a special resolution by the agreement of members representing at least 75% of total voting rights. Written resolutions cannot be used to remove a director or auditor before the expiry of their term.

18. What notice period is required for a general meeting of a private company, and how can short notice be given?

    At least 14 clear days' notice is required for a general meeting (s.307 CA 2006). Short notice is permitted if agreed by a majority in number of members holding at least 90% of the nominal value of voting shares (the percentage can be raised to up to 95% by the articles).

19. What is the procedure under s.168 CA 2006 to remove a director, and why can't it be done by written resolution?

    A director can be removed by ordinary resolution at a general meeting, but special notice (28 clear days to the company) is required, and the director has the right to make representations and to be heard at the meeting. Because the director has these protection rights at a meeting, the written resolution procedure cannot be used.

20. What is a substantial property transaction (SPT) under ss.190-196 CA 2006, and what approval is required?

    An SPT is an arrangement where a director (or connected person) acquires from or sells to the company a 'substantial' non-cash asset. An asset is substantial if it exceeds £100,000, or exceeds £5,000 and is more than 10% of the company's net asset value. The transaction requires approval by ordinary resolution of the members.

21. What approval is required for a loan by a company to one of its directors under s.197 CA 2006?

    A loan by a company to a director (or the giving of a guarantee/security for such a loan) generally requires prior approval by ordinary resolution of the members, with a memorandum setting out the loan's terms made available. Certain exceptions apply (e.g. small loans up to £10,000, expenditure on company business up to £50,000).

22. When does a director's service contract require shareholder approval under s.188 CA 2006?

    A director's service contract guaranteeing a term of employment of more than two years (a 'long-term service contract') must be approved by ordinary resolution of the members. Without approval, the offending term is void and the contract is terminable on reasonable notice.

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