Qualified Lawyers Transfer Scheme (QLTS) Business Law and Practice Flashcards

24 sample cards from the Business Law and Practice deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. What is the s.168 CA 2006 procedure for removing a director, and what protects the director?

   Members may remove a director by ordinary resolution at a general meeting, with special notice of 28 days given to the company. It cannot be done by written resolution. The director has a right to make written representations and to be heard at the meeting (s.169).

2. How are the powers divided between the board of directors and the shareholders?

   Under Model Article 3, the directors are responsible for the management of the company and may exercise all its powers. Shareholders can direct the board only by special resolution (Model Article 4) or by reserved statutory matters (e.g. amending articles, removing directors).

3. What is the quorum and decision rule for board meetings under the Model Articles?

   The quorum for a directors' meeting is two (unless fixed otherwise; for a sole director, one). Decisions are taken by a majority of votes; the chair has a casting vote in the event of a tie. A director may not count in the quorum or vote on a matter in which they are interested (subject to permitted exceptions).

4. What is 'maintenance of capital' and why does the doctrine exist?

   The principle that a company's share capital is a permanent fund available to creditors and must not be returned to shareholders except by permitted procedures. It protects creditors who deal with a limited liability company on the faith of its stated capital.

5. Distinguish 'called-up', 'paid-up' and 'nominal' share capital.

   Nominal (par) value is the fixed face value of a share. Called-up capital is the amount the company has demanded shareholders pay. Paid-up capital is the amount actually received. Shares may be issued at a premium (above par) but not at a discount (below par).

6. From what funds may a private company lawfully pay a dividend?

   A dividend may only be paid out of distributable profits — accumulated realised profits less accumulated realised losses (s.830 CA 2006). Paying a dividend out of capital is unlawful, and recipients who know it is unlawful must repay it.

7. How can a private company carry out a buyback of its own shares out of capital?

   A private company may purchase its own shares out of capital using the s.709-723 procedure: a directors' solvency statement, a special resolution, an auditor's report, and public notice in the Gazette, subject to creditor objection rights. Generally buybacks are otherwise funded from distributable profits or fresh issue proceeds.

8. What is the difference between a fixed charge and a floating charge?

   A fixed charge attaches to specific identifiable assets (e.g. land, machinery); the borrower cannot dispose of them freely without consent. A floating charge 'floats' over a class of changing assets (e.g. stock, book debts), allowing the company to deal with them until the charge 'crystallises' into a fixed charge on default or insolvency.

9. Why does registration of a company charge at Companies House matter, and what is the deadline?

   A charge created by a company must be registered at Companies House within 21 days of creation. If not registered, the charge is void against a liquidator, administrator and creditors of the company (though the underlying debt remains payable). Registration also fixes priority and gives public notice.

10. In what general order are creditors paid on a corporate insolvency?

    (1) Fixed charge holders from their secured assets; (2) liquidator's/insolvency expenses; (3) preferential creditors (e.g. employee wages within limits, certain HMRC debts); (4) the prescribed part set aside for unsecured creditors; (5) floating charge holders; (6) unsecured creditors; (7) finally, shareholders.

11. Distinguish compulsory liquidation, creditors' voluntary liquidation and administration.

    Compulsory liquidation: winding up by court order, often on a creditor's petition for inability to pay debts. Creditors' voluntary liquidation (CVL): initiated by the company (insolvent) by special resolution with creditor involvement. Administration: a rescue procedure where an administrator runs the company under a statutory moratorium aiming to rescue it as a going concern or achieve a better result for creditors than winding up.

12. What are wrongful trading and fraudulent trading under the Insolvency Act 1986?

    Wrongful trading (s.214): a director may be personally liable to contribute to assets if they continued trading when they knew or ought to have known there was no reasonable prospect of avoiding insolvent liquidation and failed to minimise creditor losses. Fraudulent trading (s.213): liability where business was carried on with intent to defraud creditors — requires actual dishonesty.

13. What are the two main routes into personal bankruptcy, and what is the effect on the debtor's assets?

    An individual may be made bankrupt by their own application (online to the Adjudicator) or on a creditor's petition for a debt of at least £5,000 the debtor cannot pay. On bankruptcy, the debtor's estate vests in the trustee in bankruptcy, who realises it to pay creditors; the bankrupt is usually discharged after 12 months.

14. What is an Individual Voluntary Arrangement (IVA) and how does it differ from bankruptcy?

    An IVA is a binding contractual arrangement, supervised by an insolvency practitioner, under which an individual agrees a composition or repayment schedule with creditors to avoid bankruptcy. It requires approval by at least $75\%$ in value of voting creditors, avoids the stigma and asset-vesting of bankruptcy, and can preserve the debtor's business and assets.

15. How is a sole trader/partner taxed on trading profits, and on what basis?

    They pay income tax on their share of trading profits (self-employment income), assessed on the tax-year basis. Profit is computed as taxable income less allowable deductions and capital allowances. They also pay Class 4 (and Class 2/flat) National Insurance contributions on profits.

16. State the UK income tax rates and the basic personal allowance for an individual (illustrative thresholds).

    After the personal allowance (around £12,570), non-savings income is taxed at the basic rate $20\%$, higher rate $40\%$, and additional rate $45\%$. The personal allowance is tapered away by £1 for every £2 of income above £100,000, removing it entirely once income reaches £125,140.

17. On what profits does a UK company pay corporation tax, and how is the chargeable profit broadly calculated?

    A company pays corporation tax on its total taxable profits — trading income, property income, non-trading loan relationship (interest) income, and chargeable gains — for its accounting period. Taxable trading profit is income less deductible expenses (incurred wholly and exclusively for the trade) and capital allowances.

18. When must corporation tax be paid and a return filed by a typical (non-large) company?

    Corporation tax is due 9 months and 1 day after the end of the accounting period, and the company tax return (CT600) must be filed within 12 months of the end of the accounting period. Large companies pay by quarterly instalments.

19. How is a capital gain on a chargeable asset calculated for an individual?

    $\text{Gain} = \text{Disposal proceeds} - \text{allowable costs (acquisition cost} + \text{enhancement and incidental costs)}$. The annual exempt amount is then deducted, and the remaining gain is taxed at the applicable CGT rate.

20. What is Business Asset Disposal Relief, and what is its effect and lifetime limit?

    Business Asset Disposal Relief (formerly Entrepreneurs' Relief) reduces the CGT rate on qualifying business disposals (e.g. of a trading business, or a $5\%$ personal-company shareholding held with employment/office) to $10\%$, subject to a lifetime limit of £1 million of qualifying gains.

21. What is rollover (replacement of business assets) relief in CGT?

    Rollover relief allows a trader to defer the gain on the disposal of a qualifying business asset where the proceeds are reinvested in another qualifying business asset within the period from one year before to three years after disposal. The deferred gain reduces the base cost of the replacement asset.

22. What is VAT and how does the output/input mechanism work for a registered business?

    VAT is an indirect tax on the supply of goods and services. A registered business charges output VAT on its taxable sales and recovers input VAT on its purchases; it pays HMRC the difference: $\text{VAT due} = \text{Output VAT} - \text{Input VAT}$. If input exceeds output, it reclaims the balance.

23. What is the standard VAT rate, and distinguish zero-rated from exempt supplies?

    The standard rate is $20\%$ (with a reduced rate of $5\%$ on some items). Zero-rated supplies are taxable at $0\%$ — the trader charges no VAT but can still recover input VAT. Exempt supplies carry no VAT and the trader cannot recover related input VAT, so the two are treated very differently.

24. When must a business register for VAT?

    Registration is compulsory once taxable turnover exceeds the VAT registration threshold (around £90,000) in any rolling 12-month period, or where it is expected to exceed the threshold in the next 30 days. A business below the threshold may register voluntarily to recover input VAT.

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