Newsletter 7

Monday 23 October 2023

Your weekly SQE Prep Quiz has arrived

Question:

Sarah and Mike have decided to start a business together selling handmade jewelry. They have known each-other for a long time and they believe they will collaborate effectively. They have agreed to split profits and losses equally, but are hesitant to take any formal steps without obtaining some legal advice. They have not formed a company, but are in the process of drafting a partnership agreement. Which of the following best characterizes the type of organization their business will operate as, at this stage of their relationship?

1. Partnership at will
2. Limited liability partnership
3. Sole proprietorship
4. Limited company
5. Dormant company

Top Tip: Revising FLK Business Law and want to get up to speed with business formation in the UK? My new podcast series presents what you need to know, and takes you through my journey in setting up the business that is behind this very newsletter. Explore the podcast on this link.

Relevant Reading: Watch the video linked here for a presentation of the requirements for company formation. For relevant sections in a text see ReviseSQE Business Law and Practice, Chapter 3. You can obtain the text by following this link.

Answer and feedback to last week’s question: Last week’s question was as follows: Anna has inherited some money from a distant relative and is keen to use it to invest in a new business venture. She has located a startup, set up as an Ltd that seems worth investing in. The business is offering shares in return for her investment. Which of the following statements best describes what it will mean for Anna to become a shareholder in a private limited company?

1. She will be consulted on key decisions and be paid a salary.
2. She will be consulted on all key decisions and potentially receive dividends.
3. She will be involved in the day to day running of the company and be paid a salary.
4. She will be involved in certain key decisions and potentially receive dividends.
5. She will be one of the owners of the company and potentially receive dividends, but without the ability to influence the day to day running of the company.

Correct Answer is 5: She will be one of the owners of the company and potentially receive dividends, but without the ability to influence the day to day running of the company. Becoming a shareholder in a private limited company means that Anna will own a portion of the company’s shares, and will have the potential to receive dividends if the company makes a profit and decides to distribute them to its shareholders. However, as a shareholder, she will not be involved in the day-to-day running of the company, and will not have the ability to influence key decisions unless she holds a significant proportion of the shares or has been granted special voting rights. The Companies Act 2006 sets out the rights and obligations of shareholders in private limited companies, and the articles of association of the company will provide further detail on specific voting rights and procedures.

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You will hear from me again soon.

All the best

Dr Ioannis Glinavos