Business Law and Practice MCQ final PDF

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Business Law and Practice MCQ Partnership (Knowledge) (WS 1) 1) Jake and Michael decide to import motorcycles from Europe to undercut expensive official dealers in the UK. Michael, who can speak French, goes to France and orders the bikes. Jake pays the French seller directly. Jake gives Michael 10% of the difference between the 'official' UK price and the price Jake actually pays. Jake then sells the bikes in his shop. Indicate whether the following statement is true or false: Jake and Michael are in partnership together. FALSE: Consider if Michael and Jake's actions satisfy the definition of a partnership under s.1 Partnership Act 1890. Michael is acting as Jake's agent: he does not accept any financial risk and he does not get a share of the profits. 2) Jamie and Malcolm went into partnership earlier this year. Jamie provided 25% and Malcolm 75% of the capital needed to buy the partnership assets. Jamie works full-time in the business, but it was agreed that Malcolm would not spend any particular number of hours working for the business and simply provide consultancy advice as and when requested by Jamie. There is no written partnership agreement and nothing else has been agreed. How will Jamie and Malcolm share the profits? Jamie and Malcolm will each be entitled to 50% of the profits. Have a look at s.24(1) Partnership Act 1890: because there is no agreement to the contrary, both partners are entitled to half of the income profits. 3) Muriel, Molly and Marilyn have been in partnership since 1990. They all work full-time for the business. They share profits equally and have no relevant express agreement between them. Which one of the following is CORRECT? Any of the 3 partners could dissolve the partnership at any time without giving a reason. Have a look at ss.24(6), 25, 26 and 30 Partnership Act 1890: Section 26 Partnership Act 1890 provides that a partnership "at will bedissolved by any partner giving notice to the others. Section 30 Partnership Act 1890 only provides for restrictions on competition whilst Molly is still a partner. Section 24(6) Partnership Act 1890 provides that a partner is not entitled to a salary. Section 25 Partnership Act 1890 effectively provides that partners can only be expelled by unanimous consent - including the consent of the partner to be expelled.

4) John, Andrew and Robert have been in partnership together for 3 years and they have no partnership agreement. John has recently been declared bankrupt. Indicate whether the following statement is true or false: Andrew and Robert can insist on continuing the

business in partnership without John, who will have to retire. FALSE. Read s.33 Partnership Act 1890 (subject to contrary agreement, bankruptcy automatically dissolves the partnership), and note also that there is no right to retire, as such, contained in the Partnership Act 1890. 5) Two years ago Adam, Rebecca and Kamal set up a partnership. Their agreement provides for income and capital profits to be shared in the same proportions as their capital contributions which were: Adam - £10,000, Rebecca - £10,000 and Kamal - £20,000. The business has just ceased to trade, having a total realisable value of £24,000 after allowing for payment of all claims on the partnership including the partners' capital contribution. How much should Kamal receive from this £24,000? Which one of the following is CORRECT? £12,000. The partners have agreed to share profits in the same proportions as their capital contributions so profits will be split £6,000 to Adam, £6,000 to Rebecca and £12,000 to Kamal. 6) Liam and Daniel have been partners since 1990 in a garage trading as L & D Vehicle Repairs. They have no partnership agreement. They have always purchased their stock from Car Parts (Garages) Co. Liam has just learnt that Daniel has been a sleeping partner in Car Parts (Garages) Co for the last year. When challenged, Daniel replied that Car Parts (Garages) Co wrote to L & D Vehicle Repairs suggesting a merger of the 2 businesses but, as Liam always said it was good to keep their business small, Daniel thought that Liam would not agree to the merger; instead, he negotiated his personal involvement with Car Parts (Garages) Co. On the basis that the opportunity to invest in Car Parts (Garages) Co was initially offered to L & D Vehicle Repairs, Liam may succeed in claiming that Daniel should now account to Liam for any profit he has received from his involvement with the firm. Have a look at ss.29-30 PA 1890. In the absence of consent from Liam, Daniel is likely to be liable to account to Liam under s.29 PA 1890 for the benefit he has received. On the bare facts, there is no clear evidence that Car Parts (Garages) Co is a competing business. If it is, then Daniel has been engaged in a competing business without Liam's consent under s.30 PA 1890 and he will be liable to account for all profits made by him in that business. Further information is needed. Liam has no power to expel Daniel (s.25 PA). If Daniel retires from the firm, Liam acting alone cannot continue as a partner because the definition of partnership will no longer be fulfilled (s.1 PA 1890)

7) Nicola has helped her daughters Antonia and Chelsea establish a beauty therapist business by providing the necessary finance and by

visiting the salon regularly to provide business advice. Antonia and Chelsea had a formal partnership agreement drawn up between them. Nicola does not want to be a partner in the firm as she runs her own driving school business. However, as Nicola is often seen at the salon, Antonia has occasionally told product suppliers that Nicola is a partner in the firm. Nicola wants to know if she could be liable for a debt of the firm to a supplier to whom Antonia had represented that Nicola was a partner. Select INCORRECT answer. Nicola could not be liable in any circumstances. Section 14(1) PA 1890 provides: "Every one who represents himself, or who knowingly suffers himself to be represented, as a partner, is liable as a partner.....". Nicola could therefore be liable for the debts under s.14(1) if she knew of the representations being made, on the basis that she "knowingly suffers" herself to be represented as a partner in the firm ("holding out"). 8) Oliver, Henry and Michelle are in partnership supplying office furniture. On 26 February the firm enters into a contract to supply desks to a customer. On 4 March Henry retires from the partnership and the other two agree to indemnify him against any liability on the contract. On 25 March the partnership defaults on the contract. On 28 March Isobel joins the firm as a partner. Who is liable for breach of contract? Only Oliver, Henry and Michelle are liable for the breach of contract. Think about who was a partner at the time the contract was entered into: the three partners in the partnership at the time the contract was entered into are liable (ss.9 and 17(1) and (2) PA 1890). The indemnity does not affect the third party's rights. 9) Helen, Judy and Len run a bakery as a partnership. They have no written agreement and the only relevant term they have agreed orally is that they share profits in the ratio 1 (Helen) : 1 (Judy) : 2 (Len). Select INCORRECT. Profits of £9,000 from the sale of a recipe book which the bakery has been selling will be split £1,500 to Helen, £1,500 to Judy and £6,000 to Len. Any partner can dissolve the partnership immediately but only if they give notice in writing. Look at ss.9, 19 and 26 Partnership Act 1890. Profits will be split £2,250 to Helen, £2,250 to Judy and £4,500 to Len (1:1:2). As the partnership agreement is oral, a notice of dissolution does not have to be in writing (s.26 Partnership Act 1890). Each partner is liable without limit for the debts of the firm (s.9 Partnership Act 1890). Even though there is no retirement clause, if all of them agree they can vary the agreement (s.19 Partnership Act 1890). 10) Therese, Tim and Scarlet were partners until Therese left the business amicably, leaving Tim and Scarlet to carry on in partnership. There was no partnership agreement and the three partners shared profits equally. After Therese left the firm, the remaining partners ordered goods from Bramhope Limited but the

invoice for those goods has not yet been paid. Bramhope had dealt with the firm on several occasions before Therese left the firm. Which one of the following is CORRECT? Assume that at the time of her leaving Therese gave notice in the London Gazette. She later wrote to Bramhope Limited to give notice that she had left but the company did not receive her letter until after the debt was incurred. Therese could become liable for the full debt. Have a look at s.36 PA 1890: notice of leaving a partnership must be given to existing customers. Does this mean actual or constructive notice? Separate Legal Personality and groups of companies (Knowledge) (WS 2) 11) Butterberry Limited is a company making yoghurts and other dairy products. It has been in existence for 12 years and has four shareholders who are also the four directors of the company. It has outgrown its existing premises and needs to move to a larger factory. Nick and Andi, two of the company's directors, negotiate the purchase of a new factory on the Wrexford Industrial Estate with Wrexford Development Corporation. Nick and Andi sign the contract and transfer document on behalf of Butterberry Limited. Whose name(s) will appear on the registered title of the property? Butterberry Limited's, the company is a separate legal person capable of owning land. 12) Charles Westron is the purchasing director of Westron Limited. He recently purchased some chemicals from Joe Sullivan, a sales manager for Chems Limited. The chemicals that have been delivered are the wrong concentration and unusable by Westron Limited. Chems Limited is refusing to replace them. Westron Limited v Chems Limited. The contract is made by Charles and Joe as agents for the two companies and so the companies would be the parties to any legal action. 13) Nina is the sole shareholder and director of Tarvin Limited. She owns 100 £1 shares, all of which are fully paid. The company goes into insolvent liquidation. It has assets of £50,000 but owes creditors £250,000. How much will Nina be required to contribute to the company's funds? Nothing. Shareholders are protected by limited liability and will only be liable to contribute the amount (if any) which is still unpaid on their shares. Nina has fully paid up shares and cannot be asked to contribute further funds. 14) Tangent Limited operates from premises which it leases. The directors have not personally guaranteed Tangent Limited's obligations under the lease. Tangent Limited is late paying its rent and the landlord has threatened to sue its directors to recover the rent arrears.

Is the following statement true or false? You can advise the directors that the landlord's threat is groundless. True. The contractual relationship is between Tangent and the landlord, so the obligation to pay rent can only rest with the company, not with its directors. 15) Which of the following business entities does NOT have separate legal personality? Hunca Munca Pets is not a legal entity separate from its owners, Lucinda Laws and Jane James: it is a partnership between Lucinda and Jane within section 1 of the Partnership Act 1890. Each of the others - Halcyon Holidays plc, Barry Jenkinson Ltd and Acomb Foxwood Solicitors LLP - are recognised by the law as legal entities separate from their owners. 16) Which ONE of the following CORRECTLY describes the principle of “piercing the veil of incorporation"? The disregarding of the separate personality of the company when a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades, or whose enforcement he deliberately frustrates, by interposing a company under his control. Whereas, Answer D describes the principle by which the "veil of incorporation" was "circumvented" by application of principles of equity, in the case of Prest v Petrodel. But it did not require the separate legal personality of the company holding the title to the properties to be disregarded. 17) David, one of the directors in Bourneport Limited, paid £20,000 for 4,000 £1 fully paid ordinary shares in Bourneport Limited. He also signed a personal guarantee, guaranteeing Bourneport's obligations under the terms of an overdraft agreement, in favour of Barclays Bank plc. Under the terms of the agreement, Bourneport Limited has an agreed overdraft limit of £150,000. The actual overdraft currently stands at £85,000. Which ONE of the following CORRECTLY describes David's potential future exposure in relation to the debts of Bourneport Limited? £150,000, Although in his capacity as a shareholder David is protected by limited liability, he has entered into a separate contract guaranteeing that he will pay the overdraft if Bourneport Limited does not do so. If Bourneport Limited uses up the entire overdraft facility of £150,000 and then is unable to pay it off, David can be pursued by the bank under that contract for the entire £150,000. 18) This question relates to the definition of 'subsidiary' under s1159 of the Companies Act 2006. Which ONE of the following is correct? If Company E has the right to remove the entire board of directors of company D and is a member of company D, then company D is a subsidiary of company E. Under s1159(1)(b) Companies Act 2006, a

company is a subsidiary of another company if that company is a member of it and has the right to appoint or remove a majority of its board of directors. Answer A is incorrect because under s1159(2) Companies Act 2006, a company can still be a wholly-owned subsidiary of another ("the holding company") even if there is more than one shareholder - as long as the other shareholders are also wholly-owned subsidiaries of the holding company. Answer B is incorrect because for a company to be a subsidiary of another, one company has to hold a majority of the voting rights of the other. Just 50% is not enough (s1159(1)(a) CA06). Answer C is incorrect - see the definition of company in s1159(4). 19) Grants Limited is a wholly-owned subsidiary of Greenwear plc. Grants Limited is in financial difficulty and owes Barton Limited £100,000. Indicate whether the following statement is true or false. False, Grants Limited is responsible for its own debts despite being a wholly-owned subsidiary of Greenwear plc. 20) Ian Gilford Transport Ltd ("IGT") is a distribution company whose assets include the remaining term of a 30 year lease of warehouse premises in Kent ("the Lease"). The shares in IGT were recently purchased from its parent company, Portbase Holdings PLC ("Portbase") by Freeflow Distribution PLC ("FD") and Calais Convoyage S.A. ("CC"), a French company. FD now holds 60% of the shares in IGT and CC the remaining 40%. Which ONE of the following statements is CORRECT? IGT will continue to have the full legal and beneficial title to the Lease. Portland had no title to the Lease - only to the shares in the company (IGT) which owns the Lease. FD and CC acquire no title to the Lease - only to the shares in the company (IGT) which owns the Lease. You may wish to refer to the case of Macaura v Northern Assurance Co Ltd [1925] AC 619. Directors Powers and Authority (Knowledge) (WS 3) 21) Gouache Arts Limited has three directors. The company's articles are based on the Model Articles with one amendment reading "Whenever the number of directors is one, a sole director shall have authority to exercise all the powers and discretions by the Model Articles and by these Articles expressed to be vested in the directors generally, and, in those circumstances, regulation 11 in the Model Articles shall be modified accordingly. "Indicate whether the following statement is true or false: One director is sufficient for a quorate board meeting of Gouache Arts Limited. False. Model Article 11 provides that the quorum for board meetings is 2 directors. The amendment (called a "special article") only applies when there is only one director. There are currently three directors, so Model Article 11 still applies in its unamended form.

22) Which one or more of the following is CORRECT? Directors are responsible for the day-to-day running of the company. Directors can be employees of the company. Directors can delegate their decision making powers to one of their number. It is the members, not the directors, who own the company. 23) Pacer Limited is a company with Model Articles. It has four directors, Alan, Brian, Carina and Danielle. Brian is also the chairman. Alan has called a board meeting to consider changing the company's bank. Alan thinks Carina is in favour of his preferred bank but is not sure about Danielle. Brian would prefer to appoint a different bank to Alan. In which of the following scenarios would Brian use his casting vote to achieve the result he wants? The board vote on Brian's proposal. Alan and Carina vote against Brian's proposal but Danielle and Brian vote in favour. A chairman can only use his casting vote if the original vote is a tie. Situation B was passed 3 to 1. Situation C was passed 2 to 1. Only situations A and D were a tie as the vote was 2 against 2 in both situations. Note also that a tied vote means that resolution is defeated. In situation A Brian was against the resolution. He had therefore achieved his desired result without even exercising his casting vote. For this reason, the correct answer is D, as this is the only instance where Brian's casting vote is available and will change the outcome of the vote. 24) Which of the following is CORRECT, in a company with Model Articles of Association? Board minutes must be prepared after every board meeting and kept at the company's registered office for ten years. Under MA15, a written record of every decision must be kept for 10 years, and under s248, board minutes must be kept for 10 years. Keeping board minutes of every meeting satisfies both requirements. Copies of board resolutions and board minutes do not need to be filed at Companies House. 25) Wagon Wheels Limited (WWL) is a private company limited by shares. WWL has three directors, Pauline (Managing Director), John (Finance Director) and Will (Sales and Purchasing Director). The board will be discussing three matters at today's board meeting: the renewal of John's service contract, the purchase of a new computer system from a company wholly owned by Pauline's husband, and the purchase of stock from a new supplier, Heron Limited. At the board meeting, there is no requirement for John or Will to make a declaration of interest under s177 Companies Act 2006 but Pauline may have to make a declaration of interest. John does not have to make a declaration of interest in relation to the award of his service contract due to the exception in s177(6)(c) Companies Act 2006. The purchase of stock is likely to be related to Will's role but there is no indication that he has a personal interest in the transaction. Pauline

may have to make a declaration: she certainly has a personal interest in the contract with her husband's company but does not have to declare it if the other directors are already aware of her interest (s177(6)(b) CA06). We do not know whether this is the case so cannot say for sure if she is obliged to make a declaration. Note that advice to clients is always that it is best practice to make a declaration in any event, but that is not the same as being under a legal obligation to make a declaration.

26) Some decisions are taken by directors and others by shareholders. Consider the decisions below. Changing the accounting reference date Changing the situation of the registered office Relocating to new premises. Well done, in particular, for recognising that the issue of relocation is a business decision for the directors. Unlike the other options, this is not something specifically dealt with in the Companies Act 2006 but is normally within the competence of the directors by virtue of their general power of management under the articles. 27) Alpins Skiware plc ("ASP") enters into an agreement with Northern Clothing Limited ("NCL") to purchase goods from NCL by instalments on...