i BUSINESS LAW AND PRACTICE ii Business Law and Practice iii BUSINESS LAW AND PRACTICE Trevor Adams BSc, PhD, Solicitor Christopher Morris BA, Solicitor iv Business Law and Practice Published by College of Law Publishing, Braboeuf Manor, Portsmouth Road, St Catherines, Guildford GU3 1HA © The College of Law 2010 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any way or by any means, including photocopying or recording, without the written permission of the copyright holder, application for which should be addressed to the publisher. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. ISBN 978 1 905391 96 7 Typeset by Style Photosetting Ltd, Mayfield, East Sussex Printed in Great Britain by Ashford Colour Press Ltd, Gosport, Hampshire Introduction, Bibliography and Abbreviations v Introduction, Bibliography and Abbreviations In writing this book, we have set out to describe the forms of business organisation most commonly encountered in practice in the context of their ‘internal’ concerns, their relations with outsiders and their possible tax liabilities. It is intended to be a comprehensive guide to the whole field of advising people who run small businesses, whatever the chosen form of organisation. The style which we have adopted has been chosen in the hope that the contents will be readily understood and appreciated by someone who is totally unacquainted with the subject as well as by someone with some prior knowledge. In so far as this style necessitates a less detailed treatment of topics than some textbooks adopt, we hope that the inclusion of statutory references in the text will encourage the reader to consult the original source materials whenever further research into a topic is required. To this end, we have prepared a companion volume, Business and Company Legislation, which contains the up-to-date text of the key legislation referred to in the book. In addition, we have listed below a few of the many textbooks which the reader may find useful for further study. Company Law Alcock, A, Birds, J and Gale, S, Companies Act 2006 (1st edn, 2007) Alcock, A, Gore-Browne on Companies (44th edn, 2010) Birds, J, Boyle, A, Ferran, E and Villiers, C, Boyle and Birds’ Company Law (7th edn, 2009) Ferran, E, Principles of Corporate Finance Law (2008) FL Memo, Company Law (2010) Fuller, G, Corporation Borrowing Law and Practice (4th edn, 2009) Mayson, S, French, D and Ryan, C, Company Law (27th edn, 2010) Morse, G, Palmer’s Company Law Competition Law Whish, R, Whish: Competition Law (6th edn, 2008) Lindrup, G, Butterworths Competition Law Handbook (8th edn, 2002) Insolvency Davies, S, Insolvency and the Enterprise Act 2002 (2003) Keay, A and Walton, P, Insolvency Law (2008) Milman, D and Durrant, C, Corporate Insolvency (3rd edn, 1999) Partnership Morse, G, Partnership Law (6th edn, 2006) Lindley, N and Banks, RC L’Anson, Lindley and Banks on Partnership (18th edn, 2005) vi Business Law and Practice Taxation Revenue Law Principles and Practice (24th edn, 2006) The law is stated as at 1 May 2010. In the interests of brevity, we have used the masculine pronoun throughout to include the feminine. Similarly, in the interests of brevity, we have used the following abbreviations: BNA 1985 Business Names Act 1985 CA 1985 Companies Act 1985 CA 2006 Companies Act 2006 CAA 2001 Capital Allowances Act 2001 CDDA 1986 Company Directors Disqualification Act 1986 CPA 2004 Civil Partnership Act 2004 CTA 2009 Corporation Tax Act 2009 CTA 2010 Corporation Tax Act 2010 DRO Debt relief order EA 2002 Enterprise Act 2002 ERA 1996 Employment Rights Act 1996 FA Finance Act (various years) HMRC HM Revenue and Customs GAAP Generally Accepted Accounting Practice IA 1986 Insolvency Act 1986 IAS International Accounting Standards ICTA 1998 Income and Corporation Taxes Act 1988 IHTA 1984 Inheritance Tax Act 1984 ITA 2007 Income Tax Act 2007 ITEPA 2003 Income Tax (Earnin gs and Pensions) Act 2003 ITTOIA 2005 Income Tax (Trading and Other Income) Act 2005 LLPA 2000 Limited Liability Partnership Act 2000 PA 1890 Partnership Act 1890 SGA 1979 Sale of Goods Act 1979 SGSA 1982 Supply of Goods and Services Act 1982 SSGA 1982 Sale and Supply of Goods Act 1994 TCGA 1992 Taxation of Chargeable Gains Act 1992 TMA 1970 Taxes Management Act 1970 UCTA 1977 Unfair Contract Terms Act 1977 Introduction, Bibliography and Abbreviations vii Preface Note from Trevor Adams I am grateful to Debbie Woods, my colleague at Manchester and an expert in employment law, for kindly updating the provisions on employment law. Chris Morris has revised the chapters on taxation, overcoming the usual problems that the timing of the Budget causes him, not to mention a General Election. Lesley King wrote the material for Appendix 3 on interpretation of company accounts. The process of implementation of the Companies Act 2006 has, at last, been completed. The effects of all this have yet to settle down, especially at Companies House. My thanks to David Stott for all his help with this edition. We all remember Alistair MacQueen and his major contribution to these publications. TREVOR ADAMS Rhos on Sea viii Business Law and Practice Contents ix Contents INTRODUCTION, BIBLIOGRAPHY AND ABBREVIATIONS v PREFACE vii TABLE OF CASES xvii TABLE OF STATUTES xxiii TABLE OF SECONDARY LEGISLATION xxxiii TABLE OF EUROPEAN LEGISLATION xxxv INTRODUCTION TO THE COMPANIES ACT 2006 xxxvii COMPANIES ACT 2006: COMMENCEMENT DATES xxxix Part I STARTING A BUSINESS 1 Chapter 1 INTRODUCTION TO COMMON FORMS OF BUSINESS ORGANISATION 3 1.1 Introduction 3 1.2 Sole trader 3 1.3 Partnership 3 1.4 Private limited company 4 1.5 Public limited company 5 1.6 Limited liability partnership (LLP) 7 1.7 Limited partnership 7 1.8 European economic interest grouping (EEIG) 7 1.9 European company 7 1.10 A purely contractual relationship 8 1.11 Community interest companies 8 1.12 Charitable incorporated organisations (CIOs) 8 Chapter 2 INTRODUCTION TO THE COMPANY 9 2.1 The key concepts 9 2.2 What is the point of being able to trade as a company? 9 2.3 How did we get to the point of the modern company? 10 2.4 Corporate personality: Salomon v Salomon 10 2.5 Principles of company law 11 2.6 Legislative control of companies 11 2.7 The directors and the members: who decides what? 11 2.8 EU companies legislation 13 Part II RUNNING A BUSINESS AS A COMPANY LIMITED BY SHARES 15 Chapter 3 WHY, AND HOW TO, FORM A COMPANY 17 3.1 Why form a company? 17 3.2 Liability of the company 17 3.3 Forming a company 19 3.4 How to form a company 19 3.5 Tailoring the company to the client’s needs 21 3.6 Fast track route – a shelf company 22 3.7 Immediate obligations and practicalities 23 3.8 The elective regime 26 3.9 Shareholders’ agreements 26