26. Liabilities arising from insolvency

This chapter considers the rules which enable insolvency practitioners to claim assets which are not held by the insolvent company itself. It discusses wrongful trading; transactions at an undervalue and preferences; transactions defrauding creditors; and floating charges.

25. Company insolvency proceedings

This chapter deals with the procedures available when a company is insolvent or facing financial difficulties. It also considers the ways in which insolvent partnerships can be subject to the same procedures as companies. The law relating to these matters is principally contained in the Insolvency Act 1986 (IA 1986) together with the Insolvency Rules 1986, as amended by the Insolvency Act 2000 and the Enterprise Act 2002. The insolvency legislation provides four procedures for companies in financial difficulties: administration, voluntary arrangement, receivership, and liquidation.

22. Capital gains tax and inheritance tax on business assets

This chapter examines the capital gains tax (CGT) and inheritance tax regimes which apply to individuals in relation to businesses and business assets. Under the provisions of the Taxation of Chargeable Gains Act (TCGA) 1992, CGT is payable when a taxable person makes a disposal of chargeable assets giving rise to a chargeable gain unless an exemption or relief applies. The chapter first discusses the various rules which need to be considered to establish a taxpayer’s CGT liability on any given disposal. It then covers CGT in the business context; disposals of partnership property; disposals of shares; disposals of business assets owned by those involved in the business; the purchase by a company of its own shares; and inheritance tax.

18. The corporation tax system

This chapter deals with the corporation tax system, which determines the tax liability of companies. It discusses the calculation of profits; tax assessment; relief for trade losses; and taxation of close companies.

13. Company meetings and resolutions

This chapter describes the meetings of shareholders and the resolutions passed during such meetings. It covers the types of general meeting; resolutions; calling a general meeting; notice of meetings; proceedings at meetings; minutes and returns; and written resolutions.

8. Formation of a limited company

This chapter considers the process by which a limited company is formed and the steps required both for and following its formation. It also looks at shelf companies, as an alternative means of providing a company to a client, and the related changes which can be made to a company’s main features. The process of registering a company is governed by the Companies Act 2006.

5. Termination of and retirement from a partnership

An individual may cease to be a partner on the happening of one of the following events: the dissolution of the partnership; his retirement; or his expulsion from the partnership. If the partnership is dissolved, the partnership will come to an end and its assets and business will be dealt with accordingly. The situation is different on the retirement or expulsion of a partner. Here, the former partners can carry on the business, albeit through the medium of a newly constituted partnership. This chapter considers the legal consequences of the occurrence of these events.

29. Sale of a business to a company

A sole trader or partnership may decide, for a variety of reasons, to incorporate the business. Incorporation will give rise to a number of tax and other problems. This chapter considers these problems and how they can be avoided, or at least mitigated. It shows that the tax rules are the most important in this area, since if they are not appreciated the payment of an unexpected tax bill can cause very serious cash flow problems. These include rules on income tax, capital gains tax, VAT, and stamp duty/stamp duty land tax.

27. Choice of business medium

This chapter makes a comparison between companies, on the one hand, and partnerships or sole traders, on the other, in order to explain the various factors which should be taken into account when choosing the two business media. It considers factors such as risk of capital, expense, publicity, taxation, interest relief, capital gains, inheritance tax, pensions and social security Due to the range of variables, the desirability of limited liability means that incorporation may be the only viable option, although this can also be achieved by setting up a limited liability partnership. Where limited liability is not of great importance, the tax factors will be more significant and these would have to be examined from a number of perspectives, including the size of anticipated profits, the particular financial circumstances of the promoters of the business, and any particular expectations they had about their stake in the business.

21. Capital allowances

This chapter discusses the capital allowances system. Most businesses will need to acquire fixed assets for their operations, nearly all of which will depreciate in value over time due to wear and tear. While this depreciation may not be deducted from the business’s trading profits, certain limited types of fixed asset entitle a business to claim relief in the form of a capital allowance, which can be deducted when calculating taxable profits. The purpose of this allowance is to give tax relief for the depreciation in value of specific assets bought and owned for business use, by allowing the owner to write off their cost against the taxable income of the business. The amount which can be written off is calculated using a fixed formula. Relief is only available if the capital expenditure has been incurred in respect of the items of expenditure prescribed by the Capital Allowances Act 2001.