LW: Business organisations

Answer: C. An agent is a person authorised to act on behalf of a principal, creating or affecting legal relations between the principal and third parties; company directors and partners are common examples. Option A describes a consumer. Option B contradicts the essence of agency, which is acting with authority. Option D describes a sole proprietor, not an agent.

Answer: D. Agency can arise expressly (orally or in writing), by implication from conduct, by necessity in an emergency, or by the principal's ratification of an unauthorised act. Option A is wrong — a deed is needed only where the agent must execute a deed. Option B is wrong — principals may be individuals or companies. Option C is wrong — agency does not require a court order.

Answer: C. Actual authority is the authority truly conferred on the agent by the principal, either expressly in words or impliedly from the agent's position or the parties' course of dealing. Option A describes apparent (ostensible) authority, based on the principal's representation to the third party. Option B is not authority at all. Option D is wrong — authority comes from the principal, not a court.

Answer: D. Apparent or ostensible authority arises from the principal's own representation, by words or conduct, that a person is their agent; where a third party relies on it the principal may be bound even without actual authority (Freeman & Lockyer). Options A and B describe authority actually conferred, which the facts do not show. Option C is wrong — apparent authority can bind the principal in exactly these circumstances.

Answer: A. Where an agent acts within authority for a disclosed principal, the contract is formed between the principal and the third party, so the principal — not the agent — is liable on it. Option B is wrong as a general rule, though an agent can be liable for an undisclosed principal or where they exceed authority. Option C is wrong — a valid contract exists. Option D misstates the relationship.

Answer: C. The Partnership Act 1890 sets out the default rules for ordinary partnerships — including profit sharing and the authority of partners — applying where the partners have not agreed otherwise. Option A governs companies, option B insolvency, and option D consumer contracts. Limited partnerships and limited liability partnerships are governed by separate legislation (the 1907 Act and the LLP Act 2000).

Answer: D. An ordinary partnership arises where two or more persons carry on a business in common with a view to profit; no registration or formality is required and it may arise from conduct. Option A is wrong — ordinary partnerships are not registered at Companies House, unlike LLPs. Option B is wrong — a written deed is advisable but not essential. Option C is wrong — only two partners are needed.

Answer: C. Each partner is an agent of the firm and of the other partners, and acts done to carry on the firm's usual business bind the firm, unless the partner lacked authority and the third party knew this. Option A contradicts the agency principle underpinning partnership. Option B invents a capital-based restriction. Option D is wrong — no court order is needed for ordinary partnership dealings.

Answer: D. In an ordinary partnership the partners have unlimited personal liability for the firm's debts: liability is joint for debts and joint and several for torts. Option A describes a limited partner or a company shareholder, not an ordinary partner. Option B is wrong — ordinary partners are personally exposed. Option C is wrong — partners are liable for debts properly incurred by the firm, not only their own.

Answer: A. Subject to any agreement between the partners, the death or bankruptcy of a partner dissolves the partnership, as does expiry of a fixed term or notice in a partnership at will. Options B, C and D describe ordinary incidents of running a business that do not, of themselves, dissolve the firm. Well-drafted partnership agreements commonly modify these default dissolution rules.

Answer: C. A registered company has its own separate legal personality, distinct from its shareholders and directors, enabling it to own property, contract, sue and be sued in its own name; a sole trader and an ordinary partnership lack this. Option A is wrong — companies routinely employ staff. Option B is wrong — companies are heavily regulated. Option D is wrong — a company can own property in its own name.

Answer: D. In a company limited by shares, a member's liability is limited to the amount (if any) unpaid on the shares they hold; once the shares are fully paid, they have no further liability for the company's debts. Option A describes the opposite. Option B is wrong — the company is fully liable for its own debts. Option C is wrong — shareholders can still lose the value of their investment, just not more than any unpaid amount.

Answer: B. A public company (plc) may offer its shares to the public and must meet a higher minimum allotted share capital requirement, whereas a private company is prohibited from offering its shares to the public. Option A is wrong — size is not the legal distinction; some private companies are very large. Option C is wrong — a private company must have at least one director. Option D is wrong — public companies have shareholders.

Answer: A. Salomon v A Salomon & Co Ltd established that, once incorporated, a company is a separate legal person distinct from its members, so the company's debts are its own even where one individual effectively controls it. Donoghue v Stevenson (option B) concerns negligence, Carlill (option C) concerns unilateral offers, and Hadley v Baxendale (option D) concerns remoteness of damage — none addresses corporate personality.

Answer: C. The courts exceptionally lift the veil where the corporate form is used as a mere facade or sham to conceal the true facts or evade an existing legal obligation. Option A is wrong — ordinary trading losses do not justify it. Options B and D describe normal corporate events that have nothing to do with abuse of the corporate form. Lifting the veil remains exceptional, given the strength of the Salomon principle.

Answer: D. The articles of association are the principal constitutional document, governing the internal management of the company, such as directors' powers, meetings and share rights. The statement of capital (option A) is filed on formation but is not the body of internal rules. The certificate of incorporation (option C) is conclusive evidence the company exists. The confirmation statement (option B) is an annual filing, not part of the constitution.

Answer: B. The articles take effect as a statutory contract binding the company and its members, and the members among themselves, in respect of their rights as members. Option A is wrong — the articles are legally binding. Option C is wrong — they do not bind outsiders/the public as such. Option D is wrong — directors must act in accordance with the constitution; they cannot simply ignore the articles.

Answer: C. A company may alter its articles by special resolution, which requires at least a 75% majority of votes cast, and the alteration must generally be made bona fide for the benefit of the company as a whole. Option A is wrong — a single director cannot alter the constitution. Option B is wrong — an ordinary (simple-majority) resolution is insufficient. Option D is wrong — creditor consent is not generally required to change the articles.

Answer: D. A company cannot contract before it exists, so a pre-incorporation contract generally binds the promoter personally (Companies Act 2006, s.51). The company is not automatically bound on incorporation (option A) and cannot ratify the contract; a fresh contract (novation) would be needed. Option C is wrong — the promoter is liable. Option B misstates which party carries the obligation.

Answer: B. Company names are regulated: a name must not be the same as, or too like, an existing registered name, must not be offensive, and certain sensitive words (for example those implying official or government connections) require approval. Option A is wrong — identical names are not allowed. Option C is wrong — restrictions clearly exist. Option D is invented — there is no Latin requirement.

Answer: C. The certificate of incorporation is conclusive evidence that the requirements of registration have been met and that the company exists as a legal person from the date stated on it. Option A understates its effect. Option B is wrong — incorporation says nothing about profitability. Option D is wrong — it is not renewed annually (the confirmation statement is the annual filing, a separate matter).

Answer: B. A promoter owes fiduciary duties to the company, in particular to act in good faith and to disclose (to an independent board or the members) any personal interest or secret profit made in connection with the promotion; an undisclosed profit may have to be accounted for. Option A is wrong — duties clearly exist. Option C is wrong — no profit guarantee is owed. Option D wrongly limits the duty to auditors rather than the company.

Answer: C. Every company must have a registered office, which is its official address for receiving and acknowledging the service of documents and formal communications, and where certain statutory records may be kept or made available. Option A is wrong — staff need not work there. Option B is wrong — it need not be a director's home. Option D is wrong — a company may trade from many locations regardless of its registered office.

Answer: C. Buying an off-the-shelf company — one already incorporated by a formation agent — lets the purchaser start trading through an existing company quickly, avoiding the time and administration of forming a new one, with the name, directors and articles then changed as needed. Option A is wrong — incorporation does not guarantee profit. Options B and D are wrong — the company remains fully subject to the Companies Act, including filing obligations.