AAT L2 Introduction to Business and Company Law 2 — Questions and Answers
Question 1: The Partnership Act 1890 provides that, in the absence of a partnership agreement, profits and losses are shared:
- In proportion to each partner's capital contribution
- Equally between all partners (Correct answer)
- According to the hours each partner works
- Only profits are shared — losses are borne by the senior partner
Correct answer: Equally between all partners
Under the Partnership Act 1890, if there is no written partnership agreement, profits and losses are shared equally between partners regardless of the amount of capital each partner has contributed or the work each partner does.
Question 2: Consideration in contract law is best described as:
- Thinking carefully about the contract
- Something of value given by each party to the contract — it is the price of the promise (Correct answer)
- The time taken to negotiate the contract
- A cooling-off period after signing
Correct answer: Something of value given by each party to the contract — it is the price of the promise
Consideration is the value exchanged between parties. It can be money, goods, services, or a promise to do (or not do) something. Each party must provide consideration for the contract to be enforceable. Past consideration (something already done) is not valid.
Question 3: A limited liability partnership (LLP) provides:
- Unlimited liability for all partners
- The flexibility of a partnership with the limited liability protection of a limited company (Correct answer)
- No requirement to file accounts
- Automatic protection from all business risks
Correct answer: The flexibility of a partnership with the limited liability protection of a limited company
An LLP combines elements of a partnership (internal flexibility, profit sharing) with the limited liability of a company (partners' personal assets are protected). LLPs must be registered at Companies House and file annual accounts.
Question 4: The Memorandum of Association for a limited company:
- Sets out the internal rules for running the company
- Is a document signed by the initial subscribers stating their intention to form a company (Correct answer)
- Details the directors' salaries
- Is only required for PLCs
Correct answer: Is a document signed by the initial subscribers stating their intention to form a company
The Memorandum of Association is a legal document signed by the initial subscribers (founders) stating their intention to form a company and to take at least one share each. Under the Companies Act 2006, it is a simpler document than it was historically.
Question 5: Breach of contract occurs when:
- Both parties agree to change the contract terms
- One party fails to perform their obligations under the contract without lawful excuse (Correct answer)
- A contract is signed by only one party
- A contract reaches its agreed end date
Correct answer: One party fails to perform their obligations under the contract without lawful excuse
A breach of contract occurs when one party fails to fulfil their contractual obligations without a valid legal reason. The innocent party may be entitled to remedies such as damages (monetary compensation), specific performance, or rescission of the contract.
Question 6: The Articles of Association of a company:
- Detail the company's contracts with suppliers
- Set out the internal rules governing how the company is managed, including directors' powers and shareholders' rights (Correct answer)
- List all the company's assets
- Are filed with HMRC for tax purposes
Correct answer: Set out the internal rules governing how the company is managed, including directors' powers and shareholders' rights
The Articles of Association are the internal rulebook of the company. They govern matters such as the appointment and removal of directors, conduct of board meetings, shareholders' voting rights, dividend payments, and share transfers.
AAT L2 Introduction to Business and Company Law 2
The Partnership Act 1890 provides that, in the absence of a partnership agreement, profits and losses are shared: