ACCA. Paper F4 Glo. Corporate and Business Law. Pocket notes

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1 ACCA Paper F4 Glo Corporate and Business Law Pocket notes

2 Corporate and business law British library cataloguing-in-publication data A catalogue record for this book is available from the British Library. Published by: Kaplan Publishing UK Unit 2 The Business Centre Molly Millars Lane Wokingham Berkshire RG41 2QZ ISBN Kaplan Financial Limited, 2015 Printed and bound in Great Britain. The text in this material and any others made available by any Kaplan Group company does not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content as the basis for any investment or other decision or in connection with any advice given to third parties. Please consult your appropriate professional adviser as necessary. Kaplan Publishing Limited and all other Kaplan group companies expressly disclaim all liability to any person in respect of any losses or other claims, whether direct, indirect, incidental, consequential or otherwise arising in relation to the use of such materials. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of Kaplan Publishing. ii kaplan publishing

3 paper F4 GLO Contents Introduction...iv Chapter 1: Essential elements of legal systems... 1 Chapter 2: International commercial arbitration...13 Chapter 3: International business transactions: formation of the contract...17 Chapter 4: International business transactions: obligations...23 Chapter 5: International business transactions: risk and payment...35 Chapter 6: International business forms agency...49 Chapter 7: Types of business organisation...53 Chapter 8: Legal personality...59 Chapter 9: Capital and financing...77 Chapter 10: Directors...91 Chapter 11: Corporate administration...99 Chapter 12: Insolvency Chapter 13: Fraudulent behaviour Index... I.1 kaplan publishing iii

4 Corporate and business law Paper introduction Paper background The aim of ACCA Paper F4 (GLO), Corporate and Business Law, is to develop knowledge and skills in the understanding of the general legal framework, and of specific legal areas relating to business, recognising the need to seek further specialist legal advice where necessary. Objectives of the syllabus Identify the essential elements of different legal systems including the main sources of law, the relationship between the different branches of a state s constitution, and the need for international legal regulation, and explain the roles of international organisations in the promotion and regulation of international trade, and the role of international arbitration as an alternative to court adjudication. Recognise and apply the appropriate legal rules applicable under the United Nations Convention on Contracts for the International Sale of Goods, and explain the various ways in which international business transactions can be funded. Recognise different types of international business forms. Distinguish between alternative forms and constitutions of business organisations. Recognise and compare types of capital and the financing of companies. Describe and explain how companies are managed, administered and regulated. Recognise the legal implications relating to insolvency law. Demonstrate an understanding of corporate and fraudulent behaviour. iv kaplan publishing

5 paper F4 GLO Core areas of the syllabus Essential elements of the legal system. International business transactions. The formation and constitution of business organisations. Capital and the financing of companies. Management, administration and regulation of companies. Legal implications relating to insolvency law. Corporate fraudulent and criminal behaviour. Examination Format The examination is a two-hour assessment available as either a paper-based examination or as a computer-based examination. The assessment will contain 100% compulsory questions and will comprise the following: Section A: 20 1 mark objective test questions 25 2 mark objective test questions Section B: 5 6 mark multi-task questions Paper based examination tips Spend the first few minutes of the examination reading the paper. Divide the time you spend on questions in proportion to the marks on offer. One suggestion for this exam is to allocate 2 minutes to each mark available. Multiple-choice questions: Read the questions carefully. If you don t know the answer, eliminate those options you know are incorrect and see if the answer becomes more obvious. Guess your final answer rather than leave it blank if necessary. kaplan publishing v

6 Corporate and business law Computer-based examination (CBE) tips Be sure you understand how to use the software before you start the exam. If in doubt, ask the assessment centre staff to explain it to you. Questions are displayed on the screen and answers are entered using keyboard and mouse. At the end of the exam, you are given a certificate showing the result you have achieved. Read each question very carefully. Double-check your answer before committing yourself to it. Answer every question If you do not know the answer, you don t lose anything by guessing. Think carefully before you guess. With a multiple-choice question, eliminate first those answers that you know are wrong. Then choose the most appropriate answer from those that are left. Remember that only one answer to a multiple-choice question can be right. After you have eliminated the ones that you know to be wrong, if you are still unsure, guess. But only do so after you have doublechecked that you have only eliminated answers that are definitely wrong. Don t panic if you realise you ve answered a question incorrectly. Getting one question wrong will not mean the difference between passing and failing. vi kaplan publishing

7 paper F4 GLO Quality and accuracy are of the utmost importance to us so if you spot an error in any of our products, please send an to with full details, or follow the link to the feedback form in MyKaplan. Our Quality Co-ordinator will work with our technical team to verify the error and take action to ensure it is corrected in future editions. kaplan publishing vii

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9 chapter 1 Essential elements of legal systems In this chapter Economic, political and legal systems. Separation of powers. International trade, international legal regulation and conflict of laws. Arbitration. 1

10 Essential elements of legal systems Economic, political and legal systems A country s political economy refers to its political, economic and legal systems. These systems are interdependent, and interact and influence each other. Economic system The way in which society decides what to make, how to make it and who to make it for. Economic systems Planned decisions made by government Market decision left to market forces Mixed mixture of the other types Political system The way in which countries are managed eg dictatorship or democracy. Legal system The law is a body of rules designed to regulate the conduct of society. Common Law applies in UK and USA Types of legal system Civil Law applies in France and Germany Sharia Law applies in Pakistan and Iran 2 kaplan publishing

11 chapter 1 Separation of powers Power is split in the following way so that no part of the political process has too much power. 1 Legislature makes the law. 2 Executive implements the law. 3 Judiciary interprets the law in a dispute. Different legal systems A Common law Built up in England between 1066 and about Has been exported to other countries because of the British Empire, e.g. USA and Canada. Principles of law do not become inoperative because of passing of time. New laws passed by Parliament are presumed not to alter existing law. Judges apply law using judicial precedent. kaplan publishing 3

12 Essential elements of legal systems Sources of law Common Law built up through the application of judicial precedent. Equity developed by Chancery to deal with the rigidity of common law. Statute made by legislature. Custom. Constitution (where applicable). European Union law where country is a member of EU. Role of judges Apply the law consistently with previous decisions. Interpret statutes. The following presumptions apply when interpreting a statute: it does not override existing law it does not alter common law it does not have retrospective effect it does not bind the Crown it does not repeal other statutes. The following rules should be used to interpret statutes: words should be given their literal meaning words should be interpreted within their context words should be interpreted according to the purpose of the statute the meaning of general words should be limited to the type or class of thing mentioned by specific words. 4 kaplan publishing

13 chapter 1 B Civil law Historically developed from Roman Law. Law is contained in codes which should answer any question. Questions of law should be decided within the context of the code. Sources of law Countries constitutions. EC law where the country is a member. Statute mostly codified. Administrative regulations. Custom. Role of judges Apply the law but they do not create precedents. Not supposed to interpret the law but, where necessary, must identify the social purpose of the law and apply it to achieve that purpose. C Sharia law Based on the religion of Islam. It is given by Allah. Sources of law Quran Allah s divine revelation to the prophet Mohammed. Sunnah sets out acceptable conduct derived from the prophet Ahadith. Madhab schools of thought based on writings of major jurists. Two schools which are the Sunni and Shiite. Constitution of the country. kaplan publishing 5

14 Essential elements of legal systems Role of judges They are generally clerics. Required to apply the law. Have limited powers of interpretation. If clear guidance not available in the Quran, reference can be made to Sunnah to confirm, explain or clarify the law. Within the Sunnah, ahadith are classified according to reliability. Ijtihad are the historic processes used for interpreting law. International trade, international legal regulation and conflict of laws Definition Private international law is a set of national and domestic rules to determine the jurisdiction and applicable law in international contracts. It is purely domestic law. Definition Public international law is law which is recognised by a group of nations eg conventions and treaties, international custom and law recognised by civilised nations. Definition Conflict of law arises where the private laws of two different countries produce a different result in the same situation. It makes it harder for parties in those two countries to trade. 6 kaplan publishing

15 chapter 1 Public international law deals with the problem of the conflict of laws. Nations negotiate treaties and conventions to enable international trade. International bodies exist to make and manage those agreed international laws. International organisations United Nations Almost every country is a member. Aims maintain peace and security develop friendly relations between nations co-operate in solving economic, social, cultural and humanitarian problems to promote respect for human rights and international freedoms. It has various legal departments including UNCITRAL and ICJ. kaplan publishing 7

16 Essential elements of legal systems UNCITRAL (UN Commission on International Trade Law). Aim to harmonise and unify international law on trade. Composition 60 member states elected by the general council. International Chamber of Commerce (ICC) Set up by business leaders from various countries. Aim to serve the world business community by promoting trade, investment, open markets for goods and services and the free flow of capital. Functions: cooperates with and advises UN in forming international law provides practical services to businesses combats commercial crime eg money laundering. It has a World Council, National Committees and an International Secretariat. 8 kaplan publishing

17 chapter 1 World Trade Organisation (WTO) Aims to assist the free flow of trade by removing obstacles to publicise world trade rules to give individuals, companies and governments confidence that there will be no changes in policy. Functions: administers trade agreements acts as a forum for trade negotiations settles trade disputes reviews national trade policies assists developing countries in trade policy issues cooperates with other international organisations. Structure Secretariat based in Geneva. It provides technical support for councils and committees. Ministerial conference meets every two years and makes important decisions. General Council based in Geneva. Sub- Councils which report to the general Council. Specialised committees and working groups. kaplan publishing 9

18 Essential elements of legal systems Organisation for Economic Cooperation and Development (OECD) Aim Forum for discussing, developing and refining economic and social policies. (Historically it administered American and Canadian aid to Europe after WWII). Function to create legally binding agreements and non binding guidelines to subscribe to. Structure Consists of 30 countries from most continents. UNIDROIT (International Institute for the Unification of Private Law) Aim to study needs and methods of harmonising private commercial law. Function draws up International Conventions which have force of law in priority to existing domestic law where adopted draws up model laws for states to take into account when drafting their own private law. draws up general principles for judges and arbitrators. Structure: The Secretariat is responsible for carrying out day to day work the Governing Council supervises the work of the secretariat. General assembly is the decision making body. 10 kaplan publishing

19 chapter 1 International Courts International Court of Justice (ICJ) Part of UN. Settles disputes put before it by states. Provides legal advice to international organisations. No appeal. International Criminal Court (ICC). Formed to deal with the most serious crimes against humanity. May only prosecute states and individuals from states which have accepted the jurisdiction of the court. International Court of Arbitration. Set up to oversee all aspects of the arbitration process. It decides on challenges to arbitrators, approves awards and fixes arbitrators fees. kaplan publishing 11

20 Essential elements of legal systems Arbitration Often called Alternative Dispute Resolution (ADR). It is a way of settling disputes without going to the courts. It is the subject of the UN Model law on International Commercial Arbitration. Advantages of arbitration Privacy Informality Speed Cost Expertise Finality Neutral forum Disadvantages of arbitration Lack of legal expertise Less predictable than court decisions No right of appeal 12 kaplan publishing