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Unit 10: Tax Planning for Different Organisations

The various forms of Business Organisations are as follows: Notes
1. Sole Proprietors: A sole proprietorship is a one-man business. The owner is liable for all
of the company’s debts. Furthermore, the company’s income is considered to be the owner’s
personal income and must be reported on the owner’s individual income tax return. The
advantage of this form of business organization is simplicity—no partnership agreements
need to be signed, there are no corporate registration formalities to perform, and there is
no need for corporate formalities, such as shareholder’s meetings.

2. Partnerships: In a general partnership, the business is owned by two or more general
partners. Each of the partners is liable for the debts of the business. Although the partnership
must file a separate tax return, each general partner is required to report his pro rata share
of the partnership’s income on his individual income tax return. A partnership agreement
is a practical necessity for this form of business organization.

Did u know? There are two types of partnership forms:
Limited Liability Partnership – at least one partner must have unlimited liability
Unlimited liability Partnership- all partners have unlimited liability.
A deed of partnership must be drafted which set out the terms and conditions of the
partnership. Various types of partners are as follows:
Ordinary/General Partners: Take an active part in the running of the business.

Sleeping Partners: Invest in the business but do not take an active part in the business.
Limited Liability Partners: Assets will not be lost if the business goes bankrupt.
3. Company: A company is meant an association of many persons who contribute money or
money’s worth to a common stock and employs it in some trade or business, and who
share the profit and loss (as the case may be) arising there from. The common stock
contributed is denoted in money and is the capital of the company. The persons who
contribute it, or to whom it belongs, are members. The proportion of capital to which each
member is entitled is his share. Shares are always transferable although the right to
transfer them is often more or less restricted. The main essentials features of a company
are as below:

Registration: According to the Company Act, 1994, registration is compulsory for a
company. And a company comes into effect as a company after its registration.
Voluntary association: The members of the company must be associated with their
free consent and according to the choices of their purposes.
Contractual capacity: A shareholder of a company can come into a contract with
company and can be an employee of the company.
Management: The Company and its whole functions must be managed by the Board
of Director as formatted as prescribed in the Company Act, 1994 and the
Memorandum of Association of a company.
Capital: Without capital a company cannot run its functions.

Perpetual succession: The Company has a perpetual succession. Death or insolvency
of the shareholders of a company cannot affect the existence of a company.

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