Page 293 - DCOM301_INCOME_TAX_LAWS_I

Income Tax Laws – I

Notes Registered office: A company must have a registered office.
Seal: A company must have a common seal to run its functions.
Limitation of liability: The liabilities of a shareholder of a company are always limited.

Transferable share: The shares of a company are always transferable.
Capacity to sue: A company is capable to sue to any matter in any competent court.

10.1.2 Factors Involved in Selection of Organisation

One of the decision factors includes how profitable your business is, and how much of those
profits you want distributed to you versus re-investing the profits back into the business. The
choice of the form of business is governed by several interrelated and interdependent factors:
1. The nature of business is the most important factor: Businesses providing direct services
like tailors, restaurants and professional services like doctors, lawyers are generally
organised as proprietary concerns. While, businesses requiring pooling of skills and funds
like accounting firms are better organised as partnerships. Manufacturing organisations
of large size are more commonly set up as private and public companies.
2. Scale of operations: That is volume of business (large, medium, and small) and size of the
market area (local, national, international) served is the key factors. Large scale enterprises
catering to national and international markets can be organised more successfully as
private or public companies. Small and medium scale firms are generally set up as
partnerships and proprietorship. Similarly, where the area of operations is wide spread
(national or international), company ownership is appropriate. But if the area of operations
is confined to a particular locality, partnership or proprietorship will be a more suitable
choice.
3. The degree of control desired by the owner(s): A person, who desires direct control of
business, prefers proprietorship, because a company involves separation of ownership
and management.
4. Amount of capital required for the establishment and operation of a business: A partnership
may be converted into a company when it grows beyond the capacity and resources of a
few persons.

5. The volume of risks and liabilities as well as the willingness of the owners to bear it is also
an important consideration.
6. Comparative tax liability.

Self Assessment

Fill in the blanks:
1. Being a ………………term commitment, the choice of the form of business should be
made after considerable thought and deliberation.

2. A ………………is a one-man business.
3. A …………………may be converted into a company when it grows beyond the capacity
and resources of a few persons.

4. A …………….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.

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