Page 183 - DCOM508_CORPORATE_TAX_PLANNING

Corporate Tax Planning

Notes 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 organisation.

Did u know? There are two types of partnership forms:
(a) Limited Liability Partnership – at least one partner must have unlimited liability.

(b) 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:

(a) Ordinary/General Partners: take an active part in the running of the business.
(b) Sleeping Partners: invest in the business but do not take an active part in the
business.
(c) 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 essential features of a company are as below:

(a) 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.
(b) Voluntary association: The members of the company must be associated with their free
consent and according to the choices of their purposes.
(c) Contractual capacity: A shareholder of a company can come into a contract with
company and can be an employee of the company.
(d) 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.

(e) Capital: Without capital a company can not run its functions.
(f) Perpetual succession: The Company has a perpetual succession. Death or insolvency of
the shareholders of a company can not affect the existence of a company.
(g) Registered offi ce: A company must have a registered offi ce.
(h) Seal: A company must have a common seal to run its functions.

(i) Limitation of liability: The liabilities of a shareholder of a company are always
limited.
(j) Transferable share: He shares of a company are always transferable.

(k) Capacity to sue: A company is capable to sue to any matter in any competent court.

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