Monday, April 27, 2009
Thursday, March 5, 2009
A private limited company is a voluntary association of not less than two and not more than fifty members, whose liability is limited, the transfer of whose shares is limited to its members and who is not allowed to invite the general public to subscribe to its shares or debentures. Its main features are :-
It has an independent legal existence.
The Indian Companies Act, 1956 contains the provisions regarding the legal formalities for setting up of a private limited company. Registrars of Companies (ROC) appointed under the Companies Act covering the various States and Union Territories are vested with the primary duty of registering companies floated in the respective states and the Union Territories.
It is relatively less cumbersome to organize and operate it as it has been exempted from many regulations and restrictions to which apublic limited company is subjected to. Some of them are :-
it need not file a prospectus with the Registrar.
it need not obtain the Certificate for Commencement of business.
it need not hold the statutory general meeting nor need it file the statutory report.
restrictions placed on the directors of the public limited company do not apply to its directors.
The liability of its members is limited.
The shares allotted to it’s members are also not freely transferable between them. These companies are not allowed to invite public to subscribe to its shares and debentures.
It enjoys continuity of existence i.e. it continues to exist even if all its members die or desert it. Hence, a private company is preferred by those who wish to take the advantage of limited liability but at the same time desire to keep control over the business within a limited circle and maintain the privacy of their business.
ADVANTAGES OF PRIVATE LIMITED COMPANY
Continuity of existence. It is a separate legal entity meaning assets can be purchased in its own name.
Less legal restrictions
Recognition while dealing with foreign countries as a Corporate entity.
No limit for managerial remuneration.
DISADVANTAGES OF PRIVATE LIMITED COMPANY
Shares are not freely transferable
Not allowed to invite public to subscribe to its shares
Scope for promotional frauds
Taxability of Income of the Company as well as the dividend distribution in the hands of the Company.
Tax Rates for a Company in India
In case of the Domestic Company , the Income is charged at 30% flat.
Surcharge is applicable @ 10% for companies having total income exceeding Rs.1 Crore
Educational Cess @ 3% is also applicable for all firms
PARTNERSHIP FIRM IN
A partnership is a business entity having two or more owners. Earnings are distributed according to the partnership agreement and are treated as personal income for tax purposes. Thus, like the sole proprietorship, the partnership is simply a conduit for directing income to its partners. Partnership has a unique liability situation. Each partner is jointly and severally liable. Thus, a damaged party can pursue a single partner or any number of partners- and that claim may or may not be proportional to the invested capital of the partners or the distribution of the earnings. This means that if the one partner did something to damage a customer, that customer could sue all the partners even though other partner played no part in the problem.
Organizing a partnership is not as effortless as with a sole proprietorship. The partners must determine, and should set down in writing, their agreement on a number of issues:
The amount and nature of their respective capital contributions (e.g., one partner might contribute cash, another a patent, and a third property and cash)
How the business’s profits and losses will be allocated
Salaries and draws against profits
The consequences of withdrawal, retirement, disability, or the death of a partner
The means of dissolution and liquidation of the partnership
ADVANTAGES OF A PARTNERSHIP
Partnerships have many of the same advantages of the sole proprietorship, along with others:
· Except for the time and the legal cost of crafting a partnership agreement, it is easy to establish.
· Because there is more than one owner, the entity has more than one pool of capital to tap in financing the business and its operations.
· Profits from the business flow directly to the partners personal tax returns; they are not subject to a second level of taxation.
· The entity can draw on the judgment and management of more than one person. In the best cases, the partners will have complementary skills.
. The Partners Can withdraw profits from the business in the Name of Interest on Capital and Salary but subject to certain limits.
The Registration of the Partnership is optional
DISADVANTAGES OF A PARTNERSHIP
As mentioned earlier, partners are jointly and severally liable for the actions of the other partners. Thus, one partner can put other partners at risk without their knowledge or consent. Other disadvantages include the following:
· Profits must be shared among the partners.
· With two or more partners being privy to decisions, decision making may de slower and more difficult than in a sole proprietorship. Disputes can tie the partnership in knots.
· As with a sole proprietorship, the cost of some employee benefits may not be deductible from income taxation.
Depending on the partnership agreement, the partnership may have a limited life. Unless otherwise specified, it will end upon the withdrawal or death of any partner.
The Partnership firm is not a separate legal entity. Meaning Assets cannot be purchased in the name of the Partnership firm.
There are certain limits for withdrawals such as Interest on Capital & Salary to partners. Tax has to be paid if the amount paid exceeds these limits.
Tax Rates for a Partnership Firm
Income of the Partnership firm is chargeable @ 30% flat.
Surcharge is applicable @ 10% for firms having total income exceeding Rs.1 CroreEducational Cess @ 3% is also applicable for all firms.
SOLE PROPRIETORSHIP IN
The sole proprietorship is the oldest, simplest, and most common form of business entity. It is a business owned by a single individual. For tax and legal liability purpose, the owner and the business are one and the same. The proprietorship is not taxed as separate entity. Note that the earnings of the business are taxed at the individual level, whether or not they are actually in cash. There is no vehicle for sheltering income. For liability purposes, the individual and the business are also one and the same. Thus, legal claimants can pursue the personal property of the proprietor and not simply the assets used in the business.
ADVANTAGES OF A SOLE PROPRIETORSHIP
Perhaps the greatest advantage of this form of business is its simplicity and low cost. You are not required to file with the government, nor are any legal charter required. The sole proprietorship form of business has other advantages:
The owner or proprietor is in complete control of business decisions.
The income generated through operations can be directed into the proprietor’s pocket or reinvested as he or she sees fit.
Profits flow directly to the proprietor’s personal tax return; they are not subject to a second level of taxation. In others words, profits from the business will not be taxed at the business level.
The business can be dissolved as easily and informally as it was begun.
These advantages account for the widespread adoption of the sole proprietorship in the
DISADVANTAGES OF THE SOLE PROPRIETORSHIP
This legal form of organization, however, has disadvantages:
The amount of capital available to the business is limited to the owner’s personal funds and whatever funds can be borrowed. This disadvantages limits the potential size of the business, no matter how attractive or popular its product or service
Sole proprietors have unlimited liability for all debts and legal judgements incurred in the course of business. Thus, a product liability lawsuit by a customer will not be made against the business but rather against the owner.
The business may not be able to attract high-calibre employees whose goals include a share of business ownership. Sharing the benefits of ownership, other than simple profit-sharing, would require a change in the legal form of the business.
Some employee benefits, such as owner’s life, disability, and medical insurance premiums, may not be deductible, or may be only partially deductible from taxable income.
The entity has a limited life; it exists only as long as the owner is alive. Upon the owner’s death, the assets of the business go to his or her estate.
The other main disadvantage is that the owner cannot withdraw any amount towards his Interest on his capital or as his Salary.
The Proprietorship firm is not a separate legal entity. Meaning Assets cannot be purchased in the name of the firm. It shall be made only in the name of the Proprietor.
Tax Rates for a Proprietorship firm (applicable for male assesses)
Income Level Rate of Tax
Upto 150000 Nil
Above 500000 30%+55000
Surcharge @ 10%on Tax if Total Income exceeds Rs.10 Lakhs
Educational Cess @ 3% on Tax+Surcharge also payable