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Advantage of pvt ltd firm

(Querist) 01 April 2008 This query is : Resolved 
My brothers are having proeritorship firm in indore. Due to increased turnover they are planning to form a PVT LTD company. I wants to know the advantage of PVT LTD company. whether from tax & turnover point of veiw Partenership firm will be suitable or Pvt ltd firm?
Dhrumil (Expert) 01 April 2008
Dear Sir,

With reference to your query regarding shifting of business from the Proprietary mode to Private Company. My suggestions for the same are as under.

1. Before explaining let us first distinguished the features of Proprietary and Company

One of the major differences between proprietorship and company is the liability of owner. In case of proprietorship the liability of the owner is unlimited. i.e.:- in case of insolvency of firm, property of owner can be used for payment of dues business. However in case of company the liability of owner is limited i.e. :- in case of insolvency the private property of shareholder can not be used for payment of business dues. Hence company mode of business formation is ideal for those who going to do business by partnership because even in partnership liability of partners is unlimited. Hence if one partner has defaulted in business the other partner property can be used for payment of dues of business.

2. Taxation Factor

Tax rate in proprietary concerned is based on individual and for company it is flat tax @ 33 % (including surcharge.)

3. Cost

Cost in case of company formation and winding up is high as compare to preparatory concerned. Many banks recognized company for giving loan as compare to proprietary concerned

Conclusions: therefore company mode of formation is suitable for high profit making and high turnover business. It is helpful for further expansion of business.

There are many other advantages in company formation.

Rajesh Kumar (Expert) 03 April 2008
The fundamental defect of a company is double taxation- firstly the company has to pay the applicable taxes and after that when it distributes the profit to its shareholder, they pay taxes. The fundamental benefit is limited liability. Thus, if the business is not very risky and partnership is doing well- one may continue with it.
Dhrumil (Expert) 03 April 2008
i agree with Mr Rajesh, but if Promoter becomes Director of the company and withdraw salary in such way that to adjust taxation for both as individal Director and Corporate.Most of the disputs arises with family business and for avoidng that compny form of business is best even for family my opinion compnay form of Business is well regulated than that Partnership firm.

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