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Companies
(Under Companies Act, 2013)

Any person who is desirous of running a large business needs huge funds and resources, which generally he is not able to contribute himself. He, therefore wants some others to join him either information of partnership or in a company. A partnership firm is generally suitable for small to medium-size businesses, but for a large enterprise, a company is often preferred. A company is a voluntary association of persons formed for the purpose of doing business, having a distinct name and limited liability.

Advantages

Advantages of this business structure

  1.  A company is a distinct legal entity, different from its member or shareholders. The company may hold property, make contracts, employ persons, sue, or be sued in its own name.

  2. The liability of the members of a company is limited to the amount remaining unpaid on the shares subscribed by them.

  3. The continuity of the company and its functioning is not affected by the death, disability, or retirement of any of its members.

  4.  A company generally has a common seal, which is the signature of the company. The Compay's seal is affixed on all documents executed for any on its behalf.

  5. Separate Property Ownership: A company may own and dispose of its property in its own name.

  6. Shares held in a company are movable property and are freely transferable which provides liquidity to the investment and facilitates increased investment in the company's capital.

  7. A company is a legal entity that can sue (and also be sued) in its own name.

  8. Shares of small denominations afford an opportunity to the small investors to invest according to their capacity.

  9. A company offers a better opportunity for the professionalization of its management and entrusting its administration to persons of professional competence.

  10. A company offers better borrowing facilities on comparatively easier terms, by the issue of debentures especially those secured by floating charges, or by accepting deposits from the public. Even banking and financial institutions prefer to render financial assistance to companies.

Taxation

Provisions applicable under Income Tax Act, 1961

A company has been defined as a juristic person having an independent and separate legal entity from its shareholders. The income of the company is computed and assessed separately in the hand of the company. The company is liable to pay tax at a flat rate like a firm. In addition to such tax, if the company is a domestic company, it shall be liable to pay tax under section 115-O on the amount distributed as profits to its shareholders, however, the income of the company which is distributed to its shareholders as dividends are exempt under section 10(34) in the hands of the shareholders unless the same is taxable under section 115BBDA. Such distribution of income is not treated as an expenditure in the hands of the company, the income so distributed is an appropriation out of the profits of the company.

Taxation

Deductions available under Chapter VIA of Income Tax Act, 1961

  1. 80G - Donations to certain funds/charitable institutions, etc.

  2. 80GGA - Certain donations for scientific research or rural development.

  3. 80GGB - Contributions given by companies to political parties.

  4. 80IA - Profits and gains of new industrial undertakings or enterprises engaged in infrastructural development, etc.

  5. 80 IAB - Deductions in respect of profits and gains by an undertaking or enterprises engaged in the development of Special Economic Zone.

  6. 80 IAC - Deduction in respect of profits and gains derived from an eligible business if certain conditions are satisfied.

  7. 80 IB Profits gains from certain industrial undertakings other than infrastructure development undertakings.

  8. 80 IBA - Deduction in respect of certain undertakings or enterprises in certain special category states.

  9. 80 ID - Deduction in respect of profits and gains from the business of hotels and convention centers in the specified areas.

  10. 80 IE - Special provisions in respect of certain undertakings in the North-Eastern States,

  11. 80 JJA - Deduction in respect of profits and gains from business of collection and processing of bio-degradable waste.

  12. 80 JJAA - Deduction in respect of employment of new workmen.

  13. 80 LA - Deductions in respect of certain incomes of Offshore Banking Units and International Financial Services Centre.

  14. 80 M - deduction in respect of certain inter-corporate dividends.

  15. 80 PA - Deduction in respect of certain income of Producer companies 

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