'From tax point of view it is always better to form a partnership firm and not a company'. Do you agree
with the statement?
Answers
Answer:
The choice of partnership vs. limited liability company completely depends on the nature of your business and what you want out of it.
Explaination:----
The partnership
Deep down, the partnership is essentially a bunch of sole proprietors who have joined together as a single entity to do business. That's what it boils down to. Each partner's liability is unlimited, and this is the prime consideration in many practical cases. The partnership business doesn't have a separate legal personality from its partners -- the partners jointly and severally (i.e. the legalese meaning individually and collectively) are 'the business.' One partner is acting for and on behalf of the other partners, as they too are the same to that partner. Depending on the country, partners can apply to the authorities to have to have their proportion of partnership profits drawn into personal tax assessment. Owing to the unlimited liability aspect, banks tend to place a relatively lower preference on partnerships in capital funding and loans, though that is a generalisation.
In most practical cases, partnerships are well suited to businesses that have principals (the partners) coming and going all the time -- cafeterias, street market syndicates, family-owned businesses, and the like. Some sectors (e.g. law firms, accountancy firms, etc) are required to be organised as partnerships.
The limited liability company
Also known as corporation. Requires more incorporation and registration procedures, and therefore relatively higher startup costs. The corporation has a separate legal personality from its principals (the shareholders). As such, each principal shareholder has limited liability, i.e. liability limited to their individual shareholding in the corporation. The corporation itself has unlimited liability, however (which is why companies can go belly-up). In tax, the corporation is taxed in its own right -- corporation profits are entirely separate from the shareholders and cannot be drawn into the personal tax assessment. Owing to the limited liability aspect of its shareholding, banks tend to place a relatively higher preference on corporations in loans and capital funding, and again that's a generalisation.
The corporation is suited to literally any kind of business or commercial endeavour, which was why it was 'invented' in the first place -- unless the authorities or the law does not allow it for certain sectors (e.g. law firms, charities, etc.)