Question Tag: Business Entities

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  • 1 Marks

BL – May 2016 – L1 – SA – Q4 – Partnership Law

Identify the characteristic that does not belong to a partnership.

Which of the following is NOT a characteristic of a partnership?
A. Sharing losses
B. Sharing profits
C. Business
D. Liability to pay income tax on its profits
E. The pooling of resources together

Answer:
D. Liability to pay income tax on its profits

Explanation:
Partnerships themselves are not subject to income tax on profits. Instead, profits are passed through to the partners, who then report the income on their personal tax returns. This is known as pass-through taxation.

  • 2 Marks

BCL – Nov 2019 – L1 – Q2a – Types of capital and the financing of companies

Explanation of advantages of a company limited by shares.

Section 9 of the Companies Act, 1963 (Act 179) provides that a company limited by shares is “a company having the liability of its members limited to the amount, if any, unpaid on the shares respectively held by them”.

Required:
State and explain TWO (2) advantages that exist for a company limited by shares. (2 marks)

The advantages include:

  • Property: The Company can acquire/own property and dispose of such property as it wishes.
  • Contractual relationship: A company on incorporation, has the capacity to enter into contractual relationships with natural or legal persons.
  • Suing and being sued: A company may sue natural or legal persons for breach of contractual obligations.
  • Perpetual succession: A company will continue in existence despite the death of its members.
  • Transferability of shares: The shares of a company can be transferred from a member to another person by sale.
  • Legal Personality: On incorporation, a company acquires a legal personality.
  • Figurative veil: On incorporation, there is a figurative veil, meaning it protects their officers and staff generally from legal risks.

(2 points at 1 mark for each point = 2 marks)

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