Business Organizations

• The discussion is on business organizations.
• Notes will be provided to better understand it.
• Companies are used in commercial or investment activities.
• Companies are generally preferred due to their costly legal structure.
• Companies are liable for their own debts, separate from shareholders.
• Using capitals offers a benefit that relates to taxation.
• Tax laws can be complex and difficult.
• Tax treatment varies depending on whether you're running the business as individuals or partnerships.
• Companies have distinct tax implications, including certain tax benefits.
• Companies are subject to taxes, and the amount depends on costs, losses, and profits.
• No tax is paid if losses are made rather than profits.
• Net profits form the basis for tax calculations.
• Making money requires spending in tax law, which means expenses are important.
• Revenue expenses are tax deductible.
• If the company is taxable for 1 million
• Deductions are allowed for revenue expenses (rent, office rent).
• For example if a company is taxable for 1 million, then human pay 200,000 kilo year and 100,000 kilo year for rent with a staff salaries might be about 200,000 or 200,000 in a year. So you take 100,000 away from the 1 million
• Tax is imposed of 40%.
• If you make 1 million in a year, the tax office is not gonna try to impose tax
• What is left after all deductions is considered taxable income.
• Corporate profits tax is paid to the tax office like 10% of 100,000 is about 30,000.
• Companies invite attacks.
• It is important to be aware of the quarterly tax obligations.
• Losses in companies generally cannot be claimed against future profits, unless they fall under the Income Tax Act.
• Sustaining a loss in business makes it deductible.
• If expenses exceed income, then there are losses in the relevant tax year.
• Losses can be claimed as a deduction.
• Companies can carry forward losses and claim them against future profits, typically within 5-10 years.
• The aim of this is tax avoidance.

Salomon's Case

• In the case of Salomon, the legal concept of separate legal personality was established.
• Mr. Salomon was running a business as a full proprietor, then transferred the business from the sole proprietorship to a company.
• He became the major shareholder and director, with his wife and children as minority shareholders.
• The company faced financial difficulties, and creditors sued both the company and Mr. Salomon.
• The House of Lords rejected the claim that the company was a sham to avoid liability.
• A company is a separate legal person once incorporated under the law.
• It enjoys a separate legal personality and status, indepedent of shareholders and directors.
• This decision was significant in establishing the principle of separate legal personality.

Lee's Case

• The principle of separate legal personality was applied in this case
• The case is an example of a one-man company.
• Lee's Air Family Limited was formed, and Mr. Lee was the only director, sole chair owner, and shareholder.
• He was also the sole employee.
• The company was also a workers' compensation matter.
• Mr. Lee died in an accident while working.
• His widow brought an action against the company for compensation under the Workers Compensation Act as Mr. Lee, as an employee of the company, died in an accident.
• The Privy Council had to rule if there was any workers' compensation because Lee was a sole director and sole shareholder.
• This is when judges determined shareholders and employees were considered, with the result that House Of Lords made a new case applying the Solomon case, granting a new entitlement for compensation of New Zealand Workers.
• The company can also be a worker.

Companies as Separate Legal Entities

• Once a company is registered, it becomes a legal person with certain powers and capacities under Section 16 of the Companies Act.
• Section 16 restricts the solvent rule.
• A company is independent of its shareholders and directors.
• Under Section 17, a company can sue and be sued under its own corporate name.
• A company's legal entity can enter into contracts.
• It can own and dispose of properties.
• Checking if a company is registered is important.
• A company is a legal abstract; it functions through human beings.
• Two important organs act on its behalf: the board of directors and the shareholders.
• The company acts through these organs.

Shareholders and Directors

• A company must have at least one shareholder and one director.
• Shareholders do not have management powers.
• Power management is vested in the Board of Directors.
• Powers come specifically from the Company's Act.
• Directors act to day-to-day.
• Shareholders powers are limited, and they do not manage the day-to-day affairs.
• Shareholders must act collectively in a general meeting.
• They don't exercise powers individually, mainly to pass resolutions.
• Shareholders have some specific powers.
• Providing the name for the company.
• Appointing the company director.
• Remove a company's director.
• Have power in major tranactions. a
• Major transactions involve half of the million total assets of the company.

Board of Directors

• It is a very important organ of the company.
• It is important to know who the director is, as they have the power to enter into contracts.
• Shareholders' powers are limited, and they do not manage daily affairs.
• If decisions are not aligned with the company, certain provisions can be invoked.
• The Board of Directors must act collectively in a board under section 109 of the company's Act.
• The company's constitution contains internal management rules.
• Company directors work together with the business.
• Powers are usually delegated by the board through resolution or constitution.
• They could be delegated to a single director or committee.
• This is why companies have Managing Directors: the power to hire, fire, set contracts and to make effective decsions.
• Powers are generally delegated.
• Enter into major transactions with shareholders that approve.

Director's Duties and Responsibilities

• Enter a contact, with the transactions being more than the access of the contract.
• Directors act as they are conferred with management powers.
• They also have the chance to abuse their powers.
• Director decisions need to be in the company's best interest,.
• Refusal in disposing of the company that are non in best interests are a result of conflict of interest.
• It is expected the directors powers of management can abuse the powers.
• There law ensures directors must act with good faith.
• A duty of care must be met by the company.
• The Washington director is expected to excercise the best decision for the company.
• It is the director's duty to declare self-interest and personal interest in a transaction, when there is a conflict of interest, the directors have to advise of the nature of the vehicles.

ShareHolder Liabilities

• A company has a separate legal status, so it is essential to know the conditions in the general legal proposition.
• It is a separate entity.
• It is Independent of shared wisdom
• It is captured in section 16, of the capital debt.
• The business is a secure legal investment that is liable for its own debts.
• Factors may be exposed to liability for the company.
• Shareholders may see in the discussions on credit skills.
• There is a shareholder that sometimes provides Personal Guarantee.
• Guarantees need setting to ensure they will give loan back to the bank.
• Banks go after shareholders to receive any money.
• In circumstance the bank or debt are paid by the shareholder or the director.
• In Summary shareholders can be exposed to personal liability for the tax domain.
• This can also be through the financial loan of banks

Class End

• Discussions will continue.
• Notes on company comparisons with other entities are to be presented.

Explore different business organizations and the role of companies in commercial activities. Understand the tax implications for companies, including benefits, deductions, and profit calculations. Learn about tax deductibility for revenue expenses.