A proprietor of an enterprise intends converting his business into a limited liability company. He also intends to have shareholders made up of 5 members as against 6 members proposed by his wife in a discussion. He has approached you as a final level ICAG Tax student to advise him on the relevance of the number of shareholders in a limited liability company setting.
Required:
Advise for tax planning purposes, the relevance of numbers of shareholders. (5 marks)
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A company with shareholders not more than 5 members is referred to as a close company. A company withholds tax on dividend declared by the company and pays same to the Ghana Revenue Authority.
A close company that operates for a reasonable period of time without declaring dividend, the Commissioner-General has the right under section 59(8) of Act 2015 Act 896 to set aside part of its income as dividend and proceed to tax it accordingly at the rate of 8% final. This is not applicable where the shareholders are more than 5. The proprietor’s wife assertion is correct if the proprietor intends to plan his tax affairs