corporation tax

[gyaala]

Corporation Tax (Corporate Tax)
Year to 31 March 2005 and 2006
Starting rate*† 0%
profits up to £10,000

Marginal relief band
lower limit £10,000
upper limit £50,000
marginal rate 23.75%
marginal relief fraction 19/400

Small companies rate* 19%
lower limit £50,000
upper limit £300,000

Marginal relief band
lower limit £300,000
upper limit £1,500,000
marginal rate 32.75%
marginal relief fraction 11/400

Full Rate 30%

Could somebody describe how is Corporation tax calculated. Do I really have to pay 23,75 % Corporation tax when my annual profit is between 10 000 and 50 000. It doesn`t seem to be logical couse Small companies rate is 19 % (50 000 - 300 000).

gyaala

[Joyous]

Hi Gyaala

No you don’t have to pay 23.75% CT when your annual profits fall between £10k and £50k. The 23.75% is the marginal rate which means that the first £10k of profit is tax free but any profit’s falling into the band between £10k and £50k is effectively taxed at 23.75%. The marginal rate is calculated as follows:

Profit . . . . . . . . .Tax rate. . . . . . . . . . . . . .Tax

50,000. . . . . . . . .19%. . . . . . . . . . . . . . .9,500
(10,000). . . . . . . . .0%. . . . . . . . . . . . . . . . .nil
-------................................................-------
40,000 . . . . . . . . . . . . . . . . . . . . . . . . . 9,500
====== ..............................................=====

9,500
-------- = 23.75%
40,000

Hope this helps

Regards

Joy

[flastate]

Looking for JOY! I'm here in the USA and I have a question regarding Investors in a new business. When someone invests in your company how are they taken care of. Do they get paid dividends (?%) quarterly, are they a part of your company for a lifetime? If your shares have not gone "public" (small company) and are only worth $1.00 per share what good would it be to offer shares to your Investors? Joy, you seem to understand the corporate world so well can you cast a little light in my direction in understanding this role better in a Corporation? As always, thank you!!!

flastate

[Joyous]

Originally Posted by flastate

When someone invests in your company how are they taken care of. Do they get paid dividends (?%) quarterly, are they a part of your company for a lifetime?
flastate

That depends on the form of their investment. If they invest by lending money to the company then typically they receive interest on the loan/debenture/bond etc. If they buy shares in the company then typically they are paid their share of any proposed dividends. There is no obligation for a company to declare a dividend; it may chose to reinvest any profits back into the company. In such cases any shareholders are likely to benefit from an increase in the capital value of the shares rather than income from dividends.

Shareholders are members of your company until they sell their shares. Even if a shareholder dies the shares he owns will pass to his beneficiaries. A less common method to limit your obligations to a shareholder is to issue redeemable shares that can be bought back at the option of the issuer.

Originally Posted by flastate

If your shares have not gone "public" (small company) and are only worth $1.00 per share what good would it be to offer shares to your Investors?
flastate

Are we looking at a venture capital/business angel situation here? Typically the type of person who would want to invest in a new and therefore risky company is looking to have some input in the way that the company is run. As well as looking to buy a sizeable chunk of the shares he/she may well insist on a place on the board of directors. It’s very unlikely that anybody will make such an investment purely out of the goodness of their hearts. If you do have such a person it’s at this point that you’ll have to engage in a bout of “horse trading” to agree on what you’re prepared to give him in return for his investment.

Hope this helps.

Regards

Joy

[flastate]

Joy, as always you make everything so clear cut..you're one awesome financial counselor. I'm not looking at a venture capital/business at this time as I understand that involves loans of $50,000 and above. Perhaps in the next 2-3 years when I look into franchising our company name. This company will need about $25,000.00 to get up and running comfortably. I'm concerned most about cash flow to cover monthly expenses of salary, rent, lights, telephone, etc. This business stands to profit well and because it will be the only retail business of it's kind within a 30-50 mile radius the demand for inventory backup is critical. It is a women owned business however I'm hiring a highly experienced (in the industry) General Mgr. to manage the business. My daughter-in-law (VP) will also work with him; I will maintain the books and make sure everything is paid and balances.

The VP and myself only own 10 shares of our companys stock valued at $1 per share. Do you suggest that we invest in additional shares? Can we do this purely through a corporate meeting? Is it true that a Corporation(S) can only carry up to 100 shares of stock? I need to understand this better. I'm considering contacting one of my family relatives with my business plan and asking him to invest, if he agrees then we'll talk over the terms of repayment or redeemable shares. Joy, I'm beginning to understand this all better and it's so exciting to see the picture finally coming together.

Thanks,
flastate (USA)

[Joyous]

Hi Flastate

Issuing shares is only one of many ways a company can raise capital. There are others to consider including bank loans, or loans from either the directors or other interested parties. I would strongly advise you to speak to a professional to look at the pros and cons of the different types of financing. Also I can only answer in respect of UK company law so again you’ll need to speak to a US based advisor regarding the procedures for issuing shares.

Under UK company law a company can issue as many shares as it likes as long as it’s in agreement with it’s authorised share capital as laid out in its Articles. I’m not aware that US corporations can only carry up to 100 shares but you’ll need to check this out at your end.

The $1 share value that you mention is the nominal value rather than the market value of the share. So if you want to raise $25,000 it doesn’t mean you have to issue 25,000 shares. You can issue (say) 10,000, $1 ordinary shares for $25,000 then $10,000 will be credited to your share capital account and the remaining $15,000 is credited to the share premium account.

As I say, speak to a professional. It may seem like an unnecessary expense but it with a corporation it’s important to get things right from the beginning as mistakes are difficult and expensive to rectify.

Regards

Joy