The correct option is
A. the latter pays tax while the former does not.
Explanation of the Correct Answer
- Understanding Co-operative Societies and Companies:
- A co-operative society is a type of business organization owned and operated by a group of individuals for their mutual benefit. Members typically share profits and decision-making.
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A company, particularly a private or public limited company, is a separate legal entity that can own property, incur debts, and is responsible for its own liabilities. Companies are typically profit-driven and operate to maximize shareholder wealth.
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Taxation:
- Co-operative societies often enjoy certain tax advantages. In many jurisdictions, they are taxed differently than companies. For instance, co-operatives may be exempt from certain taxes or may pay lower tax rates on their profits, especially if they are set up for the benefit of their members.
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Companies, on the other hand, are subject to corporate tax on their profits. This means that after a company earns its income, it must pay a percentage of that income to the government as tax before distributing any remaining profits to shareholders.
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Why Option A is Correct:
- The statement in option A highlights a significant advantage of co-operative societies over companies: the tax exemption or lower tax rates that co-operatives may enjoy. This can lead to higher net income for members since more of the profits can be retained within the co-operative for member benefits or reinvestment.
Explanation of Why Other Options are Incorrect or Weaker
- Option B: "former attract more capitals than the latter":
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This statement is generally incorrect. Companies, especially larger ones, often have greater access to capital markets and can raise funds through the sale of shares or bonds. Co-operatives may have limitations on capital raising since they primarily rely on member contributions and may not attract external investors as easily as companies do.
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Option C: "members of the former is usually more than the latter":
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While it is true that co-operatives can have a large number of members, this is not universally the case. Companies can also have many shareholders, especially public companies. The number of members or shareholders does not inherently provide a clear advantage in terms of operational efficiency or financial benefits.
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Option D: "former, unlike the latter, has limited liabilities":
- This statement is misleading. Both co-operative societies and companies can have limited liability structures. In many jurisdictions, co-operatives can be formed as limited liability entities, meaning that members are only liable for the debts of the co-operative up to the amount they have invested. Therefore, this option does not accurately represent a unique advantage of co-operatives over companies.
Summary of Key Points
- Co-operative societies may enjoy tax exemptions or lower tax rates compared to companies, allowing for greater retention of profits for member benefits.
- Companies generally have better access to capital markets, making option B incorrect.
- The number of members or shareholders does not inherently provide a clear advantage, making option C weaker.
- Both co-operatives and companies can have limited liability, rendering option D misleading.
Revision Summary
- Co-operative societies often have tax advantages over companies.
- Companies can raise capital more effectively than co-operatives.
- The number of members does not determine the effectiveness of a business structure.
- Both co-operatives and companies can offer limited liability to their members.