Question

1. (a) Steve has been made redundant from a managerial position in a bank in Jamaica where he had worked for the past fifteen years. The benefits which formed part of his compensation package were a mortgage at 5% and a company vehicle which had cost $3,000,000 when it was new. His plan is to go into business as a computer consultant working in Jamaica and the Eastern Caribbean countries. He has to decide whether

a) to operate as a sole proprietor or

b) to incorporate and be a director or shareholder or

c) to operate in partnership with a former school friend or

d) set up in business in one of the Eastern Caribbean islands

Prepare a memo to advise Steve on his options. He wishes to take into consideration the tax (corporate and individual) structure, available allowances, National Insurance/Social Security costs, VAT/GST arrangements and the economic development in the respective countries. You may refer to two of the Eastern Caribbean countries.

Answer 1

Steve has experience of fifteen years in his job.

As a sole proprietor :

The individual carries on business exclusively by and for himself.He invests his own capital and controls the whole business.He bears all the risks and is the master of all the profits.

As a Corporation

A corporation has its own separate legal personality, apart from the individual legal identity of its all stockholders.His corporation will be owned by the current stockholders, and run and managed by the contemporary board of directors and employees, the existence of the corporation remains perpetual.The individual liability of each stockholder towards the corporation is limited up to the maximum amount of investment ever made by him/her in the stocks of the corporation.As the corporations are regarded as separate legal entities, these are liable to pay the corporate tax every year, unlike a sole proprietorship or partnership.

As a Partner

Partnership is the outcome of an agreement between two or more persons to carry on business.The purpose of partnership is to to earn profits and to share it. In the absence of any agreement, the partner should share profits (and losses as well) in equal proportions.The nature of liability of partners is the same as in case of sole proprietorship.The liability of partners is both individual and collective. The creditors have a right to recover the firm’s debts from the private property of one or all partners, where firm’s assets are insufficient.

Set up in business in one of the Eastern Caribbean islands

The economic conditions of Barbadoshas been transformed from a low-income economy into an upper-middle-income economy based on tourism and the offshore sector.The basic rate of income tax is 16%, and the higher rate is 33.5%. The basic rate applies to the first 35,000 Barbados dollars (BBD) of taxable income, and the higher rate applies to taxable income in excess of BBD 35,000.The Corporate tax rate on taxable income is 5.5% on the first BBD 1 million.3% on BBD 1000001 to BBD 20 million,2.5% on BBD 20,000,001 to BBD 30 MIllionThe standard VAT rate is 17.5%.The countries of the Eastern Caribbean are natural commercial partners of the United States, tied closely together by geography, history and culture.The Eastern Caribbean, as part of the wider Caribbean Region, represents a market of about 41 million people who collectively imported over $40 billion in U.S. goods in 2010.In the Eastern Caribbean, you will find English-speaking partners with high educational standards which will improvise his self standards.The Caribbean Community (CARICOM) is an organization of Caribbean nations and dependencies working to promote economic integration, stability and cooperation among its members.

CONCLUSION - Steve should operate in partnership with a former school friend.