Gce Model Questions Vol1 2019 Commerce Question 39

Two entrepreneurs are deciding whether to operate as a partnership or as a private limited company. The business is expected to generate a profit before tax of \(\text{₦}2{,}400{,}000\) per year. In a partnership, profit is shared 60 % to Partner X and 40 % to Partner Y, and each partner pays personal income tax at 25 % on their share. In a limited company, corporation tax is 30 % on profit, and any dividend distributed is taxed at 10 % in the hands of shareholders. The shareholders are the same two persons, receiving dividends in the same 60 %/40 % ratio, and the company distributes all after‑tax profit as dividends. Calculate the after‑tax income each person receives under each structure and state which structure gives the higher total after‑tax income for the partners combined.