There are a variety of ways you can structure your business in New Zealand. Each option has its benefits and downsides when it comes to taxation, management and legal and financial obligations. The right choice depends on a range of factors that are specific to your needs and long term plans.
Sole Trader
As a sole trader, you will operate the business in your own name. Sole trading can be appropriate for self-employed people, contractors and smaller businesses.
Pros include:
- Easiest to set up
- No legal or registration fees
- You can offset losses against other income
- You control your business and get all the profits
Cons include:
- Harder to grow
- You are liable for all debts, putting your personal assets at risk
Partnership
Partnerships are a structure where two or more individuals or entities contribute capital and share the liabilities in the operation of a business. This is a common structure with professionals like accountants, architects and lawyers, although these types of firms have moved towards using limited liability companies in more recent times.
Pros include:
- Partners can specialise and focus on strengths
- You can share the costs and load of running the business
- Partners can offset losses against other income
Cons include:
- Each partner is liable for all the partnership’s debts, putting personal assets at risk
A partnership agreement may be written and signed, defining the rights and responsibilities of the partners. If such an agreement doesn’t exist, the relationship is governed by the Partnership Act.
Company
By far the most common type of business entity is the company. A company is a separate entity from the shareholders who own it. A shareholder is not personally liable for a company’s debt, unless they have guaranteed it. They may also receive a dividend, which is a share in the company’s profits.
Pros include:
- Possible tax advantages
- More credibility in the market
- Easier to get funding and investment
- Shareholder liability is limited to what they paid for their shares
Cons include:
- Directors may be held personally liable for company debts.
- Directors must learn their responsibilities
- More regulation than other structures
Contact Our Commercial Lawyers Today
Seek advice from an experienced commercial lawyer for advice on what best suits your individual circumstances and business goals. At Carlile Dowling, our team has provided trusted legal advice for more than 130 years regarding business structuring as well as immigration, employment law, commercial property law and more.
Get in touch today by calling 06 927 8150 or contact us online.
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