Jurisdictions - New Zealand
Businesses in New Zealand generally use one of these three structures:
A sole trader operates a business on their own. The trader controls, manages and owns the business and is entitled to all profits but is also personally liable for all business taxes and debts. Usually a sole trader can establish the business without following any formal or legal processes and can employ other people to help run the business. Many New Zealand businesses start as sole traders and then progress to a company structure as the business grows. Others form companies right from the start to take advantage of the protection and other benefits offered by the company structure.
Partnerships are most common among professional people and in the farming industry. This type of structure can be an effective way to share business operation costs where, for example, several professional people operate out of a joint office. Many partnerships are established with a formal partnership agreement. The partnership itself does not pay income tax. Instead it distributes the partnership income to the partners. The partners then pay tax on their own share. Once the automatic option for professional people such as lawyers, doctors and accountants, partnerships are no longer as popular. This is because professionals can now adopt a company structure and may offer better protection. A well thought-out partnership agreement is essential to cover contingencies and possible conflicts. No registration is required to start a partnership.
Limited liability company
A company is a formal and legal entity in its own right and separate from its shareholders or owners. Shareholders' liability for losses is limited to their share of ownership of the company. This does not apply when company directors have given personal guarantees for company debts, where a company has been trading while insolvent or is considered to be 'trading recklessly'.
In New Zealand, you can register (incorporate) a company online through the Companies Office. There is a small fee, currently NZ$150.
The limited liability company has proven to be the most popular and successful form of business structure in New Zealand. It has the advantage of helping foster confidence in the businesses by governing the relationships between investors (shareholders), directors and creditors and by giving customers, investors and other stakeholders a clearer picture of who and what they are dealing with.
Publicly listed companies
The New Zealand Stock Exchange operates two markets. The NZSX market has more than 200 listed issuers including many of New Zealand's long-established heritage companies. The NZAX is its alternative marketplace designed for small to medium-sized, fast-growth businesses seeking a safe and efficient alternative capital raising facility. Companies seeking to list on either exchange need to meet NZX Listing Rules.
Other possible business structures
Loss Attributing Qualifying Company (LAQC)
This is a variation of a company structure that lets you offset any losses incurred in running your business against personal income from other sources (such as investments). It requires applying to Inland Revenue for special tax status. However, other taxation implications are quite complex, so you should discuss this option with your accountant or solicitor before making any decisions.
Trading Trusts can offer benefits, but they are complicated and require expert advice. Discuss this option with your accountant and your lawyer to see if it is more appropriate for your needs than the business structures outlined above.
A co-operative business is owned and democratically controlled by its shareholder/members. The shareholders/members contribute the prime capital for the business and share in the profits of the business in proportion to their participation: the greater the participation, the larger the proportion of profits.
An example of this type of enterprise is a group of craftspeople banding together to jointly market their various craft products through a co-operatively owned and staffed studio or retail shop.
Other start-up issues
As well as establishing the structure of your business, there are several other issues you'll need to consider.
Sourcing market information
Obviously you'll want to know as much as you can about the market and opportunities for your business. Statistics New Zealand has a wide range of online information tables and tools that can help.
Check local authority rules
Before setting up with premises, check with your local council. Each territorial authority has its own rules and regulations about what business activity is allowed in different areas. For instance, it is unlikely that you'd be able to run an automotive repair business in a residential area.
Set up tax numbers
Depending on the business structure you use, you will either need individual tax numbers or a company tax number.
Get a lawyer, accountant and bank
Any New Zealand bank can help you with setting up bank accounts for business purposes, and many can also help you with transferring funds from overseas and other specialist migrants' services. You may also want to seek legal and financial advice.
Check your business name
Before committing to logos, signage and stationery for your new business search the Companies Office and the Intellectual Property Office to ensure the name you want is not already protected. There is no register of trading or business names in New Zealand.
To learn more about starting or buying a business in New Zealand contact our consultant at email@example.com