P O Box 62, Timaru, New Zealand Phone 64 3 688 9907 Fax 64 3 688 9913 Email adt@timaru.biz
Business Structure
Options when setting up a business
The three most common business structures you can adopt when starting up a business are; sole trader, partnership and limited company.
Sole trader
A sole trader has individual ownership of the business and therefore complete control. As a sole trader you are personally liable for the business, any wrong and negligent acts that are carried out within the ‘scope’ of the business. Advantages Easiest way to start up a business Low start up costs Owner has direct control You receive all the profits Easy to change structure once established Disadvantages Not recognised as a legal entity Unlimited liability Narrow management and knowledge base Difficulty in accessing capital You are liable for all losses – you could lose personal assets or be declared bankrupt
How to set up as a sole trader
1. 2. 3. 4. Inform Inland Revenue of your intentions, and check if you need to register for GST. As about their Business Tax Information Officers and the free services they offer. Check with your local council that your chosen place of work is in compliance with health and safety regulations, the Resource Management Act, etc. Certain types of businesses require a permit before they start trading (eg. plumber, second-hand dealer, butcher, chemist). Contact the relevant trade association. Decide on a trade name if you are not trading under your own. Check with the Companies Office Register, Trade Marks Register, and Yellow Pages to see what names are already listed as companies, trademarks, and sole traders. Check that you are in compliance with the Fair Trading, Consumer Guarantees, Layby Sales Acts, etc. The Commerce Commission has a number of useful publications available on these. Ask your insurance agent or broker about the best deals for you. Consider liability, property, business continuation insurance, etc. ACC insurance for self employed people is compulsory and is automatically billed based on your IR3 tax return details, so no registration is necessary. If you have employees, their premiums are automatically billed based on your PAYE returns.
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Last Updated 01/16/09
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Partnership
A partnership is when a number of individuals conduct their business together in order to make a profit. The minium number is 2 and the maximum number of individuals in a partnership allowed is 25. All partners have an equal share in the business unless it is otherwise stated in the partnership agreement. Each partner is subject to personal income tax. The law does not recognise a partnership as a separate entity, it is only seen as this for accounting purposes. Advantages Easy way to start up a business Low start up costs Easier to raise capital Partners share the profits Disadvantages Not recognised as a legal entity Unlimited liability Divided authority Narrow management and knowledge base Jointly liable with other partners for all debts and obligations incurred by each partner
How to set up a partnership
1. 2. 3. 4. Inform Inland Revenue of your intentions, and check if you need to register for GST. As about their Business Tax Information Officers and the free services they offer. Check with your local council that your chosen place of work is in compliance with health and safety regulations, the Resource Management Act, etc. Certain types of businesses require a permit before they start trading (eg. plumber, second-hand dealer, butcher, chemist). Contact the relevant trade association. Decide on a trade name if you are not trading under your own. Check with the Companies Office Register, Trade Marks Register, and Yellow Pages to see what names are already listed as companies, trademarks, and sole traders. It is advisable to have a ‘Partnership Agreement’ in place, drawn up by a solicitor. It should include the rights and duties of each partner, profit and tax split, names and addresses of each partner and what they contributed, any limitations of authority, provisions for death, additional partners, dissolutions, etc. Check that you are in compliance with the Fair Trading, Consumer Guarantees, Layby Sales Acts, etc. The Commerce Commission has a number of useful publications available on these. Ask your insurance agent or broker about the best deals for you. Consider liability, property, business continuation insurance, etc. ACC insurance for self employed people is compulsory and is automatically billed based on your IR3 tax return details, so no registration is necessary. If you have employees, their premiums are automatically billed based on your PAYE returns.
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Limited Company
This is an association of individuals recognised by the law and for tax purposes as having an existence separate from the shareholders. The company is responsible for its actions and responsibilities, not the individuals. At present the company tax rate is 33 %. It cost more to set up and run a company in terms of legislation and government requirements than either a partnership or a sole proprietorship.
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Advantages Separate entity for legal and tax purposes lower tax rate (dependent on profit) Financial liability of each shareholder limited to the value of their shareholdings More sources available for capital
Disadvantages Most complex structure to set up and maintain, time consuming and on going Higher tax rate (dependent on profit)
How to set up a limited company
1. 2. Select a good solicitor (ask someone to recommend, contact your district law society, or check the yellow pages). Contact the Companies Office to register your company (fee charged). Your company name will be rejected if it is similar to or the same as another registered company already in existence. (You can do this at any Companies Office or by checking their website). After the Registrar has confirmed your name (must be written confirmation) then together with your solicitor you can form the company as a distinct leal entity (fee charged). Certain documents are required to support this application – check with the Companies Office on your obligations. Inform Inland Revenue of your intentions, and check if you need to register for GST. As about their Business Tax Information Officers and the free services they offer. Check with your local council that your chosen place of work is in compliance with health and safety regulations, the Resource Management Act, etc. Certain types of businesses require a permit before they start trading (eg. plumber, second-hand dealer, butcher, chemist). Contact the relevant trade association. Check that you are in compliance with the Fair Trading, Consumer Guarantees, Layby Sales Acts, etc. The Commerce Commission has a number of useful publications available on these. Ask your insurance agent or broker about the best deals for you. Consider liability, property, business continuation insurance, etc. ACC insurance for self employed people is compulsory and is automatically billed based on your IR3 tax return details, so no registration is necessary. If you have employees, their premiums are automatically billed based on your PAYE returns.
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Protecting a business name when not registered as a company
If you are not trading as a company then the only way to gain name protection via registration of a trademark associated with your activities. The Patent Office in Wellington (part of the Intellectual Property Office New Zealand) maintains the Trade Mark Register. Company names should not be similar to a pending or existing trade mark. There are a number of useful brochures available from the Patent Office explaining the process of applying for patents and trademarks.
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