while there are other options such as trading trusts businesses in New Zealand
will generally use one of these three structures sole trader partnership or an
LLC a limited liability company so what's the difference and which one is
best suited for you
what are the main differences between the three business entities in New
Zealand and which best suits your new business venture let's have a look
now this is exactly what it sounds like a sole trader operates a
business on their own there is no formal business structure and everything is in
their personal name they can employ people they can buy and they can sell
and they control manage and own their own business they are obviously entitled
to all the profits but because everything is done under the traders
name they also become personally liable for all the business debts and taxes now
there is no formal structure or approval needed and most sole trader businesses
can be established without any paperwork it's common enough for a business to
start as a sole trader and then move to a limited liability company structure as
the business grows over time now each year the trader will be required to
complete a tax return file that with Inland Revenue and pay income tax on the
profits of the business you can of course claim the usual business expenses
to reduce that income tax yes the trader is responsible for all business debts and
taxes but they keep all of the profits and they have full control over the business
partnerships are most
commonly used for professional people such as lawyers accountants and doctors
partnerships are an effective way to share business operation and occupancy
rental costs when several professionals work out of the same office they may
share the office they may share some of the staff and that's how they share
their costs like the previous example the sole trader no registration is
required to start a partnership and a partnership doesn't pay business income
tax the income is divided amongst all the partners who then pay income tax on
their own share now depending on the structure each partner is responsible
for their own debts tax payments etc now any partnership agreements should be in
writing as in some structures partners can also be responsible for the others
partner's business debts so it certainly ensures that you need to fully
understand any partnership arrangement before you start trading at the end of
the financial year the partnership must complete a tax return and then each
partner needs to complete an individual tax return as well
the company is New Zealand's most successful and most
popular business structure an LLC can give others suppliers customers etc
confidence in the business as the rules under which an LLC operates provide a
framework between investors shareholders directors and creditors now this gives
customers investors suppliers and lenders a clear picture of who they
are dealing with a company is a formal and legal entity separate from
shareholders directors or owners as the name would indicate the individual
shareholders liability is limited to the percentage of their share of ownership
of the company but just bear in mind that this isn't a license to rip people
off this limitation of liability would not apply if the company was deemed to
be trading recklessly or trading while insolvent and then
directors would still be liable for the debts and LLC is a separate legal
trading entity and as such they'll file an annual tax return to Inland Revenue
the company can obviously deduct trading expenses from its income
and will pay tax on its profits if a company's expenses are more than its
income it can make a loss and obviously won't pay any tax if the company
distributes profits to its shareholders shareholders will then have to pay
income tax on the dividend but may also get tax credits back from that same
company to help offset those payments
irrespective of
which entity you use if there is more than one of you I cannot stress the
importance of having a shareholders or partnership agreement in writing and
signed by all parties it should set out how the business will trade the roles
and expectations of the shareholders or partners and most importantly how that
entity will be dissolved or valued
will it be closed down sold partnership
shareholder buy out it should detail the process for each of these things and
should be prepared by a lawyer experienced in these matters now if
you'd like me to put you in touch with a good business and contracts lawyers let
me know in the comments down below I hope that helps you to better understand
the various entities and structures available to you
when you start a business let me know which one you'll choose hey thanks again
for watching if you want to know more about starting a business maybe want
tips on successfully improving your business start right now hit that
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comment or ask a question down below I read and reply to every comment and I
would love to hear from you thanks very much for watching see you again next time