14th March, 2018
Learn about getting your business structure right in the time it takes to iron a shirt.
Making sure you set your business up right from the beginning can save you time and money further down the road.
It’ll also avoid unnecessary wrinkles as your success builds. Iron out potential problems before they start with this five-minute read.
One of the very first things you’ll need to do when setting up your business is work out the ownership structure.
You’ll need to decide whether you want to be a sole trader, partnership, a company or a trading trust.
Setting yourself up as a sole trader is the quickest, simplest and least expensive way to get going in business.
It’s a business that has only one owner, but despite the name, a sole trader is still able to employ people. If you do hire staff you’ll need to register with Inland Revenue as an employer and meet a number of obligations.
To help keep you ahead of the curve, here are some tips on managing life as a freelancer, which you can find here.
If you’re eager to make your future success a shared success, then a partnership of two or more people (up to 20) may be the go for you.
Generally, the nature of a partnership means you share control and responsibility for the business with your partners.
Like a sole trader, a partnership is relatively quick and easy to set up and you and your partners are personally liable for the debts of the business, as well as the profits.
A partnership must have its own IRD number, and file its own tax return (IR7) every year.
While the partnership isn’t required to pay income tax as a collective, each individual partner will pay income tax on the income you each receive from the partnership.
You can also get a New Zealand Business Number (NZBN), a unique identifier, which any business in New Zealand can now have. Using it will speed up your interactions with government, suppliers and customers and other businesses.
Setting up your new business as a company is a more complex and expensive structure to establish, as you’ll need to meet certain legal and taxation obligations.
But that also comes with some benefits: your new company is its own separate legal entity, which means it can take out debt and enter into contracts.
You’ll need to register your company with the Companies Office and be issued a New Zealand Business Number (NZBN).
Each company must have at least one Director. As a Director of your company, you will need to follow certain legal responsibilities and always act in the best interests of the company. The role and responsibilities of company directors need to be considered carefully.
Your accountant or legal advisor will help you understand what’s needed and expected.
You can set up a special type of trust to run your business – known as a trading trust – where your company acts as the trustee. If you decide to run your new business as a trust, you are agreeing to take responsibility for the operation of the business and its assets on behalf of its beneficiaries.
As the trustee, you’ll be required to create a formal deed that outlines your commitments and obligations on behalf of the trust. This is something you should get a lawyer to help you with.
Operating a trading trust is very complicated so an hour with an expert is crucial
Deciding on the right structure for your new venture is one of the first critical business decisions you’ll make.
Getting the right advice before you register your business could save you time and money later on. Speak with an accountant or solicitor to decide which structure is the right one for your business.
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