
Need advice on the right business structure to choose?
Whether you’re starting out in business, restructuring, or looking to protect your assets, having expert advice on the right business structure for you ensures you’re making the right choice for your unique situation.
Starting a new venture is an exciting journey, but before you dive in, it’s crucial to establish the right business structure.
Proper structuring ensures asset protection, tax efficiency, profitability, and manageable compliance costs. Getting it wrong can be costly and time-consuming to correct later.
We offer the opportunity to meet with us to discuss your current situation, including any structural and tax issues that need addressing. Our goal is to position you for success from the outset. After our discussion, we’ll recommend the most suitable structure for your unique circumstances.
We can also provide accounting and taxation services once you’ve decided which business structure suits you best, so you can minimise your tax bill whilst ensuring you remain compliant.
Call us to arrange a meeting with one of our experts to discuss your current structure and how we can help.
Here’s an overview of the 4 most common business structures in New Zealand:
Limited Liability Company (LLC)
A limited liability company (LLC) is a separate legal entity from its owners (shareholders), providing limited liability protection. Companies in New Zealand are regulated by the Companies Act 1993.
Advantages:
- Limited Liability: Shareholders’ personal assets are protected; they are only liable up to the amount they invested in shares.
- Separate Legal Entity: The company can own property, incur debts, and enter into contracts independently of its shareholders.
- Enhanced Credibility and Capital Access: LLCs may find it easier to raise capital and establish credibility with suppliers and customers.
Disadvantages:
- Complex Setup and Compliance: Establishing an LLC involves more rigorous registration processes and ongoing compliance obligations.
- Administrative Requirements: Companies must adhere to statutory requirements, including filing annual returns and maintaining accurate records.
- Cost Implications: Incorporation and compliance can entail higher costs compared to sole proprietorships or partnerships.
Company Formations
When setting up a business in NZ, you might have several questions regarding company formations and business structures, such as:
- Do I need to set up a company?
- Should I become a limited liability company?
- What type of company do I need?
- Is a Look-Through Company (LTC) appropriate?
- Who should be the shareholders?
- Who should be the directors?
- Do I need a company constitution?
At ABA, we discuss your current situation and requirements to provide tailored recommendations on the best business structures. We can also handle company name reservations, incorporation, and manage statutory requirements as per New Zealand Companies Office guidelines.
If you’re setting up a business in NZ, call us on 09 426 8488 to discuss your company formation needs or any challenges you’re facing with an existing business structure.
Trusts
A trust is a fiduciary arrangement where trustees hold and manage assets on behalf of beneficiaries. In a business context, trusts can be used to manage and protect assets, offering potential tax advantages and succession planning benefits.
Advantages:
- Asset Protection: Trusts can safeguard personal or business assets from creditors and legal claims.
- Estate Planning: They facilitate the orderly transfer of assets to beneficiaries, aiding in succession planning.
- Tax Planning Opportunities: Trusts may offer tax benefits, depending on individual circumstances and compliance with tax laws.
Disadvantages:
- Complexity: Establishing and managing a trust requires adherence to legal formalities and can be administratively demanding.
- Costs: Setting up and maintaining a trust can be expensive, involving legal and accounting fees.
- Loss of Control: Once assets are transferred to a trust, the original owner relinquishes direct control over them, as trustees manage the assets in the best interest of the beneficiaries.
Family Trusts
A family trust aims to transfer your significant assets from personal ownership to trust ownership, allowing you to legally own no assets yourself while maintaining control of the assets in the best interest of the beneficiaries. This structure offers valuable asset protection for business owners.
The introduction of the Trusts Act 2019 has led many individuals to reassess their trust structures, with some deciding to wind them up. However, trusts remain a valuable structure that should still be considered for many situations.
At ABA Chartered Accountants, we can help you evaluate whether a trust is the right option for you. Give us a call on 09 426 8488 today.
Sole Trader
A sole trader is the simplest form of business structure, where an individual owns and operates the business alone. There is no legal distinction between the owner and the business entity.
Advantages:
- Ease of Setup and Low Cost: Establishing a sole proprietorship is straightforward and cost-effective, with minimal regulatory requirements.
- Complete Control: The owner has full authority over all business decisions and operations.
- Tax Simplicity: Business income is treated as personal income, simplifying tax filings.
Disadvantages:
- Unlimited Liability: The owner is personally liable for all business debts and obligations, risking personal assets if the business incurs liabilities.
- Limited Growth Potential: Accessing capital and expanding the business may be more challenging due to the reliance on personal resources.
- Sustainability Risks: The business heavily depends on the owner’s ability to work; any incapacity can directly impact operations.
ABA Chartered Accountants can assist with all your accounting requirements including preparing your annual financial statements and tax returns. We can also help you get set up on Xero so you can streamline your business and optimise your time. Call us to set up a meeting today 09 426 8488.
Partnership
A partnership involves two or more individuals or entities jointly conducting business, sharing profits, losses, and management responsibilities. Partnerships in New Zealand are governed by the Partnership Act 1908.
Advantages:
- Combined Resources and Expertise: Partners can pool skills, knowledge, and capital, enhancing business capabilities.
- Shared Responsibility: Management duties and decision-making are distributed among partners, potentially reducing individual workload.
- Tax Benefits: Profits are distributed to partners, who then pay tax individually, potentially leading to tax efficiencies.
Disadvantages:
- Unlimited Liability: Partners are jointly and severally liable for business debts, meaning each partner can be held responsible for the entire debt.
- Potential for Disputes: Differences in opinions or objectives can lead to conflicts, emphasizing the need for a clear partnership agreement.
- Continuity Concerns: The partnership may dissolve upon the departure or death of a partner, affecting business stability.
Get in touch with ABA today if you would like more advice on whether a partnership structure is right for you. Call 09 426 8488.
Need help choosing the right business structure for your business?
Talk to the Experts at ABA Chartered Accountants today.
Selecting the right business structure is a crucial decision that affects your legal responsibilities, tax obligations, and long-term success. Whether you’re starting out, restructuring, or looking to protect your assets, having expert advice ensures you’re making the right choice for your unique situation.
The team at ABA is here to help! Our experienced advisors can guide you through the options, ensuring you understand the benefits, risks, and requirements of each structure.
Contact us today to discuss your business needs and take the next step towards a secure and successful business future!
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