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Starting a business in New Zealand is one of the best ways to start your journey to financial freedom. This is because you are only accountable to yourself. Additionally, if your business grows large enough, you can let someone else run it on your behalf. There are several ways that you can structure your business. The main ways to structure your business are as a sole trader, partnership or company. The best structure depends on your circumstances, with each structure having different benefits and requirements. One structure that many people might be familiar with is a company. This article outlines the reasons for choosing a company structure and the steps you need to take to structure your business as a company.

Features and Advantages of a Company Structure

A company is a popular business structure that large businesses generally use. The main feature of a company structure is that your business is a separate legal entity to yourself. This means that you have limited liability. Limiting your liability protects your personal assets from any debts that the company takes on. A company structure will also change your tax obligations. Specifically, any profits will be taxed at the company tax rate of 22%, as opposed to the tax rate applied to your personal income.

Another advantage of setting your business up as a company is the potential for growth. It is easier to grow your business as a company quickly. This is because investors are able to provide capital for your business. Additionally, it is also easier to sell your business since it is a separate legal entity. 

Setting Up a Company in New Zealand

1. Create a Business Plan

The first step for setting up any business is to create a business plan. A business plan should include your business’:

  • profile;
  • goals; and
  • competitive advantage in the industry.

It should also contain financial statement projections. These allow potential investors to understand the progression of the business. Finally, you should include a market analysis, stating your business’ competitors and the market research you have conducted.

2. Register Your Company

The next step to take once you have created a business plan is to register your company.

Registration is the most important step when setting up your company.

To begin the process of registration, you should first look up whether anyone has already registered your name in the Companies Register. If the name is available, you can reserve it before registering your company.

Register Trade Marks

Additionally, you should also consider registering a trade mark for your business’ branding. Trade marks protect competitors from plagiarising your brand or bringing it into disrepute. You can trademark your words and logo. Furthermore, trade mark protection lasts for at least 10 years. However, there is a small fee and it can take a significant amount of time to approve. Therefore, it is a good idea to begin the process early.

3. Comply With Continuing Obligations

Finally, it is important to note that there are continuing obligations that apply when running a company. Importantly, this includes a company’s tax obligations. Specifically, you must file your company’s tax returns and ensure that you pay at the company tax rate of 22%. In addition, your annual tax return must also contain details about your directors and shareholders. 

Other Business Structures

Sole Trader

Operating as a sole trader means that you are the only owner of the business. Unlike a company, a sole trader structure is not a separate entity from the business owner. This means you have unlimited liability. Therefore, creditors could take your personal assets to pay off business debts if your business becomes insolvent.

Partnership

A partnership is similar to a sole trader structure. However, unlike a sole trader, there is more than one owner of the business. Nevertheless, as with a sole trader structure, your shareholders have unlimited liability. 

Key Takeaways

It is important that you choose the right business structure when you start your business. Even though you can change your business structure in the future, starting with the appropriate structure will set your business up for success. A company is a popular structure because it has its own legal entity. This means that you can benefit from limited liability if the company incurs debts. For legal assistance with choosing the right business structure for you, contact Legal Vision’s business lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

Can I change my business structure?

Yes, if you change your business model or your business starts to grow quickly, you are able to change your business structure. However, it is important that you follow the correct procedures.

Does a company structure protect directors from being sued?

There are certain duties that a director must abide by when they are a director of a company. Therefore, directors are not protected from all litigation.

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