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Online marketplaces are online platforms where users can buy and sell goods or services. Given the diversity of the goods and services offered through these platforms, starting an online marketplace can be a successful venture. However, when you are first starting out, you need to consider how you are going to structure your online marketplace as a business. Specifically, your structure will depend on your goals with your online marketplace and your circumstances as an operator. For some guidance, this article will provide some background information and explain the best business structure for your online marketplace.

Business Structuring in New Zealand

There are different ways to structure your business in New Zealand. Your business’ structure will also determine how you run your online marketplace.

The three most common business structures in New Zealand are:

  • companies;
  • partnerships; and
  • sole traders.

The table below gives a brief overview of each kind.

NZ Business Structure Explanation
Sole Trader You own and control your business entirely. You also do not share your debts and profits with others. However, your business assets are not separate from your personal ones, which means you are personally liable if something goes wrong. You do not have to register your business through a special process, and you pay taxes in your personal capacity.
Partnership Like a sole trader structure, except you share the profits and losses with other people. You split the running and ownership over the business. As a result, you are all jointly personally responsible for any debt or liability.
Company A company operates separately from the people that run and own it. As its own legal entity, a company can own property, and shareholders (the company’s owners) are only responsible for their shares of the company. They are not personally liable for the company’s debts. When starting, you have to register your company with the Companies Office and comply with annual reporting and tax obligations.

Running an Online Marketplace

As the operator of an online marketplace, there is much to consider. This is because you provide a service that connects customers with each other, which they use to engage in their own business transactions.

To gain an understanding of what business structure would be best for your marketplace, you need to determine what your platform will offer its users and what your role is as the marketplace’s operator. In particular, you need to consider how you:

  • determine what you are offering customers;
  • create a quality product that users will retain and engage with;
  • manage your role in business transactions between users on the site;
  • provide payment options for users;
  • implement various website functionalities, such as promotion and advertisement services;
  • draft appropriate legal documentation to protect your business;
  • allow customers to review and provide feedback;
  • are transparent and honest with your users;
  • create a lasting brand;
  • target potential customers in the market; and
  • protect your business against disputes between users of your platform.

For instance, if you provide payment facilities dealing with sensitive financial information, you have more responsibility to protect the privacy of that information. Therefore, if something goes wrong, you could face increased liability, as the online marketplace’s operator. 

The nature of the services you provide will determine what promises you make to your customers and what responsibilities you accept. Therefore, if you do not appropriately protect yourself against different kinds of legal liability, you could face costly complications down the road. The business structure you choose can help to reduce some of that risk.

Choosing a Business Structure for Your Online Marketplace

How you design your marketplace and your future plans will greatly impact the most appropriate business structure for you. Additionally, the considerations discussed above will play into this process, so you need to take time to plan out your options and your intentions for your business.

If you intend to grow your marketplace and reach a wide market, you may want to minimise your risk as much as possible. These steps can include limiting your personal responsibility in legal matters to account for when things go wrong. As such, structuring your online marketplace as a company to account for this growth may be a wise decision. Instead of your own personal assets at risk, it is the company’s property. As a result, you can spread responsibility across the company’s shareholders. Additionally, customers deal with the business as its own entity rather than you personally. While the startup process for a company is more involved than other structures, if you want to grow your marketplace, it may be the best choice for you.

Key Takeaways

Starting an online marketplace can be a successful undertaking, but you have to plan accordingly. As a marketplace owner, you can take on a lot of risk, and you need to find ways to limit your personal legal liability to minimise this risk. Therefore, structuring your online marketplace as a company may be the best option for you. If you would like more information or help with your online marketplace’s business structure, contact LegalVision’s eCommerce lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

What is an online marketplace?

An online marketplace is an online platform where users can offer their goods or services to other users, who may then purchase them. For example, websites like TradeMe and eBay are online marketplaces.

What is a company?

A company is a way that you can structure your business. You create a separate legal entity and name it, and that company holds assets and gains profit. Directors and shareholders manage and own the company.

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