Choosing a Business Structure
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Of all the choices you make when starting a business, one of the most important is the type of business structure you select for your company. Not only will this decision have an impact on how much you pay in taxes, but it will also affect the amount of paperwork your business is required to do, the personal liability you face, and your ability to raise money.
Sole Trader
A sole trader is easy to form and gives you complete control of your business. You’re automatically considered to be a sole trader if you do business activities but don’t register as any other kind of business. You will need to use your personal IRD number as your sole trader IRD number. An individual is legally responsible for all aspects of the activities under sole trader business structure.
Pros
– Simple and easy to setup
– With minimum on-going administration fee
Cons
– Does not produce a separate business entity
– Unfavourable from a lenders view, hard to raise money
Partnership
Partnerships are the simplest structure for two or more people to own a business together. Partnerships can be a good choice for businesses with multiple owners, professional groups (like attorneys), and groups who want to test their business idea before forming a more formal business. You will need to apply for a separate IRD number for partnership.
Pros
– Simple and easy to run with low administration fee
– Share responsibility among partners
Cons
– All partners share business liabilities, regardless of the partnership portion they own
– Disagreement between partners
Company
A company is a legal entity that’s separate from its owners. Company can make a profit, be taxed, and can be held legally liable. Business is operated under the control of directors and owned by shareholders.
Pros
– Separate legal entity with restricted personal liability
– A better business image to the public
Cons
– Higher setup cost and on-going administration cost
– More compliance and complexity
Fine out more:
A step-by-step video on how to register a company in New Zealand