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Company structure is the most 'commercial' entity. A company exists as a formal and legal entity in its own right. It is separate from its shareholder(s) or owner(s). The cost of registering a company is $150 and the annual return cost is $45.
The company:
The shareholders’ liability for losses is limited to their share of ownership of the company.
This is the most common trading entity so gives the business a more commercial look and feel, profits can be retained in the company or paid out to shareholders and therefore gives the tax flexibility, and liability is restricted. This provides business owners with some protection from creditors or other claims.
You have to pay to incorporate and you must produce a set of annual financial statements that comply with the company law. This generally adds a small amount to your compliance costs.
A trust is an entity that holds money or property for the benefit of its beneficiaries or for law purposes. A trust requires trustees, settlors and beneficiaries. The settlor sets up the trust, while the trustees manage the trust for the benefit of the selected people (the beneficiaries).
All trust needs a trust deed to hold all these relationships together and used as the operating manual for the trustees.
Trust is commonly used in NZ for the purpose to protect people’s personal assets and preserve wealth for future generations.
Trusts often have money or property that’s used for investment purposes and earn revenue. This revenue is taxable in the trust. Trust has the option to distribute to the beneficiaries. For any income not distributed to beneficiaries will be taxed at a trust rate 33%. And only profit can be distributed to beneficiaries, losses have to stay in the trust.
There are also new rules for certain trusts to disclose their financial information to IRD. Your accountant will look after that for you. But if you want to know more about it, please read this IRD's guide on additional reporting requirements for NZ domestic trusts.
Trusts protect your personal assets from the risks associated with a business. Trusts also protect your family's wealth for future generations.
There are increasing compliance rules around trusts. Plus, the time and cost to maintain trust increased over the years. Also, due to the change in the trust distribution rules, trusts are no longer tax efficient (the tax rate is 33%).
There’s no best business structure. The best business structure is the one that suits your needs. If you want a business that’s easy and has lower costs to get started, you can choose to be a sole trader. However, it’s worth remembering that this might put your personal assets at risk. If you operate through a company structure, there’re more tax requirements you need to meet.
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Sue de Bièvre
Beany Co-Founder
An intrepid entrepreneur and feminist with a penchant for disruption; spotting problems and rolling her sleeves up to fix them makes Sue tick.
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Which Business Structure Should I Choose? | Beany New Zealand | Online Accounting | Xero | Tax Advice