What are the advantages and disadvantages of a limited company?

A limited company is one of the most common business structures in New Zealand. A limited company is a business that is incorporated and registered with the Companies Office and its shareholders are a small group of individuals or entities such as family members or investors.  This is in contrast to a public limited company whose shares are traded on a stock exchange, these types of company can have an unlimited number of shareholders. ​

In this blog we’ll be focusing on private limited companies, however, it’s crucial to understand private company’s advantages and disadvantages and how they affect your business before taking the plunge.​

One of the most significant advantages of a limited company is you’ll have limited liability. This means your personal assets are generally protected from business debts. If the company faces financial difficulties, your liability is limited to the amount you’ve invested in the company’s shares.​

For example, your company owes $10,000 to a supplier but goes bankrupt. The supplier can only claim against your business assets (e.g., equipment). You are (usually) not personally responsible for paying the remaining debt, even if the company's assets don't cover it all unless you’ve signed a personal guarantee.​

In some cases, operating as a limited company can be more tax-efficient than being a sole trader or partnership. For example,​

Limited companies often have an easier time securing funding from banks, investors, or venture capitalists. This is because they're viewed as more established and less risky than unincorporated businesses, allowing entrepreneurs to grow their business. ​

If you’re seeking business grants, we have a blog on this topic.​

Setting up a limited company gives your business a big boost in terms of looking professional and trustworthy - when you register with the Companies Office, people see you as more serious and established. This can be a real advantage when dealing with clients, suppliers, or even banks. They often prefer to work with limited companies because they seem more reliable. This trust can lead to better opportunities, easier access to loans, and better deals from suppliers. In some cases, bigger companies might even require you to be a limited company before they'll do business with you.​

With a company structure, there will be more admin tasks and compliance requirements compared to other structures, such as sole traders. For example, you'll need to file and submit your company’s annual tax return (IR4) as well as the director’s tax return; you’ll have to prepare a financial statement; you’ll need to file an annual Companies Office return, you’ll also have to keep records of your company’s Imputation Credit Account.​

The base cost to register a company in New Zealand is NZ$118.74 (plus GST). However, you will also need to reserve a company name, which costs an additional NZ$10 (plus GST).​

Your accountancy and legal fees may also be higher if you trade as a limited company as opposed to a sole trader.​

There are more compliance requirements for limited companies, and they can be complex. For example, you need to file your company’s annual tax return (IR4); you must notify the Companies Office immediately; you ​

It’s best to consult with a professional to ensure compliance. At Beany, we specialise in business accounting, ensuring your company is in good hands - get in touch or register now.​

Certain information about your limited company, such as financial statements and director details, will be publicly available on the Companies Office register. Also, details about the company's directors, such as their names and address are publicly available.​

Managing the downsides of limited companies doesn't have to be a hassle, Beany is here to help. We take the stress out of accounting and tax, allowing you to focus on growing your business. Our expert team handles everything from bookkeeping and filing GST returns to year-end accounts and tax filing, ensuring your company stays compliant with all regulations. ​

With Beany, you can rest assured that your financial affairs are in capable hands, giving you the peace of mind to concentrate on what you do best – running your business. No more worrying about deadlines or complex paperwork; let Beany take care of the compliance so you don't have to. Get in touch or register today.​