There are three main business structures in New Zealand: Sole trader, Partnership and Company. Each of them has advantages and disadvantages. For a Company, it must be registered. Compared with the others, incorparting a company is more complicated, subject to more regulations and higher costs. However, a company has advantages that it is an independent entity, the company’s property and the shareholder’s property are separated, and the shareholder’s responsibility is only limited to shares held. For example, when the company goes bankrupt, the company takes over all debts and the personal assets of the shareholder will not be affected. From a tax perspective, the company’s tax rate (28%) is lower than the highest personal income tax rate (39%).
When you determine to incorporate a Company, you also need to choose the type of company. There are three main types of companies in New Zealand, which are limited liability company, co-operative company and unlimited company.
The most common one is a limited liability company, and the general company name will have Limited or Ltd at the end. In a limited liability company, the company takes over all legal and financial responsibilities, and shareholders only need to bear the part of the shares they hold or the part of the loan guaranteed by the individual.
Co-operative companies, also known as co-ops, are limited liability companies owned and controlled by members of associations or organisations. Its main purpose is to support each other between members, or to achieve specific goals or social benefits. For example, taxi companies, dairy companies or Maori communities. All co-operative companies must have transacting shareholders, that is, at least 60% of shareholders must supply goods or services to the company, or buy the company’s goods or services, or enter into commercial transactions with the company. The co-operative company must also have a constitution that includes a description of the co-op’s activities, and file it with the Companies Office. The co-operative company typically returns a portion of their profits to shareholders as rebates or as shares instead of rebates.
Unlimited companies are rare, because the shareholders of the companies have unlimited liability, which means that shareholders need to take over any debts that the company cannot repay.
After determing a business structure, you can move to next step, registering a company with the Companies Office or starting operation as a sole trader or partnership.
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