Business Structure
When you are starting a business you must consider carefully the business
structure, as different type of business are more suited to different
structures.When friends or acquaintances are starting out together in business you
think because you may have known each other for many years and have not had
any relationship problems this situation will continue when you go
into business.
This may not be the case for example say one of you no longer wish to
continue how do you value the business and who can buy the shares.
What if you both cannot agree on the action you wish to take with the
business.
How is remuneration for the work each of you do structured.
Discussion with a lawyer or accountant at the early stages in regards to
the structure of the business venture can save you a lot of difficulty in
the future.
Limited Liability Company
A limited liability company is formed by contacting the companies office,
lawyer, accountant or one of the businesses that specialize in setting up
limited liability companies.
The advantage of a limited liability company is that in most instances
liability is limited to only what has been personally invested and also if
you were wanting to transfer your share in the company to someone else this
can be done easily.
The company would continue to exist even when members resign, retire or
die. Setting up a limited liability company means more paperwork and you
must file annual accounts at the Companies Office every year.
Shareholders and Directors may to have personally guarantee contracts
entered into with lenders and suppliers.
Sole Proprietorship or Sole Trading
Popular way to start a business as it is very easy to set up and there is
no registration except for GST with the Inland Revenue Department if you are
going to turnover more than $40,000 per annum.
Starting small by sole trading is a way to test your chosen market but
there are pitfalls, because if your business fails you will have to pay for
that failure out of your own pocket.
With the name you choose you need to check that it is not already being
used by another business in your industry. You can do this by going online
to the Yellow Pages website
and typing in your name in the search.
Partnership
In a partnership, two or more people run a business together. Each
partner:
- shares responsibility for running the business
- shares in any profit or loss equally, unless the partnership
agreement states otherwise
- is liable for any debt within the partnership.
The partnership itself does not pay income tax. Instead it distributes
the partnership income to the partners. The partners then pay tax on their
own share.
We would suggest that you contact a solicitor and have a legal agreement
drawn up as such an agreement will make partners think about issues such as structure
and roles each person involved as well as the likely exit routes for the
partners.
Partnerships can have the advantage of providing a wider skill base with
another person bringing another set of skills, knowledge and experience.
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