There are various entity structures available to choose from, each with advantages and disadvantages and differing tax implications. We will advise you of what entity structure is right for you depending on your business needs and your personal circumstances.
A Company is a separate legal entity to the shareholders that own the company. The shareholders of the company have limited liability for the company debts, limited to the amount of their shareholding in the company. A company can register as an employer and for GST. A company structure has the ability to retain profits or losses in the company name or to distribute such to shareholders. There are a number of compliance responsibilities associated with a company structure with the Inland Revenue and the Companies Office.
Look Through Company
Shareholders can elect for their company to be a Look-through company (LTC). An LTC has the obligations and benefits of an ordinary company but has elected to have its income tax “looked through”. The shareholders of an LTC are liable for income tax on the LTC’s profits, while being able to offset the LTC’s losses against their other income (subject to a loss limitation rule).
A partnership is a business venture where two or more tax payers join together and are jointly and severally liable for the partnership debts. Profits and losses are usually distributed evenly to each partner unless a partnership agreement states otherwise and are declared as partnership income in the personal tax returns of the partners. The partnership itself must be registered with its own IRD number however and a tax return filed for the partnership also.
A sole trader is a person that goes into business in their own name. They can trade under a business trading name, employ staff and register for GST, but they are personally responsible for all debts the business incurs. All profits or losses must be declared in the sole trader’s personal income tax return.
Trusts are a popular mechanism employed to protect property and manage assets. A trust is a separate legal entity created when a settlor places assets under the control of the trustee or trustees for the benefit of beneficiaries or for a specific purpose. The trustees are the nominal owners of any settled assets but are obliged to deal with the assets in the manner as determined by the trust deed.