One of the craziest unnecessary risks is to trade as a sole trader or partnership rather than as a limited company just to save a few dollars. I regularly see examples of unincorporated business owners coming to grief:
All these business owners were of modest means and had families. Why would anyone risk their future well-being (and probably health) to save $500 or so?
- The husband and wife partnership who got into difficulty so used the finance readily available from the IRD. They now owe $95,000 in unpaid GST and their business is sinking fast. Unfortunately they are going to go down with the ship.
- The sole trader who received a totally unexpected legal claim for $260,000. His insurance company refused to pay because they said the claim was late being notified. Bankruptcy beckons.
- Another husband and wife partnership has just received a demand for $200,000 from the liquidator of a customer who went bust a year ago. Their legal fees to defend their position are mounting. Liquidation of their own business is not an option because they are a partnership but that would have been the best choice.
- A new client was in a two-man partnership. His business partner ran up business debts willy-nilly and then cleared off to Australia. Guess who had to pick up the tab for his partner's debts?
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