Business Structures Made Easy
Nick Roberts
Every business is different, whether in terms of size, trade, level of gearing, objectives or its stage in the business life cycle and selecting a business structure is often a compromise between conflicting objectives:
- Minimising Risk
- Practicality
- Cost
- Tax Minimisation
- Asset Protection
What are the main options?
Unless you are a micro-business on a minimal budget, don’t even go there. No protection of any kind and not tax efficient.
No, käo, non & nein! Not only are you personally liable but in addition, you are liable for your partner’s share of business debts as well! Let me know if you want some horror stories!
Getting better. A limited company offers (subject to reckless trading or personal guarantees) the benefits of limited liability protection, reasonable tax efficiency, and practicality.
Well, yes and no. Whilst a trust offers total flexibility for distributing profits, tax efficiency and confidentiality they are not particularly practical for trading businesses and under attack by the IRD.
Now we’re really talking! At the simpler end, get the family trust to hold all bar two shares in the company to enable the distribution of profits above a certain level to the trust. For bigger businesses, consider at least two trusts, one for business assets and one for the family home and/or passive income generating assets. Any borrowings in the family trust should be repaid as soon as possible.
Whatever business structure you choose, the important things are, firstly, that you have consciously decided to adopt that structure, and secondly, you are comfortable with the risks involved. Business can be risky - why take any more risks than necessary?
If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use “Contact Us” on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.
