If you are setting up a business, going into partnership or considering an initial shareholding, you will want to talk to McVeagh Fleming about the most appropriate corporate structure to ensure you are protected and are best positioned to meet your objectives.
As a sole trader, you operate a small or micro business under your own name as a single individual. You may be self-employed or have some limited support, giving you total control over the business. A sole trader business is easy to setup, but you also have unlimited personal liability because you and the business are one and the same.
Partnerships are great for when two or more people or businesses come together to share assets and liabilities towards a common objective – benefits include building scale and pooling resources like money and people. A limited partnership is also possible. Each partner will have rights and responsibilities, and where there is no written agreement, the partnership is governed by the Partnership Act. Individuals are responsible for their obligations as a partner to the partnership. However, people being people means disputes may arise and the partnership may go bad.
Limited Liability Company
This is the favourite vehicle for most small and medium businesses in New Zealand. As a separate legal entity from shareholders and directors, most of the liabilities incurred by the company remain the responsibility of the company (shareholders' and directors’ personal assets are protected). Limited liability companies are more heavily regulated, and directors have specific responsibilities under law.
A joint venture (JV) is usually a strategic alliance between different parties for a specific purpose, and may involve the pooling of services, capital and/or labour towards a common goal. Like partnerships, things can go bad with a JV. Talk to McVeagh Fleming about an agreement that covers the purpose, dispute resolution and responsibilities of parties in a JV.
A Trading Trust is where a company, rather than an individual or individuals, acts as the trustee (which is its sole purpose) usually for tax purposes and may offer some protection of limitation of liability for the company shareholder.
With public companies, the shares in the company may be bought and sold and all financial information is publicly available. Public companies are listed on the New Zealand Stock Exchange (NZX). The ability to sell a part (or all) of the company through shares (usually beginning with an initial public offering), enables the company to raise capital for growth and innovation. Disadvantages include less control, greater regulatory oversight, increased liability and loss of equity in the business.