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Company benefits
There are many reasons to operate a New Zealand business under a 'Limited Liability' company, rather than a 'sole trader' or 'partnership'. We have summarised and detailed out the points below in an easy-to-understand manner. If you have any further questions or concerns, please get in touch with us.

Limited Liability
The name means just that. The main advantage of operating as a limited liability company is the redirection of the risk from you as an individual (when operating as a sole trader) to the company. A limited liability company is a legal entity in its own right. It can hold property in its own name, can sue and be sued and has an indefinite existence (unless forcefully brought to an end). A Company allows shareholders to limit their maximum possible liability for the debts of that company to the amount of the paid capital in the company. If a shareholder holds one hundred $1 shares in a company, that shareholder's liability for the company's debts is limited to $100. In a sole trader environment, the liability for debts incurred is unlimited.

Registration & Protection of Name/Brand
Once your company is formed, no other business/company in New Zealand can reserve a name that is identical or near-identical to your own name. A sole trader has no protection in this sense if they are conducting business under a certain name/brand. That name can be registered by another entity in New Zealand and there is little to no recourse for the sole trader in question.

A company opens further doors for raising capital/finance. This may be by the issuing of new shares (the purchase of which, by the new shareholders, brings capital into the company) or by offering the company as security (or collateral) for any mortgage or debenture that the company takes on gives the lender more options and therefore more security. Arranging security for a loan can be both cheaper and easier for a company than an individual. An individual will often have to put up personal possessions for a loan (such as a car or a house) when operating as a sole trader.

Taxation & Employing Family
A company provides significant tax benefits. The corporate tax rate is 30% while the top personal rate is 38% - this can provide options to minimise your tax burden by spreading the income.

By introducing family members as employees and/or shareholders income splitting is possible to enable less tax to be paid at the higher rates. In some cases after individuals reach 60,000 of income, any additional company profits may be able to be taxed at 30% and retained as tax paid profits, thus reduce the total tax otherwise payable.

Approval from the Inland Revenue Department is required to allow a claim for wages paid to a spouse or family member of a sole trader or of a partner in a partnership. Restrictions are placed on the hourly rate which can be paid. With a company there is no such restriction. What is required is for the amount of remuneration paid to be in keeping for the work undertaken. Also the remuneration cannot be excessive.

A company facilitates continuity. If a shareholder wishes to sell part or all of his or her shares the company continuity is not affected with a new shareholder. This would be different with a sole trader or partnership. Both of these business forms would have to dissolve and create a completely new entity.

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