A Company is a separate legal entity from its ultimate owners and thereby has its own registration via the Companies Office, Inland Revenue number and management rules.
Business owners who create a company for their business can achieve “limited liability” for themselves as shareholders because the business risk of the company stays at the Company level and does not flow through to shareholders.
New Zealanders have a great familiarity with the Company structure as a common entity to do business through and they remain one of the most popular structures.
If you are considering forming a company for business purposes, the advantages and disadvantages are listed below:
- Limited Liability for shareholders
- Management can be governed by a formal constitution or the Companies Act rules
- Tax rate often differs to personal tax rates so can provide tax savings for highly profitable businesses
- New owners can be brought in by way of the sale or issue of shares
- Cost to incorporate, maintain and handle compliance
- Regulated under the Companies Act
- Taxation rules apply to the distribution of profits and the maintenance of ownership levels for retention of tax losses and imputation credits
- Tax losses of a standard company are not able to be offset against shareholders’ personal incomes.
- Separate tax return.
Prudentia Law is happy to assist clients with company structuring, and further information can be found here.