Starting a business in New Zealand
We're very fortunate in New Zealand that it's still very simple and affordable to start a business. It doesn't matter if you're trying to setup a top home based business website or perhaps you're the next Stephen Tindall, starting your first warehouse store in Takapuna, only to see the business grow to 128 stores within 20 years.
The three main types of company structure New Zealand has to offer are:
- Sole Trader - the easiest way to start a business in NZ, where an individual owns and controls their business and is entitled to all the profits. The downside to this structure is that the sole trader has unlimited liability for all business taxes and debts; Sole trader businesses can be more difficult to sell
- Partnership - most common among professional people; two or more people run the business together usually and share in the profits or losses. Generally there is a partnership agreement stating the rules around ownership, profit/loss, advisors, review and arbitration process, and costs. "Partnerships" can also be formed under a company structure, where each partner is a shareholder of the company.
- Limited Liability Company - arguably the structure offering the most protection for owners, as the company is a separate legal entity, independent of shareholders.
Incorporating a company in New Zealand is
incredibly easy; it can be done online in around 30 minutes and only costs $160. The simple process starts with reserving a name for your company, then moving onto the incorporation stage.
To incorporate the company, you will need access to a fax machine or scanner to send back signed documents for each director and shareholder listed for your business.
Limited liability companies often find it easier to attract investors, who can become shareholders. Should the time arise to sell your company or pass it onto someone, it is also much easier as the company can continue trading whilst the transfer of shares occurs in the background. Aspiring Company Directors should study up their responsibilities, including holding an AGM with meeting minutes, keeping excellent accounting records, registering for GST, filing an annual return with the Companies Office, and laws around employment.
ByteMe Internet Limited is a limited liability company; the structure has worked very well for us, as we've expanded into a specialist search engine optimization & web design firm. From our perspective, the insignificant overheads are well worth it for the flexibility, credibility, protection, and opportunities for the future that this structure provides.
Once you have your company name reserved, you may like to consider protecting your trade mark. The Intellectual Property office of New Zealand allows you to carry out a Trade Mark search™, file trade mark applications, and has heaps of other useful information and guides about IP.
Registering for GST
Whether you will register for GST or not depends largely on the your expected turnover. If you are forecast to turnover $3,333 or more per month, then you must be GST registered. If your turnover is under this threshold, $40,000 per year, then GST registration is optional.
By way of example, if you were starting a business off slowly, perhaps part-time working from home and under the GST registration threshold, you may wonder why one might decide to register for GST at all. The answer is generally: expenses. If you are registered for GST then you can claim the GST back on all your expenses. In other words, when you purchase something for your business, either to on sell or to use in running the business, you get to claim the 12.5% GST component back from IRD. This system is designed to aid those starting out in business and can work well with an LAQC structure in the short term. Always remember to check with your advisors before making these decisions; everybody has different circumstances.
You can elect to submit a GST return monthly, bimonthly, or every 6 months. If you're making a decent profit, it would make sense to submit the returns as infrequently as possible i.e. 6 months. However, if you're starting out slowly and expect that outgoing's would often be greater than money coming in, it could well be best to claim the refund from the IRD each month. There are plenty of accounting packages out there to make GST returns really easy. ByteMe Internet use MYOB Business Basics which is perfectly adequate for our needs.
Business bank accounts
Business bank accounts are reasonably similar to personal accounts. The key difference being that the fees are greater. Most businesses will operate a cheque account as it can include a two to sign option for additional protection. Like personal accounts, most business accounts will include the ability to make bill payments and transfer funds online; two to sign accounts may need special software only offered by some banks.
ByteMe Internet are loyal customers of ASB. We've found their service to be excellent and their IT systems are second to none. ASB offers online, real-time options for both single signing and two to sign accounts. If you are planning to setup a merchant account to process online or in person EFTPOS and credit card payments, it pays to shop around, and be prepared for multiple monthly fees before you even start swiping cards. Check out DPS and Paymate for two online solutions for different volumes of transactions; of course ByteMe solutions integrate of both providers.