Starting a company – should you do it?

New Zealand is one of the easiest countries in the developed world to incorporate a company – but should you do it? …That’s not quite so straight forward! While your best bet is to chat your situaiton through with us, here’s a few things you should be considering before starting a company:

  1. What’s your exit strategy? I know what you’re thinking – you’re only just contemplating starting a company, why the hell are you thinking about stopping?! If you’re heading off on the rollercoaster of building a business, you need a game plan in place for jumping off. How you structure your business impacts how you can eventually exit. A company easily allows multiple owners to come and go as it is a separate legal entity.
  2. Will you have a business activity with a view to profit? Possibly a no-brainer question, but tick this off before you sign up to the admin of owning a company. There’s little point having dust collecting companies sitting around costing you $45 a year to maintain.
  3. Who will own it? Whether you’re flying solo or having business partners along for the ride forms a big part of your structuring question. If you’re not on your own, you’re looking at a company, partnership, limited partnership or trust. If you are a one-man-band, a company could still be your ticket… read on.
  4. What type of income will you earn? Are you selling your time, someone elses time, widgets, or maybe both. Or, perhaps you’ve got the perfect, hands-off business that means you can do pretty well nothing to make a crust. Who earns the income, where it comes from and if it’s passive can open opportunities for tax planning via companies that’s beneficial for your back pocket.
  5. How will you fund it? Generally, businesses take money and time before they give anything back – some never give back and that’s a whole separate factor to consider with companies! How much money you need and where it comes from is a key component of risk and a company can be a method of shielding yourself from some of that risk.
  6. What is your risk profile? Whether your investing or borrowing or not, all business comes with a degree of risk, but what that looks like is different for everyone. As an individual, you have unlimited liability i.e. if something goes really pear-shaped, you could possibly lose everything you’ve got. Alternatively as an owner of a company, your liability is generally limited to what you’ve put into the company. There are exceptions to this and a company is not a get out of jail free card.
  7. What else do you have going on? This is important as things such as if you own you own property, are in a relationship, and even what your partner does for a living can sway what will be best for you.

Key takeaways:

Spend time planning. When setting up shop, it’s important to start with the end in mind. This isn’t locking yourself in to something, this means keeping your best options open.

There is no one size fits all. What your friend’s mum’s son-in-law did, based on advice from a really switched on accountant, may not be the best thing for you to do. Seek your own advice from someone who will ask you questions. Get in touch for a personalized chat about whether you should be starting a company. If you’re still left wanting more – check out the Companies Office website for more details on starting a company.

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