Registering a company... Or not. Questions

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CamH

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# 45277 31-Oct-2009 22:30

Hi There Guys,

I'm looking to, effectively start up a website that sells products (web hosting/domain names mostly).

I don't really want to incorporate a company, too much to think about, as this is only part time, and I will only be hiring people overseas to answer emails, but will I get in trouble if I start a website which makes profit and am not incorporated as a company/paying GST?

The company will not make more then $40K per year I doubt.

Thank you GZ :)

Regs

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Snowflake

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# 268923 1-Nov-2009 00:32

from the IRD point of view, its more about whether you have to register for GST or not. i think 40K was the threshold but check the IRD web site

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ajobbins

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# 268924 1-Nov-2009 00:36

You don't need to be a company if you are making over the $40k GST threshold, you would just register for GST as a sole trader.

A company is just a seperate legal entity and there are pros and cons depending on your circumstances.

Suggest speaking with your lawyer about what best suits your situation, or have a look at http://www.business.govt.nz/ or http://www.companies.govt.nz - There is alot of good info there.

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xpd

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# 268940 1-Nov-2009 08:22

There are other benfits to running as a company, regardless of how much youre making.
Claim % of power use, space etc....

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freitasm

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# 268944 1-Nov-2009 08:44

Talk to an accountant and a lawyer. For example, you might not have to pay GST as a sole trader, but all your income will be taxed to the new levels.

This new revenue will be added to your current personal income and it might put you in the next tier up on income tax. If this is a company, it will be always at a certain level - and if you don't withdraw the money from the company then you won't pay taxes on that.

vinnieg

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# 269026 1-Nov-2009 14:44

Regs: from the IRD point of view, its more about whether you have to register for GST or not. i think 40K was the threshold but check the IRD web site

He's right, it's $40k if you don't want to be a sole trader.

I did this a few years back, for the reason that I could:
- claim depreciation on my computers(used for company purposes)
- claim depreciation on my cars
- get a GST number to send out for invoicing(you can also register for a GST number for a sole trader)
- if my company went bankrupt, then they can't exactly take it out of your possessions. You aren't liable for all the debt of the company, just the amount of shares you own. I put myself as the owner of 80 shares at $1 each...so in the case my company got bankrupted, I'd only owe $80 and another 20 shares were my partners. However, if you are a sole trader, you are liable for all debts and could lose your house/car if you had one.
- it only cost me at the time i think $25 to setup? but you could reheck companies.govt.nz for it.

This site has a lot of information, although $295 to incorp the company for you...yeah right. Easier just to do it yourself with a bit of reading on the subject :)

Cons:
- a lot more documents than a sole trader
- you have to setup meetings with the other shareholders(not actually that hard)
- you have to keep proper minutes, financial records upto 7 years and file annual company returns each year or your company gets struck off.

I have moved across the ditch. Now residing in Melbourne as a VOIP/Video Technical Trainer/Engineer.

CYaBro

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# 269027 1-Nov-2009 14:47

Pretty sure the gst threshold is now $60k.

vinnieg

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# 269028 1-Nov-2009 14:47

freitasm: Talk to an accountant and a lawyer. For example, you might not have to pay GST as a sole trader, but all your income will be taxed to the new levels.

This new revenue will be added to your current personal income and it might put you in the next tier up on income tax. If this is a company, it will be always at a certain level - and if you don't withdraw the money from the company then you won't pay taxes on that.

+10!!!!

Yeah definitely talk to a lawyer/accountant, they'll help you weigh up the pro's and cons in finer details. And the fines and dangers of insolvency if your company/sole trading hits the pan

I have moved across the ditch. Now residing in Melbourne as a VOIP/Video Technical Trainer/Engineer.

vinnieg

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# 269029 1-Nov-2009 14:48

CYaBro: Pretty sure the gst threshold is now $60k.

Oh true, was that a change brought in under the new govt? My company was registered 4 years ago and only terminated last year, so I didn't have to file an annual return last year

I have moved across the ditch. Now residing in Melbourne as a VOIP/Video Technical Trainer/Engineer.

NonprayingMantis

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# 269067 1-Nov-2009 17:13

1) you don't have to be a limited company to register for GST. you can do it as a sole trader or even a contractor

2) the threshold is only the minimum level at which you must register. You can register with much lower income if you want.

is the 40k you are planning to 'make' profit or revenue?

+1 to seek advice from an accoutant.

If you are going to be selling stuff to companies that are likley to be GST registered themselves, then you should DEFINITELY register yourself.

CamH

429 posts

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# 269179 2-Nov-2009 09:45

Thank you for all the info guys. I'm going to look into all of the stuff you mentioned above.

The company is not going to be making much at all I wouldn't say - Well under 40k a year.

I'm mainly starting this company to provide an (online) product at a reasonable price, as I haven't seen anybody in NZ do it yet.

wellygary

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# 269194 2-Nov-2009 10:22

Irrespective of the Tax issues, I think you should look at forming a companyh for your protection,

You say that you are going to be employing people overseas to answer emails on your behalf, If I were doing that I would make sure that the entitity they were operating on behalf of did not have an unlimited call on any assets I may have personally.

NZ is one of the easist places in the world to create and register comapnies, talk to a lawyer and an accountant, and I suspect they will agree that it provides you a good deal of protection for a minimal outlay.

mdf

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# 269310 2-Nov-2009 16:30

+1 speak to an accountant or lawyer.

In summary, a company is a legal "person" (so are some other things like some trusts and partnerships). "Real" people/individuals are also legal "persons".

Any legal person can own assets, incur debts, pay tax etc. As you would expect with two "real" people, one person is not liable for the debts of another.

Incorporating a company means setting up a new legal person, even if you happen to be the sole director and shareholder. The company can own assets and incur debts. One of the biggest advantages of a company is that its debts are separate from your debts. This is called "limited liability" (i.e. your liability is limited).

You don't have to incorporate a company to carry on business. However if you do (it right - see accountant/lawyer), the debts are those of the company, not you personally. If it all goes belly up, you will not be liable for the company's debts. The theory is to encourage entrepreneurship - taking a risk that you wouldn't do if you thought you might be liable at the end of the day.

The downside is that there is some more paperwork and ongoing bookkeeping (a lot of this is however good business practice that you should probably be doing anyway for a business of any size beyond tiny).

Another downside is that some people (i.e. banks) will insist on a personal guarantee - i.e. you guarantee the debts of your company. This means that you will be liable at least to the bank for anything you owe it (google "myth" or "illusion" of limited liability).

So if you are doing something where you will potentially incur trade debts, it might be a good idea to incorporate a company. New Zealand has (literally - it consistently wins OECD awards) the easiest and cheapest process for incorporating a company in the world. I think its now $160 all up and takes 10 minutes or so online with a credit card. www.companies.govt.nz

Other advantages - (arguably) better arrangements between business partners, lower tax rate (flat 30%) for money that stays within the company, easier to bring other business partners in later, some benefits for succession planning. There are others. Something like "Combine Honnete Ober Advancer Mercantiles Ltd" is also *way* cooler than Mr J Smith, esq.

Turning to tax, any person must pay tax for their business. This will be so whether you do it personally (i.e. sole trader) or as a company. The tax rates are a bit different, but other than that you are pretty much in the same position. Unless your business is *really* straightforward, see an accountant.

Did I say, see an accountant or lawyer?

EDIT: fixed CHOAM's name