|Are you still operating as a sole trader or partnership?
Company Solutions Ltd. recommends company registration.
To apply online for a tailor-made company or an existing shelf company please use the following form.
a company today - online application form
When you operate through a company you enjoy several advantages, including but not limited to:
- Limited Liability - to isolate your business risk from your personal assets
- Name Registration - to protect your identity in the marketplace
For comprehensive information on the advantages of running your own company see the topics listed below.
To find out how we can help you form your company or to have any questions answered please feel free to contact us.
Limited Liability [back to index]
The main advantage of registering a company is that business risk is separated from the personal assets of the shareholders. Limited liability restricts the maximum possible liability of the shareholders for the debts of the company.
For example: If you, the shareholder, hold fifty $1.00 shares in a company, your liability for the company's debts is limited to $50.00, regardless of how great the debts of the company may be. There are exceptions to this rule. Liability can be increased in situations where shareholders and or directors provide guarantees to banks or other financial institutions to cover the company's borrowings. Similarly if you, the shareholder, make additional loans to the company, you also increase your potential risk in the event of the company's financial collapse. However, liability is still limited to the amount you put into the company. By contrast, the liability of a sole trader or partner in a firm is unlimited.
Name Registration [back to index]
Company Solutions Ltd. specialises in working with the Registrar of Companies and the Commissioner of Trademarks. When the Registrar of Companies approves your company name no other company can be registered with an identical (or near identical) name. Sole traders and partnerships are unincorporated bodies - there is no register for them and therefore no name protection. In addition to registering your company name, you can achieve total name protection rights by registering a trademark or service mark with the Commissioner of Trademarks. We can advise and facilitate your name and trademark registration.
Separate Legal Entity [back to index]
A company is a separate legal entity from its shareholders. An individual (i.e. sole trader or partner) cannot enter into a contract with himself but a shareholder can enter into a contract with a company. This legal relationship allows a shareholder to both (1) be employed by the company and (2) also loan money to the company, while enjoying the same asset protection as any other unrelated party.
Tax Dividend Imputation [back to index]
Since its introduction on 1 April 1988, tax dividend imputation dictates that a company pays tax at 33% in the dollar on any profit it earns, after shareholder's salaries are paid. If that profit - after company tax is paid - is later distributed to shareholders as dividends, the company tax paid is accounted for and the individual shareholders receive a credit in their tax returns. This effectively reverses the company tax paid. The personal tax paid on those dividends is therefore the only tax you pay - there is no double taxation.
Taxation and Employing Relatives [back to index]
There are significant tax benefits that come with forming a company. From 1 April 2000:
On income up to $38, 000 - you pay income tax at the rate of 19.5%
On income between $38,000 and $60,000 - you pay income tax at 33%
On income above $60,000 - the tax rate is 39%
Introducing family members as employees and/or shareholders allows you to split income, to enable less taxation. If an individual reaches an income level of $60,000, additional company profits can be paid as a dividend instead of taxable income. Those dividends may then be taxed at 33% (see Tax Dividend Imputation above) and retained as tax paid profits. This reduces the total tax you have to pay. To illustrate;
On income of $100,000 you pay $39,000 tax - leaving you $61,000 net income.
If this is split so that;
On income of $60,000 you pay $23,400 tax - leaving you $36,600 net income.
A dividend of $40,000 is paid with $13,200 tax - leaving you $26,800 dividend.
Thus your total income (on the same amount) is $63,400 rather than $61,000. For a sole trader or partner to pay wages to a spouse or family member, special approval from the Inland Revenue Department is required. Inland revenue also restricts the hourly rate that may be paid. When you register a company there is no such restriction, provided that the remuneration paid is not excessive (but is in keeping for the work undertaken - namely market rates).
Borrowing [back to index]
Arranging security for a loan can be both cheaper and easier for a company than an individual. Companies may grant a floating charge over its assets - present and future - by granting a debenture. Individuals on the other hand cannot do this and must grant specific charges over specific assets. Under a debenture, new assets acquired by the company are automatically covered by the floating charge, and assets sold in the course of the business are released from the charge. For an individual, new assets require a new charge to be prepared, and assets sold require a release to be executed to release the asset from the charge.
Security for Shareholders Loans [back to index]
Shareholders may lend to the company under the security of a debenture.
Should the company experience financial difficulties and liquidate, the debenture holder ranks ahead of the unsecured creditors when residual assets are distributed.
Continuity [back to index]
Registering a company facilitates continuity. Shareholders may buy - or sell - part or all of their shares without affecting the company continuity. If you are a sole trader or in a partnership, the changing of shareholders means your business must dissolve, and a completely new entity must be created.
Tax Loss Distribution [back to index]
Company Solutions Ltd is equipped to separately register your company with the Inland Revenue Department with Loss Attributing Qualifying Company (LAQC) status. If your company experiences a tax loss in a future year, this loss can be distributed to the shareholders in the same year.
This means shareholders can use those losses to reduce individual personal tax liabilities (instead of those losses being held by the company, to be offset later by future profits). For example, a forestry company registers with LAQC status.
In its initial years it is likely to have budgeted tax losses - they spend on planting and seeding, but cannot yet harvest - therefore there is no initial profit.
This loss may be distributed year by year to the shareholders. Without LAQC status these distributions of losses would not be possible - LAQC status allows shareholders to receive a short-term benefit from their investment.