Welcome again to the McLean and Co. Newsletter in which we discuss current taxation and business matters. We trust you find it informative.  Any feedback would be welcomed.

McLean and Co. is a home based chartered accountancy practice based in Clive, Hawkes Bay.    Readers are invited to peruse the practice website,  which lists services provided, gives contact details and indicates how to become a client, contains an extensive base of articles on business and taxation matters,  and has links to other websites that may assist your business.    Being a small firm itself,   McLean and Co. strives to provide a personal and professional service largely to a self employed person and small business client base.  Enquiries are welcomed.



  1. Relevant Business and Taxation Articles

  2. Business Structures for your Business



The McLean and Co. website contains an extensive number of articles prepared by McLean and Co. relating to taxation and business matters.    Here are a selection that will be of interest:

Depreciation of Fixed Assets                                           

You Are an Investor-  are you in Business                      

Buying a Franchise-  what you Should Consider              

Goodwill and its Valuation                                                 

Obtaining a Business Loan- Key Steps                             



This newsletter we will largely devote to discussing structures which are ideal for your business. the best known structures being:

sole trader (if the business has only one owner)


company, or


In deciding which structure to use you should consider the following factors:

the taxation implications

the funding arrangements

the owner's liability (eg. for debt or other legal obligations)

the type of business (e.g. certain professions can only be practised as sole traders or partnerships, such as law)

whether the business is new or already established

whether the business is a one-off project or whether it is expected to continue

the administration requirements and costs

the continuity of the structure (e.g. whether you hope your children will one day take over the business from you),  and

the internal structure (e.g. the number of people involved, the proportion of their contributions, and management and profit-sharing)



The sole trader business structure applies only to single-person businesses


simplest way to start in business

easy to form and terminate

simplicity- few legal formalities, therefore cheaper

low start up costs

owner has independence-   free to make his own business decisions, to take time off when he wants, to take holidays when he wants

relatively little regulation and paper work

all profits go to the owner

possible tax benefits-   will be taxed at lowest personal marginal income tax rates, losses can be offset against other sources of income

financial statements do not have to be shown publicly, and do not have to be audited


unlimited liability for owner, who is personally liable for the debts of the business-  personal assets can be at risk

owner is responsible for negligent acts and other wrongs committed by employees within the scope of the business activity

harder to raise capital than other forms of business ownership-   the owner may have to give a personal guarantee or security over personal assets

working by yourself means that there is a limited amount of skills, experience and management expertise readily available

lack of continuity- when give up the business ceases

may be difficult to sell and get good price as it may be the case that a lot of the goodwill has been created by the efforts and personal relationship of the owner with the customers

the potential for higher tax bills  (the highest marginal tax rate for individuals is currently 39% of income over $60,000 p.a. compared with the companies rate of 33%)



Any two or more people carrying on the same business with a view to making a profit are a partnership unless they have formed a company or other business structure.


has more than one business owner, therefore more skills, experience, management expertise available

relatively low startup costs and inexpensive to operate

no registration formalities, although a written agrement will help avoid future problems

a partnership does not pay tax itself, but must be registered with IRD and file an annual return of income and showing the assessable income and how it has been divided amongst the partners- tax is paid by each partner on their share of income and business tax losses can be offset against other personal income

privacy of affairs-   Financial statements don't have to be released to the public and don't have to be audited

limited outside regulation

easy to change the business structure

can raise finance by introducing another partner who provides his rather then having to go to a lending institution


all partners are jointly and severally liable for the debts of the partnership-   this means that each partner is liable for the pertnership's debts, and if the partnership is unable to pay, a partner may have to pay the entire debt and not just their share

no protection for partner's personal assets, which may be seized to satisfy partnership debts

divided loyalty-   more than one person making the business decisions

trust and confidence is needed between the partners-  friction can occur

lack of continuity- when a partner pulls out the business ceases and legally the remaining partners are in a new partnership

limitation on size

the ability to raise finance is resticted in the same way as that of a sole trader-  banks may require personal guarantee and security over personal assets

may be difficult to sell off the partnership business and get good price as it may be the case that a lot of goodwill is through personal effort and relationship with customers and partners.



A company is an artificial "legal" person.   It is owned by shareholders who have limited liability (i.e. they are not personally responsible for the company's debts).   A company is run by directors


can have a number of shareholders providing various levels of investment capital and personal services

provides limited liability.  Claims against the company fall on the company, not the shareholders.   Banks may however require individuals to sign personal guarantees or to put up their own assets as security for loans

easier to raise finance-  a company can issue shares or create a "floating charge' over its assets and ongoing business (in a document called a debenture) and these can be used as security for a loan

may confer the impression of greater crebibility and that the business is there for the long term

continuity- company can continue even if a shareholder or director pulls out

leads to a clear distinction between the personal affairs of the shareholders and their business affairs

may offer tax advantages due to the income tax differences between companies and individuals

easier to sell part of a company in comparison to sole trader and partnership-   just sell some of the shares.


registration expenses and formalities

ongoing administrative formalities and expenses  (e.g. financial statements, annual returns to be filed, forms to be lodged with the registrar when directors change)

stringent legal regulations-  companies are governed by the Companies Act 1993 which sets out various proceedural rules and legal obligations

personal liability in some circumstances-  the Companies Act says that directors are personally responsible for the company's actions in certain circumstances (e.g. letting the company trade when it is unable to pay it debts)

tax administration requirements are more complex than those for a sole trader or partnership

does not provide any opportunity to spread business income to family members on lower marginal tax rates other than through legitimate wages

business losses have to remain in the company unless the company is a loss attributing qualifying company and cannot be offset against a shareholders income from other sources

a public company has to declare financial results publicly and has to be audited

depending on profit levels in first year, may have to start paying income tax earlier than other business structures



A trust is an arrangement for the holding of property by one party (the trustee) for the benefit of another (the beneficiary) or else for some specified purpose.   Trusts are widely used for planning and protecting family finances and are useful to people exposed to comercial risk.   They can be used to operate a business


limited liability if a company is a trustee

ability to distribute income to beneficiaries flexibly

the beneficiaries of a trust are personally indemnified.   This means that should the business find itself in difficulty with creditors,  the only assets that can be called upon to pay debts are those owned by the trust, and personal assets owned outside the trust are not available for meeting any business liabilities


 entering into finance or other contractual arrangements may be difficult, as trusts as a business vehicle are less well known than comanpies

the trust cannot pass losses back to beneficiaries

tax compliance is fairly complex- income retained by the trust is taxed at the rate of 33%, but distributions of income that has been taxed are tax-free in the hands of the beneficiaries


In selecting the best structure for you and your business, balance the pros and cons of these different business structures with your business's individual characteristics and needs.   Consider the context of your business, your own circumstances and how you perceive your current and future business practice.    then look at the pros and cons outlined above to see which structure, overall, best suits your business. 




If we can assist further, please email McLean and Co as follows: