Coml204 Notes

Topics: Corporation, Types of business entity, Limited liability Pages: 9 (2263 words) Published: October 14, 2013
Coml 204
3 broad structures
Trade on your own (sole trader)
Partnership (there are at least 2 people involved
Limited liability company (many parties involved and have equal rights of management What are some of the basic issues that you will be concerned when setting up on enterprise? Step 1: need to decide the business structure

Step 2: Finance, decide how to finance the business
Company (demand securities, mortgage)
Sole trader (individual)
Partnership (all the partners involved)
Limited liability company (can issue shares- allow outsiders to contribute to the business with limited liability, acquire debt in the same way of partnership and sole trader) *In NZ, can have a person company (get disadvantage because bank may not lend money to that company as bank may treat tat company (small company) in the same way of treating sole trader and partnership. Must personally guarantee the debt repayment, main reason (because you will be individually and collectively fully liable for the debts, creditors can attack all the personal assets. Step 3: Risk

Sole trader- fully responsible for the debt, bankruptcy faced by sole trader can be deemed as personal bankruptcy. Partnership- fully liable for all the debts (all partners), everything partners own is reliable to pay for the debts. *More dangerous then sole trader

- Not only liable for your own shares, fully liable for all the debts of the partners -you are liable for all the debts whether or not you are at fault -creditors can choose to claim payments from anyone of the partners or all partners * Another condition: Limited partnership (started year 2008) Not the same as silent partner

Need a general partner
Limited partner do not have the right to manage the business, cannot involve in decision making, can only involve in investment decision making

Limited liability company- minimise your risk if investing in this company, lose the value of shares, creditors cannot attack you on the payments

In NZ, no requirement for sole trader and partnership to register its business can be completely informal. But there is one exception, limited partnership has to register. A separated legal entity exists in this case. Limited Liability Company must always be registered. It does not exist unless they are registered; create a new and separate legal entity. The agreement created among the partners usually operated internally only. The external parties can still attack all the partners. Step 4: Tax

Sole trader- for tax purposes, can offset any losses that are made from the business taxed individually like a usual person. Partnership- taxed individually, eg, rental property in NZ always (sole trader/ partnership) Limited company- as it is a separate legal entity. same goes to limited partnership. Profit and losses made by the company shareholders against income from other sources. i. LAQC (Loss Attributing Qualified Company)- had been vanished A small company with 5 or fewer people

Will be taxed less, can offset losses from other income sources ii. LTC (Look Through Company)
A small company looks like a separate entity, it allows to offset losses against other income, but the company’s looses are treated as personal losses. The shareholders do liable for all the losses that the company made. Tax rate at 33%

Imputation exists to avoid double taxation.
Step 5: Formality
Sole trader- no need to register
Normal partnership- no need to register but limited partnership has to. Limited liability company- has to register operate under the company law Partnership- it’s a good idea to have an agreement or a contract; a bad idea to have a verbal contract. If created a business enterprise, act/ operate like a partnership, even though the owner claim that it is not, the court will still treated it as partnership. Partnership can be created by action and conduct, written agreement, verbal agreement. Step 6: Life

Sole trader- depends on the individual involved. Eg, death
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