Sole traders, partnerships and companies are the most common business structures in New Zealand, but there are other options. If you’re thinking about using one of these other structures, make sure you get professional advice.
The most common company structure is a Limited Liability Company, with the shortened form “ltd” at the end of company names. Other options are unlimited companies and co-operative companies.
The shareholders of an unlimited company have ultimate liability, meaning they must pay any debts the company can’t pay. This liability is included in the company’s constitution.
Unlimited companies are used to meet very particular, often foreign, legal requirements.
Co-operatives are member-owned and controlled businesses that are run for the benefit of all their members. It is a way of doing business that can prove successful over a long period and can be used in almost any business sector.
With a co-operative, a group of businesses can join together to achieve business goals not always possible operating alone. While co-operatives mostly work in the same way as other businesses, there are some differences. Among these are:
Among the benefits of operating in a co-operative is having increased buying power as a group so members can buy goods for less.
A group of Taranaki artists have created a successful business which markets their artwork and where they all share in the profits by forming a co-operative.
Waitara Artists Co-operative was formed when the artists realised they were making little progress in their separate businesses and needed to find a way to market their artwork better.
They found most of their time was spent working on their art and not enough time or resources to attract people to buy it. So, they decided to join together and form the co-operative.
It was a good move. The co-operative has allowed the artists to work together in a shared space where all their artwork is properly marketed to local and national markets.
By sharing in both the costs and controls of the co-operative, the members were able to expand the business, get more exposure for their artwork and increase their income.
A trust is created when a person (called the settlor) transfers property to named people (trustees) to be held for the benefit of people chosen by the settlor (the beneficiaries).
The settlor outlines how they want the property to be dealt with, and trustees have to follow those directions. Usually there are instructions around managing and protecting the property for beneficiaries.
A trust is given a name, and is often referred to as though it’s a separate entity – like a company – but it’s not. Businesses aren’t normally run through a trust, but a trust can be part of a business structure. It’s a good idea to get expert advice when creating a trust, eg from a lawyer or accountant.
Charitable trusts can be set up by any individual or group to benefit a charity. It’s a good idea to get expert advice on whether this option is right for what you want to do. Talk to a lawyer or your accountant.
About charitable trusts(external link) — Companies Office
Incorporated societies are best for things like sports clubs, social clubs, music and cultural groups, special interest and purpose organisations.
An incorporated society is a group or organisation that has been registered under the Incorporated Societies Act 1908 and, when incorporated, is authorised by law to run its affairs as if it were an individual person. This means that the members are not personally liable for the society's debts, contracts or other obligations, and members do not have any personal interest in any property or assets owned by the society.
About incorporated societies(external link) — Companies Office
Limited partnerships are different from unincorporated partnerships because they involve general partners, who are liable for all the debts and liabilities of the partnership, and limited partners, who are liable to the extent of their capital contribution to the partnership.
About limited partnerships(external link) — Companies Office
An industrial and provident society usually involves small business owners who operate independently but create the society for mutual benefits, for example, a co-operative taxi society with independent operators benefiting from a shared car insurance scheme.
About industrial and provident societies(external link) — Companies Office
A friendly society is formed to help members and their families during sickness, old age or bereavement. Funds come from the voluntary subscriptions of members and/or donations.
About friendly societies(external link) — Companies Office
A building society is a mutual organisation (owned by its members) that offers financial services, like mortgages for members. Funds are raised by selling shares to members, who usually pay by subscription over time.
About building societies(external link) — Companies Office
Credit unions are financial organisations owned by members, that provide savings and loan facilities for members. A common bond must exist among the members, eg living in a particular area or working for a particular employer. Members invest their savings and receive a dividend.
About credit unions(external link) — Companies Office
Social enterprises are purpose-driven organisations that deliver positive social, cultural and environmental impact through their business. Ākina can help to measure impact and drive positive outcomes.
Find out more(external link) — Ākina