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If you want to start your own business, all you have to do is have a product or service and you're away. Right?

Well…………..no, actually.

It doesn't matter how wonderful your product or service is, how low your price is, how good your computer system is, or how good your intentions are, if you don't have a sound, lawful vehicle to drive your business in, you'll be setting yourself up for legal or financial woes, as well as missing out on many advantages.

You should operate your business according to the rules and with the knowledge and peace of mind that comes from paying

out the least possible amount of tax dollars, as well as knowing that your private possessions are not at risk in any way.

But it's not always easy to know how to operate your business in accordance with the law. Company law is a complex area.  Take just one piece of legislation, The Companies Act 1993, which governs the operation of trading organisations in New Zealand. This one document contains 397 Clauses in 257 pages!

If you wish to operate your business lawfully, you must fully and consistently comply with every rule contained in The Companies Act and other important pieces of legislation.  There are several recognised and legal ways to operate your business, and one of the most important decisions you will make is which one is right for your business!

Generally, home and small business owners operate their businesses within a structure that they believe will provide protection for their assets, their personal possessions and their business interests. Unfortunately, some have   found to their cost that this is not the case.

Let's take a quick look at the different options available to you:

Sole Trader
You could set up as a sole trader, the simplest and cheapest legal structure. What it means is that you could operate your business either alone, or with employees, so long as you comply with all legislation, including the various IRD Acts and the Fair Trading Act. This is a common business structure, used by many small-business owners.

The down side is that as a Sole Trader, you are in a very vulnerable position, for instance:

• If you found yourself in financial difficulties your personal possessions such as your car, house and furniture can be seized to pay business debts. You may even have bankruptcy forced on you, and may end up losing everything you have.

• You may have difficulty getting bank finance and would have to provide most of the capital yourself.

• You would have absolutely no protection for your trading name whatsoever. Anybody could register their company using your business name and they would immediately enjoy all the rights.

• You get to pay 39 cents in the dollar income tax on earnings beyond $60,000, rather than the company tax rate of 33 cents in the dollar.

Partnership
This is when you carry on your business with one or more partners. A partnership is not a legal entity and suffers all of the same disadvantages of a Sole Trader business.

But there's even worse news for Partnerships!

If things go horribly wrong in a business partnership, you may be liable for your debts and those of your partner to the full extent of your personal assets.