What are the different types of business structures?

There are a number of different business structures, which are available to complete the purchase of the business. Often a prospective purchaser will initially enter into the agreement in their own name and nominate the business structure to finally complete the purchase prior to settlement. When considering the most appropriate business structure, normally advice is taken from both the purchaser's accountant and lawyer.

The most common type of business structures are:

Sole Traders

As a sole trader you will operate the business in your own name. Generally, sole trading is appropriate for smaller businesses operated by a single individual who may employ a limited number of employees to assist in the running of the business.

Partnerships

Where two or more individuals (or entities) jointly pool their assets and share the liabilities in the operation of a business. It is common for partners to enter into a partnership agreement defining their rights and responsibilities. If there is no written partnership agreement, the Partnership Act will govern their relationship. Like sole traders, each partner is responsible for all partnership obligations.

Limited Liability Company

This is the most popular entity by virtue of which small to medium sized businesses are operated in New Zealand. The company is a separate legal entity from its shareholders and directors and in most cases all liabilities incurred by the company remain with the company and cannot be levied against the shareholders and directors.

There are other entities which are used such as joint ventures, trading trusts and public companies.