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New Zealand Routes to Expand

So you've decided to expand your business in New Zealand and researched your market. Now it's time to decide how you will incorporate and establish your business. What is the best, most viable option for your company, your products, and yourself. Which is the path of least resistance?

Setting up a business in New Zealand is straightforward with similar legal and financial processes to that of the UK. Whatever you need to know about how to shape your enterprise in the country visit the New Zealand Companies Offices website. It is the business unit of the New Zealand Ministry of Economic Development and as government agency provides business registry services in relation to corporate entities, personal property and capital market securities. It delivers nearly all its services through electronic systems and Internet.

Starting a business in New Zealand means you will need to choose a business structure. The New Zealand Companies Offices overview will help you select a business structure that suits your needs:

Sole trader

A sole trader operates a business on his or her own. The trader controls, manages and owns the business and is entitled to all profits but is also personally liable for all business taxes and debts. Usually a sole trader can establish the business without following any formal or legal processes and can employ other people to help run the business. Many New Zealand businesses start as sole traders and then progress to a company structure as the business grows. Others form companies right from the start to take advantage of the protection and other benefits offered by the company structure. It is easy to start and to run and no registration is required.

Partnership

Partnerships are most common among professional people and in the farming industry. In a partnership two or more people run a business together. Each partner: shares responsibility for running the business, shares in any profits or loss equally, unless the partnership agreement states otherwise and is liable for any debt within the partnership. Many partnerships are established with a formal partnership agreement. The partnership itself does not pay income tax. Instead it distributes the partnership income to the partners. The partners then pay tax on their own share.

Choosing to set up a business as a partnership in New Zealand is no longer as popular as in the past since the company structure is now open to professionals and arguably offers better protection. A well thought out partnership agreement is essential to cover contingencies and possible conflicts.

However, consider that no registration is required to start a partnership and it can be an effective way to share business operation costs

Limited Liability Company

A company exists as a formal and legal entity in its own right. It is separate from its shareholder(s) or owner(s) - the person or group of people who own shares in the company). Companies can be registered (incorporated) online through the NZ Companies office website (total cost: NZ$160).

The limited liability company has proved to be the most popular and successful form of registering a business in New Zealand. Companies help foster confidence in businesses by governing the relationships between shareholders, directors and creditors and by giving stakeholders a clearer picture of who and what they are dealing with. Advantages are also a higher credibility in the marketplace, attractiveness for funds and investment (investors can become shareholders) and the opportunity to sell the business or pass it on to others as it is a separate entity. Finally, the shareholders' liability for losses is limited to their share of ownership of the company.

Other types

Loss Attributing Qualifying Company (LAQC)

This variation of a company structure involves applying to have your company recognised by the Inland Revenue as a Loss Attributing Qualifying Company. This gives you a special tax status that allows you to offset any losses incurred in running your business against your personal income from other sources (such as investments). However, other taxation implications are quite complex, so discuss this option with your accountant or solicitor before making any decisions. For more information on LAQC companies visit Inland Revenue's website.

Trading Trust

Trading Trusts can offer benefits, but they are complicated and require expert advice. Discuss this option with your accountant and your lawyer to see if it is more appropriate for your needs than the business structures outlined above.

Co-operative

A co-operative business is owned and democratically controlled by its shareholder/members. People (or entities) involved in a co-operative business choose to work together to achieve business goals that may not be possible or as easily achieved through individual or separate effort. The shareholders/members contribute the prime capital for the business and share in the profits of the business in proportion to their participation: the greater the participation, the larger the proportion of profits.

An example of a co-operative enterprise is a group of craftspeople banding together to jointly market their various craft products through a co-operatively owned and staffed studio or retail shop.

Licensing

Licensing is the permission for someone else to use your intellectual property rights: either a patent, trademark, trade secret, or copyright. Different types of license include:

• Non-Exclusive License - A non-exclusive license implies that your intellectual property rights can be awarded to more than one licensee.

• Exclusive License - A little more complex because, although the license may not be exclusive to one licensee, it may be exclusive to a geographic location, a certain product, or limited area of use. For instance, you may grant a licensee exclusive use of the rights in France, yet grant another licensee its use in Germany.

• Patent License - The allowance of another party to use your patented product, design or process.

• Trademark License - Trademark licensing means permission is awarded to a licensee to sell a product or service. However, the licensor retains more control in order to ensure that quality is maintained. Quality control is in place to uphold the image of the brand / product / service / licensor, and therefore sustain customer confidence and satisfaction.

Franchising In New Zealand

Franchising is the licensing out of a business name, product, technique, philosophy, trademark, etc, for a percentage of the income. Instead of setting up new outlets as part of your expansion, you license your existing business blueprint out to franchisees who then set up and manage it for you.

The benefits of franchising your business in New Zealand include: more freedom, as the franchisee takes on major responsibilities; minimal expense; lower cost and higher profits; potential for fast growth; brand building.

Disadvantages of franchising a business in New Zealand: although few, rely predominantly on your franchisees. They include: poor quality franchisees; franchisees not declaring all income; poor performance.

In New Zealand the population of 4.2 million is served by over 350 franchise systems (some estimates say 600), giving it the highest proportion of franchises per capita in the world. 70% of these systems are locally-bred, but New Zealanders have given a warm welcome to appropriate franchise systems from all over the world such as The Body Shop, Snap-on Tools, Speedy Sign A Rama (Speedy Signs), Action International and, of course, McDonald's.

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