Trading Structures
Companies
Probably the most commonly used structure. This limits the personal liability of the individuals involved. This structure involves one or more directors and one or more shareholders.
You may wish to elect the company into the Look Through Company regime (LTC). This has several distinct advantages and some disadvantages. If there are five or less shareholders (measured by identifying the ultimate individuals if holding companies are used), then the company can enter this regime. This is best done on formation of the company, or during the first year of trading.
LTC’s are favoured for use with investment properties in particular. However, it may also be appropriate to use them for normal trading businesses as well.
LTC’s were introduced on 1 April 2011 as an alternative to Loss Attributing Qualifying Companies (LAQC), which were phased out at the same time. There are some distinct differences and the potential to get caught if you aren’t careful. LTC’s are a good option if the circumstances are appropriate. We suggest seeking professional advice from your Chartered Accountant before opting into this regime.
Partnerships
A group of two or more individuals coming together to form a business. Again, due to the trading risks being borne by the individuals, we discourage this structure.
Special Partnerships
Not very common these days. These are a special form of partnerships used in unique situations. It is possible to build these structures while maintaining limited liability.
Trading Trusts
Essentially this is a trust that has the power to trade (which is quite normal), and typically uses a company as the “corporate trustee”. This is a good structure that incorporates the benefits of trusts with the limited liability of companies. Not particularly favoured by Inland Revenue as they are very flexible, but nonetheless quite legitimate. Somewhat complex to quickly get your head around, but worth a look.
Family Trusts
Not really a trading structure, but certainly an excellent structure to protect family assets (the home for example). This provides further protection of equity in a very long term structure. Reasonably easy to operate, these need a Settler (the person who sets up the trust), the Trustees (those who administer the trust) and Beneficiaries (those that may/will benefit from the trust). It is important that the trust is administered correctly to ensure that it stands up. There must be annual accounts done, trustee resolutions etc.
Sole Trader
Trading in your own name – a very simple structure. We actively discourage our clients from using this format unless there is a legal reason to do so, as this structure carries very high personal risk.
Combination of the Above
It is very common for our clients to have a combination of various structures. This is done for a variety of reasons and can be explained in more detail by one of the members of our team. Typically this may be:
• Holding and subsidiary entities
• Partnerships between entities
• Family trusts holding shares in companies
• Management services companies, providing services to trading entities
• Asset holding entities, leasing business assets to trading entities
• Project specific companies/trading trusts