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  1. #11
    Junior Member
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    Apr 2011
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    May I ask how everything worked out (or is working out)? I am in the process of trying to determine whether a company will be an appropiate vehicle for holding the investments of someone I know. To set one up is extremely simple, but some of the record keeping and financial statement preparation can be troublesome. The other option would be to use a trust, which generally involves higher start up costs but has minimal statutory requirements in terms of reporting etc.

    A common misbeleif is that setting up a company will entitle you to extra deductions. Tax is entity neutral, so there is no need to set up a company before you start depreciating your laptop and claiming home office expenses.

  2. #12
    Legend shasta's Avatar
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    Sep 2004
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    Quote Originally Posted by JemT View Post
    May I ask how everything worked out (or is working out)? I am in the process of trying to determine whether a company will be an appropiate vehicle for holding the investments of someone I know. To set one up is extremely simple, but some of the record keeping and financial statement preparation can be troublesome. The other option would be to use a trust, which generally involves higher start up costs but has minimal statutory requirements in terms of reporting etc.

    A common misbeleif is that setting up a company will entitle you to extra deductions. Tax is entity neutral, so there is no need to set up a company before you start depreciating your laptop and claiming home office expenses.
    Exactly you do not need a company to trade, the changes to the LAQC rules have also removed a key benefit of using a company to trade (but the emphasis should be to pay tax & make money!)

    Unless your financial situation warrants the use of a company, ie, to separate share trading from other business affairs, it is alot easier to keep things in your own name, up until the costs & adminstrative hassle of setting up a company/trust becomes worth it.

    In the past a company offered tax incentives over trading as an individual but as National has smoothed the tax rates its levelled the playing field

    We now have Limited Liability Partnerships & these now operate more closely to a company than the previous partnership structure, & should also be looked into as an option when considering a company set up.

    It seems the two main points people ask over & over is, do i need a company, & focussing on minimising tax.

    Tax alone should never be the reason to set up a structure, if you are trading you want to pay tax cos you are making money!

    A Trust should only ever be used, as part of the overall financial planning of a family situation, mainly for asset protection from other business activities.

    Trustees have to act in the best interests of the beneficaries & "share trading" & losing capital isn't really the point of a Trust, & can lead to legal issues for the Trustees.

    Happy to answer more specific questions, but i've been out of the CA environment a few years now, hopefully CJ or Corporate are more up to date & can correct me!

  3. #13
    Junior Member
    Join Date
    Apr 2011
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    The very simple answer is- use a company if you are running a profitable operation and you personally are on the highest tax rate. However, on the whole a company can only defer tax being paid at the top MTR, as the profits need to be distributed at some stage. Sometimes, for example if you are approaching retirement or planning a break from working, it can be helpful to use a company that will retain profits at 28% tax, and then pay these out as dividends when you retire/stop working and are on a lower MTR.

    Also you will want to use a company if there is any business risk inherent in your operations and a the limited liability a company provides will help to offset this. Note that most lenders will ask for personal guarantees whenever a closely held company borrows money, so the limited liability will not mean much. An LTC is beneficial when you are on a high MTR and the company is losing money.

    The problem with using a company is that things get complicated in terms of record keeping and administration. For example, accounts must conform with various standards, and if they do not then the companies office will decline them and you can end up facing penalties sometimes. The same issue can arise with the IRD when you have not handled your affairs properly and you end up in all sorts of trouble. Of course you can pay an accountant to do this, but you are looking at a fee of $700-$1000 at the least.

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