What are the benfits of being a company?

[mark387mw]

As the title says, what benefits would there be for me to create a sole trader company? I can do it online for $160 but do I need to?
I'm buying a motel lease as a sole trader. Liability and shareholder aspects aren't an issue so the only thing I can think is tax. Are there advantages either way of being a company or not?

Edited to add it's now $160, it went up an extra $100 in July!!

Edited by mark387mw on Tuesday 23 October 05:14

[Ffirg 005]

I've asked this question of my accountant a couple of times over the years and his advice both times has been that any tax entitlements you have as a company you also have as a sole trader - you just make your compliance that much more complicated and expensive. Certain individual circumstances can change things though and I would have thought a Motel might best be run under the protection of limited liability. It's important to make the right decision before you start trading and incurring costs though so consider spending some time and a few $$$ getting specific expert advice IMO.

[Bull1t]

There are pluses and minuses both ways. Then you get into other things like Qualifying companies and Loss Attributing Qualifying companies. It all depends on your situation so Id suggest you talk to an accountant, probably a good idea on the business in general anyway.

[mark387mw]

Thanks for the advice so far. I had spoken to an accountant that waffled on about personal taxation, drawings etc. As its my first business venture and never had dealings with the taxman its going over my head so I just thought if anyone had personal experience and could let me know of pitfalls etc.

[Kiwi XTR2]

I think the key questions are:
- Will you have any other (non-Motel) income of any significance that you will want to off-set.
- What quantum of depreciation will you be claiming.
- Will there be a greater or lesser amount of renewal capital expenditure than the quantum of depreciation.
- What debt / equity will you have in the company.

An alternative to trying to isolate the business might be to isolate your equity by way of a family trust.

[speedy_thrills]

There is more paperwork but there are a couple of advantages chief amongst which are:

- Separate legal entity meaning that, unless you have made an agreement otherwise, you are not personally liable for the businesses affairs.
- If you hire a good "creative" accountant he can often manipulate the account in a manner that reduces your taxation quite significantly.
- It gives you more options in funding the businesses expansion in the future, this can be particularly advantageous if you intend to be aggressive in growing the business.

Try talking to another accountant to see if he makes it clearer, it depends on your individual circumstances however as to which is advantageous.

[mark387mw]

Thanks for the replies, looks like the company is the way to go. Off to do this online...

[Richard Gee]

When in the Uk - Limited status always protected me and stuff like the house from real problems. However, we have a Trust here which appears to ring fence the house in the same way. When I asked an accountant here, they were wooly as you have found. But Limited Liability is exactly what it says on the tin. I guess another consideration would be how risky your business is and to what degree you are exposed to other people's f**k ups. Eg if you are a solicitor, a sole trader status might be mor preferable than if you were manufacturing somehting and only had one large client who could leave youb extremelyv exposed if they defaulted on payment... I always worked on the b'four factor' (And still do) If you can have four clients/customers then you are spreading your risk sufficiently to survive if one, or even two mess you around. Always seemed to work for me, as did the 'average' rule. This is simply being better than the average company in your sector. There will always be an average, work out what it is and if you are better, you should survive anbd prosper. I think it's often difficult to say to yourself 'My company will be the best'. Just be satisfied it is up there... Again, all worked for me, though was in Pomgolia. Good luck either way.