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  • Company set up - too lax?

    I have copied this post to a new thread, out of the one about reviewing the LAQC system. I have done this because I believe both topics warrant discussion in their own right, and because I do not want to hijack the other thread or muddle up either topic. Apologies for the confusion.




    I have thought for a long time that the law relating to company set-up’s needs to be changed.

    It is simply too easy for people who have not got a clue to set up and be in charge of a company.

    Even here on this site we see lots of people (sorry to call them amateurs but in many cases that is the case) who set up a company, usually an LAQC, buy a house or two, and muddle through with the documentation. Although this is not always the case, as many people do know what they are doing, I would hazard a guess that it is commoner than you might think.

    What are the consequences?

    Later having to see an accountant or lawyer to sort out the mess; being stung by the IRD at audit time; wasting money and time trying to do it all yourself.

    What do I think should be done?

    All companies must by law have an accountant, lawyer, company secretary, and at least two directors. That will put a stop to this frivolous use of the company system and be good for all of us.

    xris


  • #2
    I get your point Xris but isn't this just Helenesque socialism. If people want to get themselves into trouble because they are too lazy or tight fisted to do things properly then surely that is up to them. It's similar to the "food police" being suggested by the government.
    THAT IS the most ridiculous thing I have ever heard.

    Comment


    • #3
      Yes mju, I agree that any change would have to have a new start date and could not possibly affect existing companies. The problems this would cause would be enormous.

      Monid, I would also agree that a large number of small businesses fail, but then perhaps one reason for this is that they are set up quickly and easily without the necessary forethought requires, which is really my point.

      I believe that anyone seriously and earnestly intending to establish a business using a company structure will not be deterred by having to go to more effort to set it up in the first place.

      And about the idea of the self help, do it yourself kiwi way. I draw a parallel with the recent change to the law which prevents people from representing themselves in court, and having to use a lawyer. Without elaborating here, the reasoning for doing this is similar to my argument about not letting amateurs run companies.

      An interesting question to throw out to the wider community here would be:

      Has anyone set up and run a company (LAQC or not) and later regretted not getting the professionals involved at the start?

      xris

      Comment


      • #4
        Xris, I don't understand your reasons behind this. A company is only a legal entity, a container to hold something in. Don't we want it to be as slim and simple as possible?

        I have done what most investors probably do: Started with one IP in my own name just to see if it was something for me, and now have recently setup my own LAQC for a small fee on the Companies website.

        If as you suggest:
        Originally posted by xris View Post
        All companies must by law have an accountant, lawyer, company secretary, and at least two directors.
        ... then who knows how long I would have put off setting up a company and what mess I would have been in by that time...?

        It should be my choice alone if I want to have an accountant etc. At the moment I run everything myself and I enjoy getting my fingers dirty because I learn a lot from it.
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        Comment


        • #5
          Rolf does raise a fair point, wouldn't it make more of a mess if people avoided setting up legal entities at all, to avoid the expense and time involved with an accountant, a lawyer etc?

          David
          New to property investing? See: Best PropertyTalk Threads for New and Old Investors And/Or:Propertytalk Wiki

          Comment


          • #6
            Rolf ,

            A car is merely a metal box which allows a person to sit in a comfortable chair, hold a steering wheel and push down a lever to move from one place to another. It really is so very easy. So why do we not allow anybody who wants to buy a car and use it? Surely there is no real difference here between your and Dean’s argument that people should set up a company themselves and if they stuff it up then it is their own fault with repercussions falling on them.

            ... then who knows how long I would have put off setting up a company and what mess I would have been in by that time...?

            Why on earth do you suppose that you would be in a mess by not having set up an LAQC? I can imagine you will have a much greater chance of being in a mess by having set up an LAQC and buying properties into it, if that LAQC and your plans were not very clearly planned at the start.

            Rolf does raise a fair point, wouldn't it make more of a mess if people avoided setting up legal entities at all, to avoid the expense and time involved with an accountant, a lawyer etc?

            David


            Same comment from me as above.

            xris

            Comment


            • #7
              Xris,
              we don't allow just anyone to drive a car because it could impact (pun) other people. I don't see how setting up your own LAQC badly is going to affect anyone but yourself. I agree with Pooomba that you are running a socialist line - someone always knows better what I should do than me.

              Re company v's personal ownership I was always told that companies are better because they allow future movement of the property (sell shares rather than property) easier - no depreciation clawback etc. They allow a bit more versatility. If I had all my properties in my own name then to move them to a Trust for example I would have to sell the property with the ensuing legal and tax implications that would ensue.

              If LAQCs were removed in retrostect I would have to consider personal ownership due to tax implications. If LAQCs were not allowed anymore then I would have to consider personal ownership again.

              Let the people run their own lives - I released my mothers apron strings many years ago!

              Comment


              • #8
                Hello wayne,

                Re company v's personal ownership I was always told that companies are better
                In some cases this is true, in others it is not. It all depends on the circumstances. I have written before about my concerns about this. There appears to be, in some circles at least, a belief that there is a right way to own property and a wrong way, with personal ownership being laughed at as most definitely the wrong way. People who do not or can not think for themselves usually accept this as a fact.


                If LAQCs were removed in retrostect I would have to consider personal ownership due to tax implications. If LAQCs were not allowed anymore then I would have to consider personal ownership again.
                Yes, and what is the problem? You could also consider a 'normal' company or a trust.


                xris

                Comment


                • #9
                  Originally posted by xris View Post
                  Hello wayne,
                  Yes, and what is the problem? You could also consider a 'normal' company or a trust.
                  xris
                  As you say there is no right or wrong way - horses for courses. As for using a normal company or trust the issue would be the losses being locked in for a potentially long period when better use could be made of them now - that is why I would move to personal ownership.

                  At the end of the day it all equals out as we will make a profit and pay tax etc (or sell and the IRD will recover some depreciation) - it is just a timing issue!

                  Comment


                  • #10
                    I have a simple view

                    We should not attempt to legislate to protect against stupidity.

                    "It is simply too easy for people who have not got a clue to set up and be in charge of a company." (Still need to learn that insert quote thing)

                    So they pay the enforced money to get an accountant, lawyer etc and then due to inexperience or other reasons they still get it messed up.

                    We need to take the consequences for our actions.

                    Simon

                    Comment


                    • #11
                      Originally posted by xris View Post
                      Why on earth do you suppose that you would be in a mess by not having set up an LAQC?
                      Because in my case I'm running the business together with my wife - which means that without a legal entity we would be left with a lot of ownership issues. We would have to buy everything in joint names, or every 2nd IP in each others names etc. I think the mess is obvious...

                      So by establishing a legal entity for $50 (or whatever it was) we save a lot of hassle in the future and get things more organised from the start.

                      Or think of the teenage guy who just sold his small DVD business: http://www.propertytalk.com/forum/sh...ighlight=teen).

                      Xris, do you seriously mean that he should have been forced to set up a company with
                      Originally posted by xris View Post
                      an accountant, lawyer, company secretary, and at least two directors
                      ???
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                      Comment


                      • #12
                        Originally posted by xris
                        All companies must by law have an accountant, lawyer, company secretary, and at least two directors. That will put a stop to this frivolous use of the company system and be good for all of us.
                        I think there would be a shortfall of lawyers and accountants. They charge enough as it is. If we make them mandatory, then the fees will certainly go up.

                        I would then have to also go and hire a company secretary and find someone to be the second director.

                        I dont this this will be good for all of us.

                        Comment


                        • #13
                          accountant, lawyer, company sec, have no duty of care to the public, only the company (their client) so what would this acheive?

                          Xris - do you own a company? have you read the companies act? Have you read all the other acts taht effect companies? there are already plenty of rules.

                          I think your issue is a lack of enforcement of the rules? however the director (/owner) will still be liable (for breach of companie act etc) so I dont think there would be much difference between company and personal ownership.

                          I dont think i am with you on this one.

                          Comment


                          • #14
                            UPDATE April 2008
                            None of the above reviews have been enacted and LAQC's live on in NZ tax without issue.

                            Discussions in law reform of limited partnerships over on flow through of losses being limited for LAQCs ( the only real threat) have not materialized.

                            Flow through of loss limitations (under parnetship law reform where this all started as a threat), look to the wider definition of limiting flow through to 'the extent of cash injected, or economic exposure, which ever is the greater'.

                            The latter including the value of any guarantee over loans, practically meaning if a shareholder has guaranteed the debts of the company, you get flow through of losses to the extent of such guarantee ( 100% of debt.) So its all a fuss about nothing...

                            Have a look at my thread:-

                            http://www.propertytalk.com/forum/sh...879#post117879
                            Last edited by Matt Gilligan; 08-04-2008, 02:09 AM.
                            Matthew Gilligan CA - E-mail Matt
                            Chartered Accountant Specialising in Tax Structures, Property & Trusts
                            Read my book: Tax Structures 101

                            Comment


                            • #15
                              Where? I missed it.

                              Originally posted by Xris
                              I draw a parallel with the recent change
                              to the law which prevents people from
                              representing themselves in court, and
                              having to use a lawyer.
                              When did that happen? What piece of
                              legislation was involved?
                              Want a great looking concrete swimming pool in Hawke's Bay? Designer Pools will do the job for you!

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