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We are often asked by people who are setting up in business “Which entity structure is suitable for my business?” A typical answer would talk about the options of using a sole trader structure or a trust, but would focus on the asset protection benefits of using a company.

Companies are the default trading structure for most businesses in New Zealand, due to the creditor protection benefits and ease of selling a portion of the ownership. There are more tax options with a company than using a “sole trader” structure.

For many doctors or other medical professionals, this answer is fine for their needs and they don’t need to look any further.

Disadvantages of company structure

However, using a company structure does have some downsides. Some of the benefits of a company structure are unlikely to be needed in medical practice in a New Zealand context (where ACC protects medical practitioners from legal action in most situations). Medical professionals rarely have significant creditors or liabilities. Where they do, perhaps in the form of a lease obligation or a bank loan, the landlord or the bank usually require a personal guarantee.

The main disadvantage of using a company is ongoing compliance cost in the form of companies office filing requirements and accounting fees.

A bigger problem for some in the medical profession is the need for confidentiality. New Zealand has a very transparent company registration system, where company ownership details are publicly searchable. The details available in a search include the address of the owner of the company as well as the directors of the company.

Many medical professionals will feel that they would prefer not to have their address published on the internet, so therefore may want to look to alternative business structures.

Other entity structure options

For a doctor or dentist (or physiotherapist, osteopath etc) working as an independent contractor, there is limited tax benefit from using a company structure. In this situation, contracting as a sole trader would provide the best confidentiality and would also reduce ongoing compliance costs.

For those running bigger businesses who were concerned about confidentiality, a trading trust is an option.

In all cases it is important to match the structure to an individual’s situation and for the individual to seek specific accounting and legal advice prior to setting up in business or starting to work as a contractor.