Business Structure Overview
Whether you’re self-employed, in partnership or running a company, there are different ways to structure your business. Here’s where you’ll find information about each option, including the pros and cons, to help you decide which structure best suits you or for your business.
Before you start:
There are different ways to structure your business, each with different legal and financial obligations. Most businesses in the Cook Islands are either sole traders, companies, or partnerships.
When you are starting a partnership or a company, it still pays to think about why you’re doing it and which choice will best suit you. The structure you choose can impact your ability to grow or sell the business, so it’s important to get it right.
Talk to people who have chosen the structure you’re thinking about. Think about getting an advisor, who specializes in advising people in the industry you want to work in. Contact BTIB for assistance in this area. Click here for our contact details.
Talk to Business People
Use the following information to help you make the best choice.
Once you have decided which business structure you want to go with, see below to help you get started with registering your business.
Become a Sole Trader
Sole traders are people who are in business on their own, without registering as a limited liability company. Many small business owners, contractors and self-employed people begin as sole traders. It’s the cheapest and easiest option, and may appeal to you if you want to make a living by following your passion, or to work as a contractor.
You can hire staff to help run the business. If you do hire staff, you will need to register with RMD as an employer and meet a number of obligations including Taxes.
Pros and cons
- It’s easy to set up — you can get up and running quickly.
- Start-up costs are low — there are no legal or registration fees.
- You control the business and get all the profits.
- You can offset losses against other income.
- You’re responsible for paying back all debts — this may put your personal assets at risk.
- It’s harder to grow a sole trader business.
- Getting loans or investment can be more challenging.
- It’s harder to sell as a working business.
Income Tax is paid on all income earned in the Cook Islands. As a sole trader, you must declare their revenue as personal income.
If you want to change your business structure, for example; because it’s hard to attract investment as a sole trader, you can register your business as a limited liability company.
A partnership is when two or more people or organizations form a business. It is recommended that you set out a partnership agreement so you know how you will share profits, debts and work expectations.
If you hire staff, the partnership needs to register as an employer with Revenue Management Department and meet a number of obligations. Go to our Business Tax information for your review to help you get started.
Pros and cons
- You can share the load of running a business.
- Costs are also shared.
- Partners can specialize and focus on strengths.
- Partners can bring in more capital investment.
- Partners can offset losses against other income.
A partnership doesn’t pay income tax as a business. It distributes all the income between the partners, who then pay income tax on their share.
At the end of each financial year the partnership must complete a tax return and each partner needs to complete an individual tax return.
- Each partner is liable for all the partnership’s debts — putting personal assets at risk.
- You may be responsible for paying off your partners’ business debts too.
Limited Liability Company (LLC)
A company, in a legal sense, is separate from the people who own it — its directors and shareholders.
Shareholders are responsible for paying a company’s debts — up to the value of the shares they own in that company. They’re also entitled to a dividend, which is a share in the company’s profits.
Doing business as a company can be more complicated than other business structures. For example:
- You must file annual returns with Revenue Management Division (RMD at MFEM).
- Different rules apply to how a company and its shareholders pay tax.
- Details of a company’s directors and shareholders must be provided to the Companies Office at Ministry of Justice, in Avarua.
When starting a company, it’s a good idea to get as much advice as you can. Talk to people you know who’ve started companies or who advise business owners, eg accountants and business mentors.
If you think this may be right for you, our website has more information about registering your company and what to do next. See below to help you get registered as a LIMITED LIABILITY COMPANY.
Pros and cons
- Shareholders’ liability is limited to the amount they paid for their shares.
- Your tax rate is lower than top personal rates.
- It’s easier to sell a business because it’s a separate entity.
- The business can grow indefinitely — it’s not tied to one person.
- It’s easier to get funding and investment.
- There’s more regulation than for sole traders and partnerships.
- Companies may need more investment to grow.
- Directors need to understand their responsibilities.
If you hire staff, the company needs to register as an employer with RMD and meet a number of obligations.
A company pays tax on its profits — the income left over after taking away expenses. If the company distributes profit to its shareholders, shareholders will pay income tax on the dividend but may also get tax deductions to help them meet that obligation. (Tax deduction is a portion of taxable income that may be excluded from taxation when certain conditions are satisfied – check with your financial advisor or ask RMD office).
If a company’s expenses are more than its income, it makes a loss and may not have to pay tax.
Next Steps: Register your Business
You’ve decided you want to register your business.
To register your business as a SOLE TRADER, a PARTNERSHIP or a LIMITED LIABILITY COMPANY, click on the link on the right for more information.
NOTE: Registering a business for a Limited Liability Company will be setup differently.