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Prm Flashcards 1 > Wednesday 13th March > Flashcards

Wednesday 13th March Flashcards

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1
Q

There are 3 common legal structures
that architects apply
when setting up their practices:

A

Sole Practitioner
Partnership
Company

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2
Q

What is a sole practitioner?

A
  • must be a licenced building practitioner or registered architect
  • operate from their home or a small office
  • self management
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3
Q

What is a sole practitioner? 2

A
  • they can contract services like construction detailing to another office
  • projects can be small scale like house alterations
  • sole practitioners can also be consultants that work on larger design teams
  • and are specialists of a particular design expertise, like a heritage architect or a cultural design specialist.
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4
Q

pros and cons of a sole practitioner?

A

PROS:
Flexibile: works around your availability
Operational costs are low
More design autonomy

CONS:
Personally liable for any business debts.
You do everything with no support: design, drawings, client meetings, invoices, IT, marketing etc.
Limited to smaller projects that do not offer big profits.

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5
Q

what is a partnership?

A
  • individuals joining the partnership that you share equal responsibility for the business operations, its profits and its losses
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6
Q

how to form a partnership?

A

lawyer must write up a partnership agreement to formalize the partnership

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7
Q

what a partnership in-tales?

A
  • working in a partnership means having a common workspace
  • communication is critical, so easily there are more operational costs for a partnership.
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8
Q

projects of a partnership?

A
  • small scale or specialist in nature
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9
Q

what happens if a partnership grows?

A
  • business grows consistently, and risk increases, it is worth establishing a legal structure that limits liability of those involved.
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10
Q

pros of a partnership?

A
  • Shared workload and responsibilities when working as a team.
  • Each partner can do what they each excel at, preferably complimentary to each other, i.e, business management vs design management.
  • Collaborative design opportunities.
  • Greater network opportunities.
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11
Q

cons of a partnership?

A
  • Personally liable as partners for any business debts and costs. Shared responsibility of profits and losses.
  • Need a common workspace, so potentially greater operational costs.
  • Limitations to do larger scale projects that offers bigger profits.
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12
Q

what is a limited liability company? and what does it do?

A
  • just a company with ltd at the end of its name
  • It limits the liability of its business directors from any personal losses incurred by the business.
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13
Q

how can a company operate?

A
  • business directors and shareholders employ a Chief Executive Officer (CEO), Chief Operating Officer (COO), Chief Financial Officer (CFO), to run the business
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14
Q

pros of a company?

A
  • Limited Liability guaranteed, unless you as a director does something careless or have included a personal guarantee.
  • Company appears and sounds more professional for branding purposes.
  • Collaborative network opportunities.
  • Typically there are more emloyees and can do bigger projects.
  • Tax accounting more simple than a partnership.
  • More security from financial risk and so - - can take on more risks from bigger projects.
  • Exit strategy is easier given you can sell your shares.
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15
Q

cons of a company?

A
  • Greater operational costs.
  • More tax compliance than a sole trader.
  • There are legal obligations in the Companies Act which are required to be met.
  • Employing people has its own legal obligations which are required to be met.
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16
Q

what is a non-for-profit?

A
  • may operate as a charitable trust, incorporated society or not-for-profit company.
  • This entity is not operated for commercial profits to disperse amongst sharesholders/members but is reinvested to continue its objectives.
  • A not-for-project organisation’s tax compliance has different conditions set by Inland Revenue Te Tari Taake.
17
Q

legal liability for a sole practitioner?

A

personal liability for any business costs or depts. personal assets are at risks if there are any fines or depts for the business.

18
Q

what are the tax compliances’s for a sole practitioner?

A
  • Lower Tax Compliance Requirements
  • individual is taxed as a natural person at their own marginal tax rate by completing an IR3
  • individual income tax return.
  • When you start you are automatically covered under ACC’s CoverPlus.
  • After first year of operation, you must pay ACC levy payments.
  • GST registration only applies if you are earning more than $60.000 in 12 months. If so, you will complete GST returns as scheduled by IRD.
19
Q

legal liability for a General Partnership?

A
  • Personally liable as partners for any business debts or costs.
  • Personal assets are at risk if there is fine or debt against the business.
  • Partnerships share each other’s risk as well, regardless of who is at fault.
20
Q

what’s an IR3

A

individual Income tax return

21
Q

What’s an IR7

A

how much profit and loss allocated to each partner? - for a partnership

22
Q

what are the tax compliances’s for a General Partnership?

A
  • More Tax Compliance Requirements. There is more paperwork.
  • need an IR3 and IR7
  • Partnerships do not pay income tax on their profits
  • the profit or loss is shared between the partners.
  • The partners pay income tax on any profit, and they can also claim any partnership losses against their own personal income.
  • Each partner makes ACC payments and are invoiced each year.
  • GST registration applies if you are earning more than $60,000 in 12 months. If so, you will complete GST returns based on your income in any 12 month period and as scheduled by IRD.
23
Q

legal liability for a Limited Liability Company ?

A
  • Personal assets are not at risk if there is a fine or debt against the business.
  • The business fines or debt are limited to the business’ profits, income and assets.
  • Must file an annual return (not a financial document but a publicly available update of company information) to the New Zealand Companies Office.
24
Q

what are the tax compliances’s for a Limited Liability Company?

A
  • More, but simpler, Tax Compliance Requirements than a partnership.
  • As a company, must file an income tax return IR4 each year.
  • Financial report depends on the annual income and assets of the company.
  • Each year the company is invoiced the ACC levy for payment. This will cover yourself and employees. It is recommendable to make regular
    savings towards this annual cost.
  • GST registration applies if you are earning more than $60,000 in 12 months. If so, you will complete GST returns based on your income in any 12 month period and as scheduled by IRD.
  • There are various taxes
25
Q

what’s an IR4?

A

income tax return

26
Q

where to register your company?

A

-Register your company with NZ Companies Office, which is govered by the Companies Act 1993.

  • Any business must be registered with IRD.
27
Q

what Advisors should an architectural practice have:

A
  • Accountants: for financial records, tax advice, and financial structure of your business.
  • Lawyer: Legal advice on business matters, draft and review contracts for the practice to use on projects, or to engage sub-consultants or hire employees, and any other agreements.
  • Banker: First establish a business bank account, build the relationship for future lending for the business, and seek advice on other finance matters.
28
Q

what Insurances should an architectural practice have:

A
  • Professional Indemnity Insurance

to protect you against allegations of professional negligence. An architectural practice should hold this insurance for all its architectural employees.

  • General (Public) Liability Insurance

covers any claims made against your business by third parties such as your customers, suppliers and the public at large, due to injury to the third party or damage to any property belonging to them.

  • Other insurances could be Statutory Liability for inadvertently breaching any number of Acts of Parliament; Employers Liability which covers when one of your employees is injured at work and their claim is excluded by ACC and they then can sue the business owner.

Prm Flashcards 1 (2 decks)

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