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There are currently more than 500,000 active businesses in the New Zealand economy, with many of those businesses being classified as a small business.
Small businesses substantially contribute to the New Zealand economy and employment opportunities. So, what really is a small business? In this article, we’ll break this down.
Small Businesses And Startups
Well-known companies that began as a startup include Facebook, Airbnb, and Lyft. Small businesses and startups are actually pretty different from one another. Startups are focused on large, quick growth and disrupting the market they are in. Small businesses, on the other hand, usually have less risk compared to startups and aim for stability and consistency.
What Is The Definition Of A Small Business In New Zealand?
In New Zealand, small businesses are defined in multiple ways. Generally, you can consider yourself to be a small business if you tick off any one of these points:
- The New Zealand Companies Office defines a small business as an organization that employs less than 20 people
- According to the New Zealand Companies Office, a small company is one that has an annual turnover of less than $10 million, no more than 50 employees, and under $5 million in assets
- The Inland Revenue Department (IRD) considers a business with an annual turnover accumulating less than $5 million to be a small business
How Many Employees In A Small Business New Zealand
Whether a business can be considered small or not is generally established by two main factors: how much the business earns in a year and how many people the business employs.
If your business has chosen the company structure, it will need to have less than 50 employees to be considered small. For all other business types, the Companies Office has stated there must be less than 20 employees in order to be recognized as a small business.
How To Start A Small Business In New Zealand
Starting a small business is an exciting new opportunity, whether you are following passion or looking to earn some extra cash. Your initial steps when bringing your business idea to life are crucial. It’s best to start with a Business Plan, which will act like the blueprint for your business journey.
Once you have taken care of registering your business, it’s important to look into getting all the right legal documents in place so your business can be both protected and legally compliant.
Key Legal Documents For A Small Business
Legal documents can help in making sure things run smoothly, everyone is on the same page, and you are meeting all your legal obligations. We’ve listed some key ones for you to think about below.
Employment Agreements
When you are hiring someone to work for you, it’s really important to have a written agreement between the two of you. An Employment Agreement is a great way to make sure everyone is clear on what they can expect from one another.
- Pay rates
- Working days and hours
- Leave and other entitlements
- A description of the role and duties
- Termination
- Confidentiality
- Dispute resolution process
Supply Agreements
Supply Agreements are legally binding contracts between you and your supplier covering important matters such as what products are to be delivered, time of delivery, payment, and warranties.
Non-Disclosure Agreements
When trusting another individual with your business’s private, internal information such as a potential investor or a contractor, a Non-Disclosure Agreement (NDA) can help you protect your business. These are particularly useful for trade secrets or for protecting IP.
Starting An Online Small Business
Chances are you’ve established an online presence for your business. Having a website or social media page can be really helpful in marketing as well as making your business more accessible to others. It’s useful to have Website Terms and Conditions so you can regulate activity on your website.
Privacy Obligations For Small Businesses
When your business is online, privacy obligations are another key legal responsibility small businesses need to be aware of. According to the New Zealand Privacy Principles and the Privacy Act 1993, all businesses that collect the personal information of their users need to have a Privacy Policy in place.
How Small Businesses Get Funding
There are a number of options when it comes to funding a small business. Common ways to get funding for small businesses include taking out bank or personal loans, using your own money, crowdfunding, investors, and grants.
Tax Obligations For Small Businesses
You will also need to think about paying tax as a small business. The taxes you will be required to pay are determined by your business operations, how much your annual turnover rate is, and a number of other factors.
What Small Businesses Need To Know About The Companies Office
The New Zealand Companies Office is the main regulatory body for financial services and companies, although small businesses also need to pay attention to their obligations under the Companies Office.
Following your obligations under the Companies Office is extremely important if you want to keep your business legally compliant and avoid paying fines.
Key Takeaways
Small businesses are defined by their income and size, however, the exact definition may vary based on taxes and legal obligations. In any case, like every business, to start a small business you need to make sure you have all your business legals sorted.
To summarise what we’ve discussed: a small business has less than a specific amount of employees as well as a turnover rate that doesn’t exceed the minimum required to be counted as a small business. Small businesses and startups are very different from one another. If you are thinking of starting a small business, make sure you have the right legal documents in place. Online businesses will need additional legal protection through documents such as an online terms and conditions.
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