Question :
I’m just starting off as a sole trader and funding everything i can for my small business. i am wondering about a business account at the bank is it worth it for starters because they have lots of fees that come out and stuff and if i just create a streamline account its pretty much free but am i allowed to use that for my business. i’m selling a service where i hold someones money until they receive their second hand item is that legal do i need a financial service license? or so do i have to also register my business straight away as a sole trader or can i wait till it gets to a certain point i’m a little skeptical about the legal side of things but i’m also not scared of trying and seeing where i go i’m only going to learn from it but hopefully not fined too much any advice would be much appreciated thank you 

Question submitted 02/11/20 @ 05:19pm
Industry: Start-ups
  • Up

    Morena Jimi – we will see if we can get a legal person to jump onto this to give some views – to your questions from me, I would say:
    – will you be GST registered?
    – bank accounts, to start with you could just use your personal / trading accounts if you can ‘separate’ out the accounts so that you have a sub-account for customer money, another sub-account for trading for your business expense and then your own personal account for your personal items – having them in separate accounts is important so that you don’t cross over
    – one legal statement, if you are ‘holding’ moneys on trust for your customers then you maybe required to have a trust account established, I just don’t know what is the legislation (if any) that is relevant here.
    – one complexity is that if you use your personal accounts for this, the IRD number assigned to this for interest purposes will be your personal one, so you or your accountant will need to resolve that.

    When I really think about this – in starting out, while you don’t know how the business will play out, it is good to have flexibility in how you do things, as long as you make sure you don’t ‘use’ the customer money for your expenses, while you are holding their money before you fulfil their order – keeping things flexible is a good thing, once you have patterns and have demand then you can add more formality like a bank account for the company, GST registration and more.

    Hope that helps.


    Hi Jimi

    There is no requirement at general law for you to have a business account, however you should check whether your bank’s terms and conditions for your personal account allow the account to be used for business purposes.

    Any funds that you are holding on trust or in escrow should be held in a separate bank account that is named as a trust account or escrow account. This is so that the bank is made aware that the funds are not your personal or business funds and therefore cannot take possession of the funds to satisfy your personal or business debt.

    As to whether you are providing a financial service, there isn’t enough information in your email above to determine this, you should look at the definition of financial services in section 5 of the Financial Service Providers (Registration and Dispute Resolution) Act 2008, http://www.legislation.govt.nz/act/public/2008/0097/latest/whole.html#DLM1109499. Depending on the nature of your service, it is possible that you might be operating a money or value transfer service (section 5(1)(f)). This is not my area of expertise, so if you have concerns on this should should contact a lawyer that has expertise in financial services.

    You might want to look at having a company for personal liability reasons. It is quick, cheap and easy to incorporate a company online, and trading through a company means that (with some exceptions) you aren’t personally liable for the debts of the business. A company will however result in additional ongoing costs, e.g. preparing accounts and filing separate tax returns.

    Hope this helps.


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