Overview of structures
It’s possible to do business in New Zealand under one of three basic types of business structure. Each offers varying degrees of control and responsibility.
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If you’re a sole trader, your business is built around you. The entire operation relies on you, but you can still employ others to help you. You’re 100% responsible for your business’s liabilities and its debts, but you also retain full control of the business and its profits.
Many small business owners start out as sole traders because sole traders aren’t required to spend money following any formal or legal processes to establish their business, unlike companies. This is because sole traders and their businesses are considered to be the same legal entity. You even pay tax through your personal IRD number.
Example: Individual tradesperson, such as a self-employed gib stopper or a painter and decorator.
Find out more with our Focus on sole traders.
A partnership is when two or more people or entities join together to pool their assets and share the profits and liabilities in a business. They often bring different skills to the table and varying resources, with the division of profits and liabilities – in addition to individual roles and responsibilities – outlined in a partnership agreement.
You are still taxed as an individual on your income from the partnership. However, while you’re liable for your own debts, you can also be liable for business debts incurred by your partners if they become insolvent.
It is possible for some partners to achieve limited liability through the use of a limited partnership.
Example: A legal or accountancy practice.
Find out more with our Focus on partnerships.
Companies are separate legal entities to their shareholders. This provides shareholders with limited liability from any of the business’s debts beyond the value of their shares in the company (this is what Limited or Ltd stands for in a company name). However, if a shareholder is involved in the running of the business (as a director, for example), and he or she is found to have traded recklessly, fraudulently or not in the company’s best interests, they can still be made liable. Most financial lenders will also only give a business loan in exchange for a personal guarantee overriding limited liability.
Shareholder income is taxed at a different rate to the company itself. All companies have to declare their director and shareholder details by registering for incorporation with the Companies Office.
Companies are extremely common structures for operating businesses in New Zealand.
Find out more about companies on our Focus on companies.
Another very popular entity in New Zealand is a trust. Trusts are particularly useful for asset protection and estate planning, and so are commonly used for owning private and investment assets rather than for operating businesses.
Find out more about Starting a business. Read more in Understanding business structures and Tax implications for different business structures.
Need a little more information? In this animated video, Inland Revenue take a closer look at how to choose the best structure for your business.