There are different ways to structure your business — whether you’re contracting, self-employed, in partnership or run a company. 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 your business.
There are different ways to structure your business, each with different legal and financial obligations. Most businesses in New Zealand are sole traders, companies, or partnerships.
While there are no great barriers in New Zealand to becoming a sole trader, 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.
Ask yourself:
Talk to people who have chosen the structure you’re thinking about. Think about getting an advisor, eg a lawyer or accountant who specialises in advising people in the industry you want to work in.
Use our Choose Business Structure tool to help you make the best choice.
Use this tool to help you make the best choice when it comes to structuring your business. Just three quick questions and you’re on your way to choosing a business structure.
Sole traders are people who start in business or contracting on their own, without registering as a 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.
Upsides include:
Downsides include:
If you want to change your business structure, eg because it’s hard to attract investment as a sole trader, you can register your business as a company.
You can hire staff to help run the business. If you do hire staff you’ll need to register with Inland Revenue as an employer and meet a number of obligations.
Employer responsibilities(external link) — Inland Revenue
As a sole trader, you pay tax on all the income you earn from your work. You can claim work expenses to reduce your income tax.
You’re responsible for all your business debts, including tax and ACC levies, but you also keep control of the business and its profits. At the end of each financial year, you must complete a tax return and submit it to Inland Revenue.
"In trade" means regularly selling goods or services, or regularly buying to sell on. Frequency is a deciding factor.
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:
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.
Upsides include:
Downsides include:
If you hire staff, the company needs to register as an employer with Inland Revenue 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 credits to help them meet that obligation.
If a company’s expenses are more than its income, it makes a loss and may not have to pay tax.
A partnership is when two or more people or organisations form a business. Partners set out in a partnership agreement how they’ll share profits, debts and work.
It’s a popular structure with professionals, eg architects, lawyers and accountants.
Upsides include:
Downsides include:
If you hire staff, the partnership needs to register as an employer with Inland Revenue and meet a number of obligations.
Employer responsibilities(external link) — Inland Revenue
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.
Each partner is responsible for their own debts. But you can also be responsible for your partners’ business debts, too. At the end of each financial year the partnership must complete a tax return and each partner needs to complete an individual tax return. These are then submitted to Inland Revenue.