You can structure your business in different ways, depending on whether you’re contracting, self-employed, in partnership or run a company. Learn about each option to decide which one suits you and your business best.
Your business structure can affect how your business grows and how easily you can sell your business. Each structure has different legal and financial obligations.
Most businesses in New Zealand are sole traders, companies, or partnerships.
No matter which business structure you have, you:
If you hire staff, you’ll need to register with Inland Revenue as an employer and meet several obligations.
Employer responsibilities(external link) — Inland Revenue
Talk to people who have chosen the structure you’re thinking about and think about getting advice, eg from a lawyer or an accountant who specialises in advising people in your industry.
Use our Choose Your 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 are starting in business or are contracting. 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.
If you start out as a sole trader but want to set up a company later, eg to attract investment more easily, you can.
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 submit an individual tax return to Inland Revenue.
You might have to pay tax in another country if you spend more than a certain amount of time there. For example, spending more than six months (183 days) in Australia in any 12-month period makes you a tax resident, even if you’re not there for six continuous months. Remember this if you travel a lot, eg when you export.
Tax residency status for individuals(external link) — Inland Revenue
“In trade” means regularly selling goods or services, or regularly buying to sell on. How often you buy and sell matters.
A company is legally separate from its owners (directors and shareholders). This limits the owners’ risk and is a reason why many businesses that export set up as companies.
Shareholders are responsible for paying a company’s debts, up to the value of their shares. But shareholders are also entitled to a dividend, a share in the company’s profits.
Doing business as a company can be more complicated than under other business structures. For example:
Get as much advice as you can before starting a company. Talk to people you know who have started companies or who advise business owners, eg accountants and business mentors.
If you think a company structure may be right for you, our website has more information about registering your company and what to do next.
A company pays tax on its profits — the income left over after taking away expenses. If the company distributes profit to shareholders, the shareholders will pay income tax on the dividend. They may 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. A partnership agreement sets out how they’ll share profits, debts and work.
A partnership is a popular structure with professionals, eg architects, lawyers and accountants.
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.
At the end of each financial year, the partnership submits a tax return to Inland Revenue. Each partner also submits an individual tax return.
A partner might have to pay tax in another country if they spend more than a certain amount of time there. For example, spending more than six months (183 days) in Australia in any 12-month period makes them a tax resident there, even if they’re not there for six continuous months. Remember this if you travel a lot, eg, when you export.
The most common business structure in New Zealand include partnerships, companies and sole traders. If these don’t suit you, there are other options you can consider such as unlimited companies, co-operative structures, trusts and so on. You can find out more by clicking on the link below.
If you want to set up overseas, you’ll need to think about how that affects your business structure. For example, whether you’ll create:
“Creating a fixed place of business” overseas can make things more complex, so you may want to avoid it for as long as possible.
Creating a fixed place of business overseas can include:
Complexity can include:
If you don’t have a fixed place of business overseas, you usually just pay tax in New Zealand. Getting paid is easier too: you invoice someone overseas and they pay by bank transfer or credit card.