Sole Trader vs Company in NZ:
Which Structure Should You Choose?

Choosing the right business structure is one of the most important decisions you'll make when starting or growing a business in New Zealand. It affects how much tax you pay, your personal liability, your ability to bring on investors or employees, and even how credible you appear to larger clients.

The Two Main Structures: An Overview

While there are other options (trusts, partnerships, etc.), the two most common choices for NZ business owners are sole trader and limited liability company.

Sole Trader

Operating as a sole trader is the simplest and cheapest way to run a business. There's no registration with the Companies Office required — you just register with IRD, get an IRD number, and start trading.

Advantages of sole trader:

• Simple and low cost to set up
• Less admin and compliance burden
• Business losses can be offset against other income
• Complete control over the business

Disadvantages of sole trader:

• Unlimited personal liability — your personal assets are at risk if the business incurs debts or faces legal action
• All business profit is taxed at your personal income tax rate (up to 39% on income over $180,000)
• Can be harder to raise capital or bring in partners

Limited Liability Company

A company is a separate legal entity from its owners. It must be registered with the Companies Office and has more compliance requirements — but also offers significant advantages.

Advantages of a company:

• Limited liability — shareholders are generally not personally liable for company debts
• Company tax rate is a flat 28%, which can be lower than the top personal income tax rate
• Easier to bring in shareholders, investors, or business partners
• Can be more credible with large clients and lenders
• Easier to sell or transfer the business

Disadvantages of a company:

• More expensive to set up and maintain
• More admin — annual returns, minutes, shareholder agreements
• Business losses cannot be directly offset against personal income

When Should You Consider Incorporating?

There's no one-size-fits-all answer, but incorporating often makes sense when:

• Your net profit consistently exceeds approximately $70,000–$80,000 per year (the tax savings may outweigh the compliance costs)
• You want to protect your personal assets from business risk
• You're planning to bring in a business partner or investor
• You want to build a business you can eventually sell