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.

A few things are the same for all structures

No matter which business structure you have, you:

• can hire staff
• must pay tax
• can export.

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

Hiring and employee

Introduction to tax and levies

Ask yourself:

• Will I look for investors? 
• Is this a business I will work to grow? 
• Will I want to sell the business one day?

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.

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.

Pros and cons

Upsides include:

• Setting up is quick and easy.
• Start-up costs are low – there are no legal or registration fees.
• You control the business and get all the profits.
• You can offset losses against other income.

Downsides include:

• You’re responsible for paying back all debts – this may put your personal assets at risk.
• Growing a sole trader business is harder because getting loans or investments can be harder.
• Selling the business is harder.

If you start out as a sole trader but want to set up a company later, eg to attract investment more easily, you can.

Becoming a sole trader

Tax

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

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:

• Annual returns must be filed with both the Companies Office and Inland Revenue.
• Different rules apply to how a company and its shareholders pay tax.
• Details of a company’s directors and shareholders must be provided to the Companies Office.

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.

Starting a company

Types of advice you’ll need

Pros and cons

Upsides include:

• Shareholders’ liability is limited to the amount they paid for their shares.
• The company tax rate is lower than top personal rates.
• The company has more credibility than a sole trader.
• Selling the business is easier because it’s a separate entity.
• The business can grow indefinitely – it’s not tied to one person.
• Getting funding and investment is easier.

Downsides include:

• Companies must comply with more regulation than for sole traders and partnerships.
• Companies can need more investment to grow.
• Directors need to understand their responsibilities.

Starting a company

Types of advice you'll need

Hiring an employee

Tax

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.

Introduction to tax and levies

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.

Pros and cons

Upsides include:

• Partners can share the load of running a business.
• Partners share costs.
• Partners can specialise and focus on strengths.
• Partners can bring in more capital investment.
• Partners have someone to discuss the business with.
• Partners can offset losses against other income. 

Downsides include:

• Each partner is liable for all the partnership’s debts — which puts personal assets at risk.
• Partners may have to pay their partners’ business debts.

Starting a partnership

Tax

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.

Introduction to tax and levies

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.

Other business structures

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:

• a branch (an extension of your New Zealand company)
• a subsidiary (a company that your New Zealand company owns or controls)
• a whole new company

“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:

• setting up an office
• employing staff 
• working with agents in a way that means they could be considered staff.

Complexity can include:

• You may have to comply with overseas rules and regulations.
• You may have ongoing compliance costs and pay overseas tax, perhaps both state and federal taxes.
• You may find it harder to get your money back to New Zealand.
• You may have to follow rules that affect how you assign costs and profits to the parts of your business in different countries.
• You may have to take more steps to leave a country if you stop doing business there.

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.

If you set up overseas