Business Structure in NZ: Sole Trader, Company, Partnership or Trust?

One of the first decisions every business owner in New Zealand faces — and one of the most consequential — is how to structure their business. The structure you choose affects your personal liability, how much tax you pay, how you can bring in partners or investors, and how easy it is to eventually sell or exit.

Most people default to whatever is simplest at the start. That's understandable. But as your income grows, the structure you started with may no longer be the right one.

This guide explains the main options in plain English and helps you think through which is right for your situation.

A sole trader is the simplest structure. You operate in your own name, there's no registration required beyond a business name if you want one, and your business income is your personal income.

Advantages:

• Simple and cheap to set up
• Minimal administration
• Easy to wind up if things don't work out

Disadvantages:

• Unlimited personal liability — if the business is sued or can't pay its debts, your personal assets (house, savings) are at risk
• All income is taxed at your personal marginal rate, which can be as high as 39% for income over $180,000
• Can be harder to bring in partners or raise capital
• Less credibility with some clients and suppliers

Best for: People starting out, testing an idea, or running a low-risk service business with modest income.

A New Zealand company is a separate legal entity. It has its own IRD number, files its own tax return, and its shareholders have limited liability — meaning their personal assets are generally protected if the company fails.

Advantages:

• Limited liability protects personal assets
• Company tax rate is 28%, which is lower than the top personal rate of 39%
• Easier to bring in shareholders or investors
• More credible to clients, banks, and suppliers
• Easier to sell — you can sell shares rather than individual assets

Disadvantages:

• More expensive to set up and maintain (Companies Office registration, annual returns)
• More administration — separate accounts, annual financial statements, shareholder resolutions
• Profits retained in the company are taxed at 28%; when distributed as dividends, shareholders pay tax on top

Best for: Businesses with growing income, businesses with liability risk, anyone planning to bring in partners or eventually sell.

A partnership is where two or more people carry on a business together. Each partner shares in the profits and losses according to their agreement, and each pays tax on their share at their personal rate.

Advantages:

• Simple to set up
• Flexible profit-sharing arrangements
• Partners can contribute different skills and capital

Disadvantages:

• General partners have unlimited personal liability — including for each other's actions
• Disputes between partners can be difficult and expensive to resolve
• No continuity — the partnership technically dissolves if a partner leaves or dies

Note: A limited partnership (LP) is a variation where some partners have limited liability. These are more common in investment structures than in operating businesses.

Best for: Professional practices (though many now use companies), joint ventures, and situations where two people want to share ownership simply.

A trust is not a business structure in the traditional sense — it's a legal arrangement where assets are held by trustees for the benefit of beneficiaries. Trusts are commonly used alongside a company structure for tax planning and asset protection purposes.

Advantages:

• Can distribute income to beneficiaries at lower tax rates (income splitting)
• Protects assets from creditors in some circumstances
• Useful for estate planning and intergenerational wealth transfer

Disadvantages:

• Complex and expensive to set up and administer
• IRD scrutiny of trust arrangements has increased significantly
• The trustee has legal obligations that must be taken seriously
• Not a standalone operating structure — usually used in combination with a company

Best for: Business owners with significant assets to protect, those with family members on lower incomes, and those planning for succession or estate purposes.

An LTC is a special type of company where profits and losses flow through to shareholders and are taxed at their personal rates — similar to a partnership, but with the liability protection of a company.

LTCs are commonly used for rental properties and some small businesses where the owner wants to use losses to offset other income.

Best for: Rental property owners, businesses that expect to make losses in early years that the owner wants to offset against other income.

There's no single right answer — it depends on your income level, your risk profile, your plans for growth, and your personal circumstances.

As a rough guide:

• Just starting out, low income, low risk: Sole trader is fine
• Income over $70,000–$80,000, or any significant liability risk: Consider a company
• Significant assets to protect, family members on lower incomes: Consider a company plus trust structure
• Rental properties: Consider an LTC or company depending on your situation

The most important thing is to review your structure as your situation changes. Many business owners are still operating as sole traders when they're earning $150,000+ — and paying significantly more tax than they need to.

Changing your structure after the fact is possible but can be costly and complex. Getting advice early — before you've built up significant income or assets in the wrong structure — is almost always cheaper than fixing it later.

At Eastmure & Associates, we advise Canterbury business owners on structure as part of our business advisory service. If you'd like to understand what structure makes sense for your situation, book a free 30-minute consultation.