The basic comparison
| Sole trader | Company | Partnership | |
|---|---|---|---|
| Legal separation | None. You and the business are the same | Separate legal entity | Partners share responsibility |
| Liability | Personal liability for all debts | Generally limited to the company, though directors have duties | Shared and personal |
| Set-up | Tell Inland Revenue. No registration | Register with the Companies Office | Partnership agreement strongly recommended |
| Admin | Lowest | Annual returns, financial statements, director duties | Moderate |
| Tax | Business income taxed as your own | Company tax return, then pay yourself salary or dividends | Profit shared between partners |
| Selling or investors | Harder | Easier | Complicated |
business.govt.nz describes the sole trader route as the cheapest and easiest, but suggests a company from the start if you plan to sell the business or bring in investors. The site has a three-question tool to help choose, and recommends talking to people in the structure you're considering plus an accountant or lawyer.
Setting up as a sole trader
- Make sure you have a personal IRD number. If you do, log in to myIR, send a message under 'Other' and use the subject 'Notification to become a sole trader'.
- If you'll be a contractor paid with tax withheld, give each payer an IR330C form with your tax rate.
- Register for GST if your turnover was at least $60,000 in the last 12 months or you expect it to reach $60,000 in the next 12 months (or you choose to).
- ACC: you are automatically covered by ACC CoverPlus. Set up a MyACC business account to pay levies; your first levy invoice arrives after your first year in business.
- Consider an NZBN. It's optional but speeds up dealings with government and businesses.
- Check your business name isn't already registered or trademarked using ONECheck.
- Open a separate bank account.
Setting up a company
- Register on the NZ Companies Office, which gives you an NZBN. You need at least one director and one shareholder, and a NZ resident director (or an Australian-resident director who is a director of a company in Australia).
- Directors have legal duties, including to avoid reckless trading. If the company fails, a director can still be personally liable for personal guarantees (banks often require them).
- Keep company money and personal money separate. Paying yourself badly can cause tax problems.
- Costs: Companies Office fees and accountant fees. Get quotes.
When to get advice
A one-hour meeting with an accountant is usually worth it. Ask: what structure do you recommend for what I'm doing, what will it cost to run each year, and how should I pay myself?
Sources
- Business.govt.nz: Becoming a sole trader (opens in a new tab)
- Business.govt.nz: Why structure matters (opens in a new tab)
- Companies Office: Before you set up a company (opens in a new tab)
General information only. Confirm with the agency for your situation. Spotted something out of date? Email help@unemployed.nz.