What business structure should I choose for my NZ business?

Of the approximately 600,000 businesses in NZ, most are one of the following three structures. So, the chances are that when starting your own business, you will be opting for one of these: 

Sole trader business structure

This is the simplest structure for a Kiwi business. It involves an individual running a business in their name, with the law regarding the business and the owner as the same entity.

If you choose this structure, the business will be part of your personal finances, and all the business’s income and losses will be your personal responsibility.

As a sole trader in NZ, you will pay income tax on any profit you make; if you don’t make any profit, there won’t be any income tax to pay.

Sole traders are entitled to claim their business expenses annually in their tax return. So, you can deduct these expenses from whatever you’ve earned from your business during the year.

You’ll be taxed as an individual, progressively. Instead of paying a flat rate percentage of income tax on all your income, your income will be split into brackets, each with its own tax rate.

As of 1 April 2025, the tax rate for income up to $15,600 is 10.5%. For the next income bracket of $15,601 to $53,500, it is 17.5%.

This means that if, for example, you earned $23,000 as a sole trader, you would pay 10.5% on the initial $15,600, and 17.5% on the remaining $7,400. This would work out as a tax bill of $1,638 + $1,295 = $2,933. 

Company business structure

If you want your business and yourself to be separate legal entities, you might consider forming a company. This involves incorporating it under the Companies Act 1993. 

This tends to be the structure used by NZ businesses of significant size and complexity. Under this structure, business losses aren’t usually held against the business owners (there are some exceptions to that, as we’ll explain later).

An NZ company pays taxes on its profits, defined as the income left over after expenses are taken away. For most NZ companies, the present income tax rate is 28%, regardless of the specific level of their taxable income. 

Partnership business structure

As the name of this structure indicates, it involves multiple people – “partners” – running the business. Partnerships are governed in NZ by the Partnership Act 1908. 

In common with the sole trader option, and unlike the company one, partners are not separate legal entities from the partnership itself. 

So, unless the specific partnership agreement states otherwise, the partners will share the personal responsibility for income, losses, and control of the business. 

As a business, a partnership doesn’t pay income tax. Instead, the business distributes all the income between the partners in accordance with the terms of the partnership deed. Each partner then pays income tax on their share. 

From a taxation perspective, partners in a partnership are treated similarly to sole traders. 

Still wondering what legal structure is best for your business? The next steps can help you narrow it down based on ownership, funding, and risk.

Knowing how many owners your business will have is key to determining what type of business structure you should choose. When we say “business owner”, we refer to the individual or entity that will own your business and, therefore, have a right to a share of the business’s profits. 

Presumably, if you’re reading this as a novice entrepreneur keen to start operating your own business, you will expect to be one of the legal owners. 

• If you already know it will be just you who owns the business, this already narrows down your options to either a sole trader or company approach. 
• If, on the other hand, you anticipate there being two or more business owners, including yourself, this indicates you will be picking between a company or partnership structure. 

It is also important to think about what responsibilities you will have as a business owner under whatever structure you go with: 

• If you go into business as a sole trader, you will be responsible for paying back all debts. So, your personal assets could be put at risk. 
• If you opt for the company model, it is vital to understand the respective responsibilities of directors and shareholders. While directors control the day-to-day running of a company, shareholders are entitled to vote on key decisions. 
• If you commit to a partnership, you will typically share the load of running the business with partners. A partnership agreement can set out what each partner’s responsibilities are. Bear in mind that each partner will be liable for all the debts of the partnership, which could put your personal assets at risk. 

Deciding on the most suitable business structure isn’t just about the immediate-term practicalities, it’s also about what your ambitions are further down the road. This is why choosing the right legal structure for your business early on can save time and costs later. If you're planning to raise capital, your choice of business structure has long-term implications for shareholding, investment, and even exit strategy.  

• If you do want to attract outside investors at some point or aspire to eventually sell your business to someone else, operating as a sole trader probably won’t make much sense, as you and the business will be the same legal entity. It will be easier to take on investors if you go with a company structure, as you will simply be able to change the shareholders or the amount of shares held. As for the partnership approach, changing or selling a business with this structure would require you to close it and create a new one – even the IRD number would need to be new. 
• If you anticipate running and funding your business without external investors and you know you will never be selling your business, a sole trader or partnership structure may be more desirable options than they would otherwise be. This doesn’t mean you should rule out the company structure, though – after all, you might change your mind in a few years’ time. 

It’s not news that it can often take a seriously hefty investment just to get a business off the ground in the first place, never mind keeping it going for months and years ahead. So, you might not be able to rule out going into debt at some point. 

The business structure you choose could have major implications regarding liability for your business’s debt and other obligations. So, think very carefully about this one. 

• If you believe it’s possible that your business will be sued or taken to court at some stage — for example, in relation to an employee injury or a client accusing you of a breach of contract — or if there is any probability of your business having big costs or debts, a company structure will likely be the most attractive option. That’s because it will create a legal separation between your business’s finances and your personal finances. So, it will enable you to avoid putting your personal assets and finances at risk if your business ends up in heavy debt. 
• If you’re very confident that your business will be relatively low-cost to run, or if you have deep enough pockets to cover any debts from your personal finances, this could give you further scope to elect for a sole trader or partnership structure. As we touched on above, it is important to remember that with either of these structures, you would be personally liable for any business debts or costs. 

If you're comparing business structure options based on risk or liability, it's worth getting legal advice, especially if your personal assets could be at stake.

Bear in mind that while your liability as an individual under a company structure would be limited, a business’s directors and shareholders still have certain duties. For example, the director of an NZ company must act in good faith and in the company's best interests. Furthermore, they are expected to exercise due care, diligence, and skill. 

So, failure to uphold those duties as a director could still expose you to liability. If your actions as a director are seen as careless, you may be rendered personally liable to the company for any losses. 

There you have it – the (relatively) simple formula for choosing a business structure in NZ! Whatever your circumstances and ambitions, you’ll be thankful that you took some time to think about the pros and cons of each option before committing. 

Don’t forget to check out our article covering the other vital elements of starting a small business in NZ.