Choosing A Business Structure

Meeting DeskWhen deciding to start you own business it is important to consider the way you will structure it. Do you want to have full control? Do you have the capabilities to run the business on you own? Will you require more capital investment? There are a few different ways to structure your new business in New Zealand, each with its own advantages and responsibilities. Find out the key differences between the three main business structures in New Zealand below.

Sole Trader

A sole trader is a person who decides to start a business by trading on their own.

  • Full Control. You do not answer to anyone and make your own business decisions.
  • Low Cost. It’s very simple to begin trading as a sole trader, there are no set up costs or fees.
  • Full Responsibility. You are fully liable for any business debts or liabilities; this may put your personal assets at risk.
  • Profit Distribution. As the owner you are entitled to all profits earned.
  • Legal Requirements. Starting up requires no legal or formal initialisation.
  • Tax Rate. The business tax is calculated at individual income tax rates, the same as your personal tax rates.
  • IRD. You will need to register with IRD to become an employer or GST Registered Business, and meet provisional tax requirements each year.
  • Expenses. You can claim tax deductible business related expenses back.
  • Company Name. The only way to prevent another business using your business name is to Trademark it.

Partnership

A partnership is an unlimited liability business agreement between two or more individuals or companies combining their assets and skills into the same business.

  • Wider Skill Base. Access to pooled resources and skills enables each partner to focus on the part of the business best suited to their expertise, and usually increases financial resources.
  • Partnership Agreement. A Partnership agreement is required, outlining each partner’s percentage of ownership, and profit splits etc.
  • Shared Control. Generally business decisions are made between partners, however sometimes there is a silent partner who only provides a financial contribution.
  • Profit Distribution. Profits are shared and split according to the partnership agreement.
  • Tax Rate. The Partnership is taxed at individual income tax rates.
  • Liability. Partners are liable for business debts, and may be liable for each other’s debts and liabilities if they are made insolvent.
  • IRD Number. The partnership must have its own IRD number, separate from that of the partners.
  • Withdrawals. Partners can take a salary or wage from the business as set out in their Partnership agreement.
  • Company Name. The only way to prevent another business using your business name is to Trademark it.

Company

A company is a separate legal entity from the shareholders who have a financial stake in the business.

  • Separate Legal Entity. The business is considered to be entirely separate from you and your personal finances. It owns all of its assets, liabilities and debts itself.
  • Limited Liability. Shareholders are considered to have limited liability with regard to business debts.
  • Flat Tax Rate. The company is taxed at a special company flat rate per dollar; see the IRD website for more details.
  • Registration. You must register you company and its directors/shareholders with the New Zealand Companies Office.
  • Company Name. You must legally register your company name, it must not be identical or to similar to an existing company name, and must not contain offensive or prohibited words.
  • Common Structure Type. A company is the most popular choice of business structure in New Zealand at present.
  • IRD. Forming and continuing as a company requires more diligence with tax and legal requirements, reporting and accounting to shareholders must meet legal obligations.
  • Shareholders. A company can have any number of shareholders, private or listed on the stock exchange; they each have a stake in the company to the value of the shares held.
  • Profit Distribution. Profits are distributed between shareholders usually as dividends.
  • Credibility. Forming a company can add credibility to your business in eyes of customers.

View more information about New Zealand business structures at Business.govt.nz.