One of the first decisions you make as a founder is how to structure the business. In New Zealand the two most common options are sole trader and limited liability company. Both are perfectly good — the right choice depends on your risk, income, plans and appetite for admin.
The quick comparison
| Sole trader | Company | |
|---|---|---|
| Legal status | You are the business | Separate legal entity |
| Liability | Unlimited — personal assets at risk | Limited, but guarantees often apply |
| Tax | Individual rates on all profit | Company rate 28%; you pay tax on salary/dividends |
| Set-up | Nothing formal needed | Register with the Companies Office |
| Ongoing admin | Low | Annual return, company records, director duties |
| Accountant costs | Lower | Higher |
| Bringing in partners or investors | Hard | Easy — issue shares |
| Borrowing | In your name for business purposes | In the company’s name, usually with director guarantees |
Sole trader: simple and flexible
As a sole trader, you and the business are legally the same. You can start trading immediately using your IRD number. Profit is added to your other income and taxed at your personal rates.
Pros: fast to start, minimal admin, low accounting costs, total control, easy to close.
Cons: you’re personally responsible for all business debts; as profits grow, personal tax rates can exceed the company rate; harder to bring in partners or investors; some larger clients prefer dealing with companies.
A sole trader structure suits side hustles, freelancers, contractors and early-stage businesses testing an idea.
Company: separate and scalable
A company is registered with the Companies Office and exists separately from its owners (shareholders) and managers (directors). It pays tax at the company rate of 28%, and you’re taxed personally on what you take out as salary or dividends.
Pros: limited liability (with caveats), easier to bring in co-founders and investors, can retain profits at the company rate, may look more established to clients and suppliers.
Cons: more admin and accounting costs; director duties under the Companies Act; mixing company and personal money can cause real problems; closing a company takes more steps.
A company suits businesses with co-founders, those taking on more risk (leases, staff, big contracts), and those planning to raise investment.
How structure affects borrowing
This is where many founders expect a big difference and find a small one.
- Sole traders borrow in their own name for business purposes. Your personal credit history is central.
- Companies borrow in the company’s name. But for a young company with little history, lenders almost always look at the directors’ personal credit and ask for personal guarantees. So your personal position still matters a lot.
Where structure does matter for lenders:
- Clean separation. Companies are forced to keep a separate bank account, which makes statements easier to assess. Sole traders who mix everything together are harder to read.
- Multiple owners. A company makes it clear who owns what, which helps when co-founders are borrowing together.
- Trusts and partnerships can also apply for business funding; the lender will want to understand who controls the entity.
Through Business Loanz, sole traders, companies, partnerships and trusts can all apply. Unsecured options generally need around six months of trading; property-secured loans ($20,000 to $1m) rely on NZ property owned by you or a supporting party.
When should a sole trader switch to a company?
Common triggers:
- your profit has grown to the point where your accountant says the tax maths favours a company,
- you’re signing a lease, hiring staff or taking on contracts that increase your risk,
- you’re bringing in a co-founder or investor,
- clients are asking you to invoice from a company.
Plan the switch with your accountant — timing it around your balance date and GST registration makes life easier.
A note on tax and provisional tax
Whichever structure you choose, the first years can bring a double tax hit: last year’s terminal tax plus this year’s first provisional tax instalment. Our provisional tax guide explains how to prepare.
What about trusts and partnerships?
Partnerships suit two or more people running a business together without incorporating. Each partner generally pays tax on their share of the profit and shares liability for the partnership’s debts. Many co-founders who start as a partnership move to a company once the business grows, because shareholding makes ownership and exits clearer. If you do start as a partnership, a written partnership agreement is essential.
Trusts are sometimes used to own businesses for asset-protection or family reasons. They add complexity and cost, and a trustee structure changes who signs documents and who lenders deal with. Trusts can apply for business funding, but lenders will want to understand the trust deed and who controls it. Get specialist advice before choosing this route.
A decision checklist
Answer these with your accountant:
- How much profit do you expect in the next two years?
- How much personal risk are you taking on (leases, staff, large contracts)?
- Are there co-founders now, or likely soon?
- Will you want outside investment?
- How much admin are you willing to handle?
- Do your key clients or suppliers prefer dealing with a company?
If most answers point to “low profit, low risk, solo”, a sole trader structure is usually fine to start. If they point to “growing, shared, risky or investable”, a company is usually worth the extra admin.
Registering and staying compliant
- Sole traders use their personal IRD number and can register for a free NZBN.
- Companies register through the Companies Office, receive an NZBN automatically, need their own IRD number, and must file an annual return each year.
- Both must register for GST once turnover reaches $60,000 in 12 months — see our GST threshold guide.
How Business Loanz helps
Whatever your structure, if you need funding to start or grow, send a 60-second enquiry. It doesn’t affect your credit score, and a lending specialist will explain what’s realistic for a sole trader or company at your stage. You might also like our page on sole trader loans.