Should I set up a company for my business?

By On Your Terms co-founder Claire Bodle
January 2025

The words ‘company’ and ‘business’ are often used interchangeably - but they are not the same thing. If you start selling goods or services, with an aim of making profit, then you’re a business. A company on the other hand is one option of legal entity from which you sell those goods or services. A company is separate from its shareholders and directors and must be registered on the Companies Register. Here, we take a look at the different structure options for your business and which one might be right for you.

See our customisable Shareholders’ Agreement and Constitution Bundle, Director Indemnity Bundle and other company management and compliance documents to agree company operating rules and manage company compliance.

Also, see our guides and blogs: Guide to incorporating a Company in NZ, Guide to Director’s Obligations and Responsibilities, Why Business Prenups are Essential and 10 steps to start your NZ business right.

On Your Terms makes legals easy for Kiwi businesses. See our Starting a Business Page for information on how to start your business right or take our What do I need? quiz to find what legal documents and information a business like yours needs.

What type of business structures are there in NZ?

When you start selling goods or services in New Zealand, you need to determine who (or what) you will sell those goods or services from (aka your business structure). The options are:

Sole trader
Company
Partnership
Trust

When you hear people refer to a ‘contractor’ or ‘freelancer’, these are not business structures, but a term used to describe the individual providing the services (and basically mean they are not providing the services as an employee). A contractor or freelancer could provide their service either as a sole trader or from a company they set up.

A trust is usually used to hold assets, rather than operate a business. You can operate a business from a trust, but it is complicated and not typically recommended for SMEs.

All businesses (whatever their structure) can register for Goods and Services Tax (GST), get a New Zealand business number, raise invoices, have a bank account, apply for loans, claim business and home office expenses, hire staff (employees or contractors), depreciate assets, trade under a trading name, and have a website and physical premises.

Key features of each business structure in New Zealand

Structure	Features	Separate legal entity from its owners?	Pros	Cons
Sole Trader	Operate your business under your own name	No	Easy to set up. No ongoing legal, administration or maintenance besides tax & accounting.	Personally liable for all debts of the business (personal assets such as your house could be used to pay off business debt). Can’t use it if you have business partners. Harder to raise funding.
Company	A separate entity to its owners, who are called shareholders. The owners/shareholders can be one or more people, and they appoint directors to manage the company.	Yes	Limited liability protection for shareholders (meaning only the assets of the business, not your personal assets, can be used to pay off business debt.) Provides more comfort to banks/investors. Can outlast you, ie, you can sell your shares if you want to leave.	Some personal liability for directors, can be reduced by director insurance and following the law. More expensive and more administration.
Partnership	Two or more people running a business by working together in partnership.	No, unless you set up a Limited Partnership under the Limited Partnerships Act 2008. Limited Partnerships are complex and uncommon for SMEs.	Slightly easier to set up than a company. Provides flexibility of income/expense flows without company structure constraints.	Personal liability for losses of business and liability for mistakes/losses of your business partners. Personal assets not protected. Harder to raise funding.

Structure

Features

Separate legal entity from its owners?

Pros

Cons

Sole Trader

Operate your business under your own name

Easy to set up. No ongoing legal, administration or maintenance besides tax & accounting.

Personally liable for all debts of the business (personal assets such as your house could be used to pay off business debt).

Can’t use it if you have business partners.

Harder to raise funding.

Company

A separate entity to its owners, who are called shareholders. The owners/shareholders can be one or more people, and they appoint directors to manage the company.

Yes

Limited liability protection for shareholders (meaning only the assets of the business, not your personal assets, can be used to pay off business debt.)

Provides more comfort to banks/investors.

Can outlast you, ie, you can sell your shares if you want to leave.

Some personal liability for directors, can be reduced by director insurance and following the law.

More expensive and more administration.

Partnership

Two or more people running a business by working together in partnership.

No, unless you set up a Limited Partnership under the Limited Partnerships Act 2008.

Limited Partnerships are complex and uncommon for SMEs.

Slightly easier to set up than a company.

Provides flexibility of income/expense flows without company structure constraints.

Personal liability for losses of business and liability for mistakes/losses of your business partners. Personal assets not protected.

Harder to raise funding.

Set up and ongoing requirements for each business structure

Requirement	Sole trader	Company	Partnership
Set up
Register company on the New Zealand Companies Register	N/A	Yes – you can do it online with the Companies Office. See our Guide to Incorporating a Company in NZ for more details (registering a company is also referred to as ‘incorporating’ a company).	N/A
Get an IRD number and pay income tax	Use your personal IRD number (you don’t need a separate one for the business). You pay tax as an individual.	Your company will automatically receive an IRD Number when you register it with the Companies Office. You must register the company to pay income tax.	The partnership will need its own IRD number. You must register the partnership to pay income tax.
Register for GST	Yes, if you will sell goods or services of more than $60k per year. Your GST number will be the same as your IRD number.	Yes, if you will sell goods or services of more than $60k per year. Your GST number will be the same as your IRD number.	Yes, if you will sell goods or services of more than $60k per year. Your GST number will be the same as your IRD number.
Set up a business bank account	Recommended	Yes	Yes
Appoint shareholders and directors, agree rules between them	No	Yes – a company needs at least one director and one shareholder. A Shareholders’ Agreement and Constitution is highly recommended to agree the ‘rules’ for operating the company.	A Partnership Agreement is recommended to agree the rules between the partners.
Ongoing
File GST returns	Yes (if registered)	Yes (if registered)	Yes (if registered)
File tax returns	File an annual individual tax return (IR3)	File an annual company tax return As a shareholder you’ll also need to file an individual tax return. This will include any dividends the company pays to you or drawings you take from the company.	File an annual partnership tax return. You’ll also need to file an individual tax return for your partnership share of the income and expenses of the business.
Pay ACC levies	Yes	Yes	Yes
Prepare annual financial statements	No	Yes	Yes
File an Annual Return with the Companies Office	No	Yes	No

Key points

If you’re starting a business on your own, you’re planning to start small, you won’t be seeking investment and want low admin, providing your services as a sole trader might be right for you. However, if you have business partners, may be seeking investment, want to protect your personal assets and want something to sell when you step away, a company might be the way to go. A partnership is less common for SMEs, but suits those who need the flexibility of income/expense flow but don’t want a company legal structure.

By Claire Bodle

Co-Founder / On Your Terms

Claire has been a business lawyer in New Zealand and overseas for over 15 years. She is strongly focussed on using legal technology to deliver better legal services for Kiwi businesses.