The video is on its way. The full guide is right here: the short answer, the takeaways, the answers and the sources.
Photo for illustration only; it isn't a business in this episode. Photo: Ivan S, Pexels License.
Start · Explained
Sole trader or company? How to choose
The short answerIn New Zealand, a sole trader is the simplest way to run a business: you and the business are the same, profits are taxed at your personal rates (10.5% to 39%), and you're personally liable for its debts. A company is a separate legal entity with limited liability and a flat 28% tax rate, but it costs more to set up and run, and you're taxed again when you take money out. Most owners start as sole traders and switch once profits or risks grow.
Key takeaways
- A sole trader is the business. There's nothing to register except an IRD number you already have.
- Sole trader profits are taxed at personal rates, from 10.5% up to 39% on income over $180,000.
- A company pays a flat 28%, but you're taxed again at your own rates when you take money out as salary or dividends.
- A company's debts are mostly its own. Personal guarantees and directors' duties are the catch.
- A company means more paperwork: Companies Office registration, an annual return, separate accounts and a bigger accountant bill.
- You can start as a sole trader and switch later. Get advice before you move assets across.
General information, not financial or legal advice. Rules and rates change, so check the official sources below or talk to a qualified adviser before you act.
What's in the video?
- 0:00Should I be a company now?
- 0:04Sole trader: you are the business
- 0:07Who's on the hook
- 0:10A company is its own box
- 0:1428% company tax
- 0:18The paperwork
- 0:21When to switch
Timings are from the planned script and may shift in the edit.
The full guide
Most New Zealand businesses are sole traders, companies or partnerships. For a one-person business, the real choice is the first two. Here's how they compare, and how to tell when it's time to switch.
The short version: start as a sole trader if you're testing an idea, the risks are low and the profits are modest. Look at a company once profits are well into the 33% tax bracket, the work could get you sued, or you're bringing other people in.
What is a sole trader?
A sole trader is you, in business. There's no separate legal entity and no register to join:
- You use your own IRD number and put your business income in your individual tax return.
- Your profit is your income, taxed at your personal rates.
- The business's debts are your debts. If the business can't pay, creditors can come after your own assets, house included.
- You can still trade under a business name, hire staff and register for GST. A free NZBN helps with suppliers and government.
It's cheap and quick, and the admin is light. That's why most Kiwi businesses start here.
What is a company?
A company is a separate legal entity, registered with the Companies Office. It has its own IRD number, owns its own assets and owes its own debts. You're usually both:
- a director, who runs it and has legal duties under the Companies Act; and
- a shareholder, who owns it and takes the profits.
You need at least one director and one shareholder (the same person is fine). At least one director must live in New Zealand, or live in Australia and be a director of an Australian company.
How is each one taxed?
| Sole trader | Company | |
|---|---|---|
| Tax rate on profit | Personal rates, 10.5% to 39% | Flat 28% |
| When you take money out | Already taxed, so it's just yours | Taxed again at your rates, with credit for the 28% already paid |
| Tax return | Individual (IR3) | Company return (IR4) plus your own |
Personal rates from 1 April 2025:
| Income | Rate |
|---|---|
| $0 to $15,600 | 10.5% |
| $15,601 to $53,500 | 17.5% |
| $53,501 to $78,100 | 30% |
| $78,101 to $180,000 | 33% |
| Over $180,000 | 39% |
The 28% company rate sounds like a saving, and on profit you leave in the company it can be. But money you take out as a shareholder salary is taxed at your personal rates, and dividends get topped up to your rate using imputation credits. So if you spend everything you earn, the gap is smaller than it looks.
Who's on the hook if it goes wrong?
This is the biggest difference for a lot of owners.
- Sole trader: unlimited liability. A big debt, a lawsuit or a failed contract can reach your personal assets.
- Company: limited liability. The company's debts are generally its own.
There are two big catches with a company:
- Personal guarantees. Banks, landlords and some suppliers will ask you to guarantee the company's debts personally. Sign one, and you're back on the hook for that debt.
- Directors' duties. Directors must act in good faith and mustn't trade recklessly or take on debts the company can't pay. Breach them and you can be personally liable.
So a company mostly keeps your stuff out of it, as Kev puts it. It doesn't make you bulletproof. Good insurance matters either way.
What does each cost to run?
- Sole trader: almost nothing to set up. Your accountant does one return, and the books can be simple.
- Company: a Companies Office fee to incorporate, an annual return every year, separate company accounts, shareholder salaries or dividends to sort out, and a bigger accountant bill.
When should I switch to a company?
There's no magic number, but these are the usual triggers:
- Profits are well past $78,100, where the personal rate jumps to 33%, and you don't need to take it all out each year.
- The work carries real risk. Think building work, big contracts, or advice that clients rely on.
- You're bringing people in, such as a business partner, an investor or a key staff member who wants shares.
- You want to sell one day. Selling shares in a company is usually cleaner than selling a sole trader's assets one by one.
Switching later is common. Moving existing assets, contracts and stock into a new company has tax consequences, though, so get an accountant to plan it.
What about partnerships and trusts?
A partnership is two or more people in business together without a company. It's easy to start, but each partner can be liable for the whole partnership's debts. Trusts and look-through companies are less common and more complex. Get professional advice before using either.
Questions owners ask
What's the difference between a sole trader and a company in NZ?
A sole trader is a person in business on their own account. There's no separate legal entity, so the profits are your income and the debts are your debts. A company is a separate legal entity registered with the Companies Office. It owns its own assets, owes its own debts and pays its own tax, while you act as its director and shareholder.
Do I need to register as a sole trader in New Zealand?
There's no sole trader register. You use your personal IRD number and declare your business income in an individual tax return. You may still need to register for GST if your turnover reaches $60,000, and you can get a free New Zealand Business Number (NZBN) to make dealing with suppliers and government easier.
What tax does a sole trader pay in NZ?
Sole traders pay income tax on their profit at the individual rates. From 1 April 2025, that's 10.5% up to $15,600, 17.5% to $53,500, 30% to $78,100, 33% to $180,000 and 39% above that. You'll usually also pay ACC levies, and provisional tax once the tax on your income passes IRD's threshold. No tax is taken out as you go, so put some aside from every payment.
What tax does a company pay in NZ?
Most New Zealand companies pay income tax at a flat 28% on their profit. When the company pays you a shareholder salary, that's taxed at your personal rates. When it pays dividends, you get imputation credits for the company tax already paid and top up the difference at your own rate. So the 28% rate mainly helps with profit you leave in the company.
When should I switch from sole trader to company?
There's no single number. Owners usually look at it when profits climb well past $78,100, where the personal rate jumps to 33%, when the work carries real risk of being sued, when they want to bring in a partner or investor, or when they're taking on staff and bigger contracts. The extra admin costs money too, so ask an accountant to run the numbers for your business.
Does a company protect my house?
Usually, but not completely. A company's debts are its own, so creditors generally can't come after your personal assets. But banks and landlords often ask directors for personal guarantees, which put you back on the hook. Directors also have legal duties, including not trading recklessly, and can be personally liable if they breach them.
How do I register a company in New Zealand?
Online, with the Companies Office. You'll need a RealMe login, then you reserve a company name and have 20 working days to finish the application. You'll name the directors and shareholders, who each sign a consent form, give the company's addresses, and can register for an IRD number and GST at the same time. There's a fee, and each year you file an annual return.
Where's this from?
- business.govt.nz: Choose a business structure
- business.govt.nz: Sole traders
- IRD: Tax rates for individuals
- IRD: Tax rates for businesses
- IRD: Income tax for companies
- Companies Office: Incorporating a company
First published 7 November 2026. Checked against these sources and updated 7 November 2026 by MySMB Editorial. Spotted a mistake? Tell us and we'll fix it.
Planned script
Read the planned script
Planned script for the 25-second Kev episode. The video is in production.
PETE: Kev! The candle empire's booming. Should I be a company now?
KEV: Sole trader's simple, Pete. You are the business.
KEV: But if it goes bad, they can come after your house.
KEV: A company's its own box. Mostly keeps your stuff out of it.
KEV: Company tax is twenty-eight percent. But you're still taxed when you pay yourself.
KEV: More paperwork. Bigger accountant bill.
PETE: Sole trader till the candles really take off, eh?
KEV: Now you're thinking.
