Sole trader vs company in New Zealand - making the right call

Having the right business structure is crucial for your business. Our guide on sole trader vs company breaks down their key differences and answers the burning questions you may have.​

You’ve got some thinking to do. Evaluate the pros and cons of each of these business structure types and the right path should make itself clear.​​

A sole trader is a person trading on their own. People who opt for this business type can usually get started without any formal or legal processes.​ It’s one of the most common business structures in New Zealand. Other business structures are company, trust, and partnership. ​

In New Zealand, a company is a separate legal entity from its owners (shareholders). Amongst the benefits of having a company structure, one stands out: the business assumes ownership of assets and responsibility for debt.​ If you’re interested, read more on advantages and disadvantages of a limited company. ​

We’ve outlined the pros and cons of sole trader vs company in New Zealand: ​

Whether to choose a sole trader or a company structure depends on your situation. To help you decide, ask yourself these key questions:​

We recommend you talk to your accountant. If you’re just starting out and need to set up your business correctly, book a call with one of our team members to discuss your situation (and your accounting/tax requirements).​

The simple answer is YES. The highest tax rate for individuals is at 39%, however, the company tax rate is 28%. It may be tempting to reduce your income tax by moving from a sole trader to a company. However, IRD may well consider this tax evasion if you have no other reasons for changing your business structure. We’ll discuss more details on restructuring from a sole trader to a company later.​

Restructuring a business in New Zealand is straightforward enough to do but have you considered if you need to in the first place? Ultimately it depends on your situation.​

With Beany, we don’t charge any more to look after a company than a sole trader or partnership (but some accountants might charge more). You can set up a company through Companies Office website or we can set it up for you when you become a client.  Once a year, you also have to file an Annual Return to Companies Office which costs $45 – unless you’re a Beany client – we do it for free!​​

Learn more: upcoming individual tax rate changes (from 1st April 2025).​

You might start thinking about changing from a sole trader to a company when your business really takes off. As a company, you can protect what you've personally built up, especially if things get a bit risky in the business world. Plus, if you're thinking about bringing in investors or landing those bigger contracts, having a company structure just looks more professional. ​

Basically, if you feel like your business needs a more solid foundation to keep growing, it might be time to look at restructuring things and see what your options are, like maybe becoming a company.​

One advantage of having a company structure is that you may be able to keep profits in the business and not have them added to your personal income, which means you don't pay extra tax on them right away. This is awesome if you want to reinvest that money to grow your business even more. Another perk is being able to split the income with family members who are part of the business, which can sometimes mean paying less tax overall.​

Please note that this guidance is highly dependent on your specific business situation. You may face restrictions under the Attribution Rule for Income from Personal Services, which mandates that all profit be allocated directly to you.​

Also, keep in mind that companies have more tax stuff to deal with. You'll need to pay to register the company, and you'll have to file tax returns and financial returns every year. This might mean your accountant will charge you more because things are a bit more complex with a company.​

Read more: A guide to company taxes​

There are so many variables to consider that we cannot say categorically, but if the following apply, it is very likely:​​

If you work as a sole trader, then all your income over $78,100 will be taxed at 33 cents.  The corporate rate is 28% and if you can income split with your partner, you could use the lower marginal rate.  ​​

You make $100,000 each year. As a sole trader, you pay $22,878 in tax.​​

You form a company and your partner owns 1% of the company.  You can allocate a fair market salary to yourself of $78,000 and then pay your partner the other $22,000 for help with stock management and bookkeeping. They have other income of $30,000 from another part-time position.​​

Total tax to pay for both of you = $19,471 – that’s a saving of $3,407.​​

In fact, in a recent survey we did of a sample of our clients, on average they saved $4,000 per year through careful tax planning. Be aware that you should always ask your accountant as every situation is different.​​

Step 1: register your company - start by registering with the New Zealand Companies Office: you’ll need to choose a company name, decide the directors and shareholders, and create a company constitution to set out rules for running the company. ​

Step 2: transfer your assets -  move your business assets like equipment, contracts, and intellectual property—to the new company. You’ll also need to value these properly and create legal documents to make it official.​

Step 3: update contracts - if you have existing agreements with clients or suppliers, you’ll need to update these to reflect the new company. This often means getting their consent.​

Step 4: sort out taxes and banking -  understand your tax obligations for your company and open a new bank account under your company’s name. ​

Changing to a company structure usually doesn't directly impact your employees or contractors - their current agreements and roles generally stay the same. However, transparency is key – keep them in the loop about the changes and what it means for them (which is often very little!). You might need to update some paperwork, like employment contracts, to reflect the new business structure, but their day-to-day work life shouldn't be significantly affected.​

Restructuring your business from a sole trader into a company isn’t just a legal change—it’s a strategic one. Done right, it can set you up for bigger opportunities and long-term success. But don’t go it alone. Talk to an accountant or business advisor to make sure everything’s done properly. It’s worth getting it right from the start.​

Don't let the business structures hold you back. ​

If you're a Beany client, get in touch and we can discuss your specific situation with you, break down the options, answer your questions and help you choose the right path for your business. ​

If you're not a client, book a call so we can learn about your business and accounting requirements. Please note, we cannot give you specific advice unless you're a client.​

Beany is an online business accounting firm in New Zealand, with a team of highly experienced accountants and client support staff.​

Our core accounting package covers year-end compliance, with one fixed cost split over 12 months. This includes end-of-year financial statements and tax returns, tax minimisation, filing and payment reminders, and unlimited support for day-to-day queries.​

We also provide additional services like any accountant - bookkeeping, GST returns, payroll, budgets, cash flow forecasts, advisory and more.​

Beany also services businesses in Australia and the UK with local teams in each region.​