Sole Trader vs LTC vs Company: Choosing Your NZ Business Structure

If you're starting a business in New Zealand, the structure you pick decides three things: what tax rate you pay, how personally exposed you are if things go wrong, and how much paperwork the IRD wants from you each year. The three common options are sole trader, look-through company (LTC), and a regular limited liability company.

This guide is educational only — once your numbers cross certain thresholds you'll want a chartered accountant on your side. The aim here is to help you ask better questions when you do.

Sole trader: simple, exposed, taxed at your personal rate

A sole trader is you, trading under your own name (or a trading name) without forming a company. There's no separation between you and the business — the business's income is your income, and the business's debts are your debts.

The numbers below are based on the 2025–2026 tax year and assume nothing else changes about your situation:

• Income is taxed at your personal marginal rate (10.5% up to $15,600, 17.5% to $53,500, 30% to $78,100, 33% to $180,000, 39% above)
• ACC levies are payable on business income
• No company incorporation cost
• No annual return to the Companies Office
• You're personally liable for business debts

When sole trader works: side hustles, contractors, tradespeople with low capital risk, anyone earning under roughly $70,000 a year from the business where the simplicity outweighs the tax planning room.

Look-through company (LTC): a company in name, taxed like a sole trader

An LTC is a New Zealand-only structure. Legally, it's a registered limited liability company with the Companies Office. For tax purposes, the IRD looks straight through the company to the owners, and taxes them at their personal rates.

Under the rules in effect 2026:

• Maximum five owners (must be natural persons or certain trustees)
• Profits and losses flow to the owners in proportion to their shareholding
• Owners pay tax at personal marginal rates
• The company itself doesn't pay company tax
• Limited liability protects owners from business debts (with exceptions for personal guarantees)

When LTC works: small businesses where the owners want personal-rate taxation but limited liability — for example, two founders sharing equity in an early-stage business that's expected to make a loss in the first couple of years, since LTC losses can offset other personal income.

Limited company (Ltd): flat 28% tax, retained earnings, more compliance

A regular limited company is a separate legal entity. It pays company tax at 28% on profits. When you take money out as a shareholder, you either pay yourself a salary (taxed at your marginal rate) or take dividends (taxed with imputation credits to avoid double-taxation).

Based on these inputs:

• Company tax rate: 28% on profits
• Imputation credits attached to dividends so shareholders aren't double-taxed
• Annual return required to Companies Office
• Director duties under the Companies Act 1993
• Limited liability protects shareholders (subject to personal guarantees)

When a regular Ltd works: the business is profitable enough that the 28% company rate beats your marginal rate (roughly $80k+ in retained profit), or you want to retain earnings inside the company for reinvestment without immediately paying personal tax.

Quick comparison

Structure	Tax rate	Liability	Annual filing	Best for
Sole trader	Personal marginal (10.5–39%)	Personal — unlimited	IR3 only	Side income, low-risk trades
LTC	Personal marginal (10.5–39%)	Limited (corporate)	IR4, annual return	Small business, early losses
Limited company	28% flat on profits	Limited (corporate)	IR4, annual return, full accounts	Profitable businesses, retained earnings

What to do next

The structure decision is rarely the most important one — getting your invoicing, GST registration, and provisional tax right matters more day-to-day. If you're earning under $60,000 a year from the business and the work is low-risk, sole trader keeps things simple. If you're crossing $80,000 or have a co-founder, talk to a chartered accountant before you incorporate — the wrong structure can lock in tax outcomes that take years to unwind.

This is educational content, not personalised tax or legal advice. For your situation, talk to a qualified NZ accountant or business adviser.