Should I incorporate, or stay a sole trader?

Reference guide from Amplifai — the structured AI workspace for NZ business decisions.

Decision · Structure & governance

The short version

Most people get told this is a tax decision. It mostly isn't. The tax difference matters once your business is consistently profitable above about $70-80k per year — below that, it's marginal. What actually decides this for most people is the liability question and the kind of business they're trying to build. A sole trader is you, with extra paperwork. A company is a separate legal "person" you own, that can sign things, owe debts, and be sued in its own name without your house being on the line. Most of the time, the second one is what you actually want — but not always.

This entry tells you how to think about the call, the cases where the answer is genuinely obvious, and the cases where you should stop reading and pay an accountant for thirty minutes of their time.

Where to find the authoritative answer

Three places, each doing a different job.

business.govt.nz — Choose Business Structure. Government / tool. An interactive walk through the structure question that asks about your situation and surfaces the trade-offs. Genuinely useful — start here if you're undecided. Don't treat the output as the final answer; treat it as input.

Companies Register — Choosing a type of company for your business. Government / authoritative. If you've decided you want a company, this is where you confirm what kind. For most SMBs the answer is limited liability — co-operatives and unlimited companies exist for specific cases.

Inland Revenue — Working for yourself. Government / authoritative. The IRD's view on what counts as a business, when you start being taxable on it, and what you owe. The starting point for the tax-side question if you're going sole trader.

What to watch for

Six things that change the call — most of them not about tax.

1. Limited liability is the load-bearing reason. As a sole trader, you are the business. If the business is sued or can't pay a debt, that's your problem personally — your house, your savings, your car. As a company shareholder you're shielded from that, mostly. The shield isn't perfect (more on that below), but it's the single biggest functional difference. If you're doing anything where a customer could sue you, or where you might owe money to someone bigger than you, this is the thing that decides it.

2. The shield has holes — know where they are. Limited liability doesn't cover: trading while insolvent (you can be personally liable as a director if you keep trading when the company can't pay its bills); certain tax debts (PAYE you withheld but didn't pass on, GST in some cases); health and safety breaches; and any debt where you've signed a personal guarantee. Banks routinely ask for personal guarantees on business loans, which removes the shield for that loan.¹ "Limited liability" doesn't mean "no personal risk" — it means "less personal risk, with named exceptions."

3. The tax case for a company is real, but only above a threshold. Companies pay a flat 28% on profits. Sole traders pay personal income tax — 10.5% up to $15,600, 17.5% to $53,500, 30% to $78,100, 33% to $180,000, 39% above that.² The crossover where a company starts saving you tax is around $70-80k of consistent profit, and only if you leave money in the company. If you take all the profit out as personal income, you pay personal rates on it anyway. Below the crossover, the compliance overhead of a company often eats the savings.

4. The compliance cost of a company is a real number, not a rounding error. Annual return filing, separate tax return (IR4 not IR3), separate bank account, share register, director duties, and — almost always — an accountant doing the year-end. Budget $1,500-3,000 a year for accounting on a simple company; more if it's complex. As a sole trader you can run on Hnry, an accountant-light setup, or a spreadsheet, and the compliance overhead is mostly your own time.

5. The kind of business you're trying to build matters. A company is easier to bring co-owners into (issue them shares), easier to raise investment in, easier to sell, easier to grow with employees. Some bigger clients and government contracts will only deal with limited companies. If you're consulting solo and intend to stay solo, none of that matters. If you're building something that might one day have other owners or a buyer, the structure shapes what's possible later.

6. You can switch from sole trader to company later — but it's not free. Most NZ businesses start as sole traders and incorporate when the numbers or the risk justifies it. That's a fine path. But the transition has tax mechanics (transferring assets, depreciation recapture, potentially GST consequences) and admin costs. Plan to do it deliberately when the time comes, not in a panic. The IRD has rules to stop people structure-shopping for tax avoidance; an accountant should design the transition.

A separate point on what the call really is. The tax calculator is the easy part — anyone can run two scenarios and see which is lower. The harder questions are: how much risk does my work expose me to? How protective am I being of my personal assets? What am I actually trying to build? Those are the questions that decide it. If you're a freelance writer earning $40k working from your kitchen, the answer is sole trader. If you're a builder, an electrician, anyone giving advice that clients act on, anyone with employees, anyone with savings or a house worth protecting — the answer is usually company. The tax math is a tiebreaker, not the deciding factor.

Where this entry stops

This entry covers the call between sole trader and limited company for most NZ SMB situations. It doesn't cover:

The deeper tax-treatment comparison. Imputation credits, look-through company elections, PIE income, depreciation strategy, FBT — all of these affect the optimal structure once you're past the basic call. They're real, they matter at scale, and they're an accountant's job. If you're earning over $100k consistently, talk to one before you finalise.
Trust structures. Trusts are a separate vehicle, often paired with a company for asset protection, succession, or family reasons. Out of scope here. If a trust is on the table, get advice from a lawyer and an accountant together — the design matters.
Partnership shapes. Two-person companies are simple. Two-person partnerships, limited partnerships, look-through companies for co-owners — different rules, different risks, different paperwork. If you're starting with someone else, talk to a lawyer about how to structure the relationship before you commit.
Industry-specific structuring. Some industries have specific rules — financial services (FMA-regulated entities), property trading (different bright-line treatment), franchises, regulated professions. Get specialist advice for those.

If you've got revenue above $100k, employees, multiple owners, or significant personal assets to protect — this is the entry where you stop reading and pay an accountant. The right answer for your situation isn't a static rule; it's a calculation an accountant can do in twenty minutes that will save you a lot more than their fee.

Last verified 9 May 2026 against the Companies Act 1993, Income Tax Act 2007 personal rate schedule, and current business.govt.nz structure-overview content. Full source list: references.