Should I Be a Sole Trader or Set Up a Company?

Choosing the right business structure is one of the most important decisions you'll make as a business owner. Should you start as a sole trader or set up a company? Each option has pros and cons, and the best choice depends on your income, risk level, and growth plans.

Let’s break it down so you can make the right decision for your business.

1. Sole Trader: Simple and Low-Cost, But Higher Risk

A sole trader is the simplest and cheapest business structure. It’s a great option for freelancers, contractors, and small business owners just starting out.

Pros of Being a Sole Trader:

Easy to set up – No need to register a company, just get an IRD number and start trading.
Minimal paperwork – Less compliance and lower admin costs.
Full control – You keep 100% of the profits and make all business decisions.
Fewer tax obligations – No need to file company tax returns, just personal income tax.

Cons of Being a Sole Trader:

Unlimited personal liability – You are personally responsible for business debts.
Higher personal tax rates – If your income grows, you may pay more tax than a company.
Less credibility – Larger businesses and lenders may prefer dealing with registered companies.
Harder to raise capital – Investors typically invest in companies, not sole traders.

Best for:

Small businesses and freelancers making under $80,000 per year.
Low-risk industries (e.g., consulting, design, online services).
Business owners who want full control with minimal admin.

2. Company: Limited Liability, Better Tax Planning, More Compliance

A company is a separate legal entity from its owner(s), offering greater protection and tax advantages—but with more responsibilities.

Pros of Setting Up a Company:

Limited liability – Your personal assets are protected if the business has financial trouble.
Flat 28% corporate tax rate – Often lower than personal tax rates for high earners.
Easier to raise capital – Investors and banks are more likely to fund companies.
Better business credibility – Many clients prefer dealing with registered companies.

Cons of Setting Up a Company:

More compliance – You need to register with the Companies Office and file annual returns.
Extra tax requirements – Companies must file separate tax returns.
Higher admin costs – You may need an accountant for company tax and financial reporting.
Less personal flexibility – Business profits belong to the company, and you must pay yourself through salary or dividends.

Best for:

Businesses earning over $80,000 per year.
Businesses in higher-risk industries (e.g., construction, retail, trades).
Business owners looking for growth, investment, or better tax planning.

3. Sole Trader vs. Company – Which One is Right for You?

If you’re just starting out and want to keep things simple, a sole trader structure is often best. However, if your business is growing or carries financial risk, a company offers greater protection and tax advantages.

General Rule of Thumb:

If your income is under $80,000 and risk is low, being a sole trader is fine.
If you plan to expand, raise capital, or reduce liability, setting up a company is better.

Need Expert Advice?

Choosing the right business structure can impact your taxes, liability, and long-term success. If you’re unsure which option is best for you, TaxFix can help!

We’ll assess your business, explain the pros and cons in your specific situation, and ensure you’re set up for success—without paying unnecessary tax or exposing yourself to risk.

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