A sole trader is a person contracting on their own without registering as a company. It is the easiest way to start working as a contractor. You can get set-up quickly with low start-up costs and no legal or registration fees. You control the business and get all the profits. You can still claim expenses, register for GST, use a logo and trading name different to your own if you wish. 

As a sole trader you are however personally liable for all debts your business incurs, unlike a company which can limit liability. This means any of your personal assets could be at risk if things go wrong with the business, however you can protect yourself against this risk with adequate professional indemnity and public liability insurance.

As a sole trader, your net profit, being what you charge less your work expenses, is taxable through your personal IRD number. How much your net profit is each year will determine the amount of tax you will need to pay. As a sole trader you must file an IR3 income tax return each year. 

A company is a separate legal entity from its owner or owners. A company owns all the business assets and liabilities and is responsible for its debts. While companies have limited liability, you still could be personally liable and face prosecution for trading recklessly or trading while insolvent.

Setting up a company isn’t difficult, but it does take a lot more work, time, and cost when compared to a sole-trader.

A company also requires a lot more on-going administration. If you operate through a company, you will need to make regular submissions to the Companies Office to keep your name and provide them with financial and other information. You will also need to file tax returns, one for your personal earnings that your company pays you, and another for the company’s profits. 

We strongly suggest you get advice from an accountant or lawyer to help ensure you know what you need to do and can meet all the legal requirements.