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Company or trust? Different tools.
A company is a legal person. A trust is a relationship. They serve different purposes and have different tax consequences. Choosing the right one depends on what you are trying to achieve.
Fundamentally different creatures.
Before comparing features, you need to understand what each actually is.
A Company
A company is a separate legal person. It can own property, enter contracts, sue and be sued. It exists independently of its shareholders and directors.
Registered with the Companies Office, has its own IRD number
Shares represent ownership and can be bought, sold, or transferred
Directors have duties under the Companies Act 1993 (sections 131-137)
Active trading businesses, clear ownership, attracting investors
A Trust
A trust is a legal relationship. It's an arrangement where trustees hold assets for the benefit of beneficiaries. The trust itself isn't a legal entity.
Trustees hold title to assets on behalf of beneficiaries
Trustees manage assets for the benefit of named beneficiaries
Trustees have duties under the Trusts Act 2019
Holding assets, estate planning, protecting vulnerable beneficiaries
Tax rates: a significant gap.
Since April 2024, the tax difference between companies and trusts has become substantial.
Company tax rate
Companies pay a flat 28% on profits retained in the business. This is the rate for all New Zealand companies.
- Retain profits at lower rate to reinvest
- Imputation credits for shareholders
- Pay yourself a salary (taxed at personal rate)
Consider also
Look-through company (LTC) option available for small businesses
Trustee tax rate
Since 1 April 2024, trustees pay 39% on trustee income. This matches the top personal rate.
- Higher rate than company tax
- Can distribute to beneficiaries (taxed at their rate)
- Minor beneficiary rules may apply
Tax planning
Distribution to lower-income beneficiaries can reduce overall tax
When a company makes sense.
Liability shield
A company provides a "corporate veil" between the business and your personal assets. If the company incurs debts it can't pay, your personal assets are generally protected.
Note: Personal guarantees (often required by banks) remove this protection for those debts.
Raising capital
Companies can issue shares to investors. This is the standard structure for attracting external investment, whether from angel investors, venture capital, or partners.
Example: Bringing in a business partner by issuing them 20% of the shares.
Selling the business
Companies can be sold by selling shares. This is usually simpler and more tax-efficient than selling individual assets. Buyers often prefer purchasing a company.
Related: Asset sale vs share sale
Clear ownership
Share percentages define exactly who owns what. This clarity helps when making decisions, distributing profits, or resolving disputes. Everyone knows where they stand.
Tip: Shareholder agreements can set out how decisions are made and disputes resolved.
When a trust might still apply.
Trusts aren't usually used for active trading businesses. But they can serve specific purposes around a business.
Estate planning
Trusts can hold assets (including company shares) for succession purposes. This can help manage how business ownership passes to the next generation.
Structure: A trust owning company shares provides flexibility for intergenerational transfer.
Protecting vulnerable beneficiaries
If business proceeds need to support someone who can't manage money themselves, a trust provides structure and protection.
Example: A family member with a disability who needs ongoing support.
Privacy (with caveats)
Unlike company shareholdings (which are public), trust beneficiaries aren't on a public register. However, disclosure requirements have increased.
Since 2024: Trusts with NZ-sourced income must be disclosed to IRD, reducing privacy.
Business succession
Trusts can hold business interests for gradual succession, allowing control to transition while providing for family members.
A warning about asset protection
Trusts are no longer reliable for protecting assets from creditors. Courts can and do set aside trust structures that were designed to defeat creditors or relationship property claims.
If you are setting up a trust primarily to protect business assets from potential future creditors, you need to understand the significant limitations.
- Courts look through trusts for relationship property claims
- Transfers made to defeat creditors can be clawed back
- Sham trusts (where you retain too much control) offer no protection
Director duties vs Trustee duties.
Both directors and trustees have legal obligations. But they're different in nature.
Companies Act 1993 (sections 131-137)
Good faith: Act in good faith and in the best interests of the company
Proper purpose: Exercise powers for proper purpose, not personal benefit
Solvency: Not trade while insolvent (can create personal liability)
Care and diligence: Exercise reasonable care, skill, and diligence
Trusts Act 2019
Beneficiaries' interests: Act in the best interests of beneficiaries
Follow the deed: Carry out duties according to the trust deed
Information duties: Disclose basic trust information to beneficiaries
Prudent investment: Invest trust property prudently
Company owned by Trust
Many businesses use both: a company for the trading business, owned by a trust for estate planning and succession.
Holds the shares
Runs the business
How this works
The company operates the business and pays 28% company tax
The trust owns the company shares as a long-term asset
Dividends flow to the trust (with imputation credits)
Succession is managed through the trust deed, not share transfers
This structure isn't for everyone. It adds complexity and cost. But for family businesses with succession planning needs, it can provide the best of both worlds.
Look-Through Company (LTC) option
For small companies (five or fewer shareholders who are NZ tax residents), a look-through company election means profits and losses flow through to shareholders at their personal tax rates. This can be simpler than a traditional company structure.
Discuss with your accountant whether an LTC is appropriate for your situation.
Questions to ask yourself.
What is your main goal?
Do you need to retain profits in the business?
If you are reinvesting profits to grow the business, a company's 28% tax rate means more money stays in the business compared to a trust's 39%.
Might you bring in partners or sell the business?
Companies make this straightforward. Shares can be issued or transferred. Trusts don't have this flexibility.
Who will benefit from the business in future?
If succession across generations is important, a trust owning company shares may provide flexibility. If it's just you, keep it simple.
Most businesses need a company
For most people starting or running a business, a company is the right choice. Trusts serve different purposes. Don't use a trust because you've heard they protect assets - that's increasingly unreliable.
Key Takeaways
Companies are legal persons; trusts are relationships. Fundamentally different.
Companies pay 28% tax; trusts pay 39%. An 11% difference on retained income.
For active trading businesses, a company is almost always the right choice.
Trusts still serve estate planning and vulnerable beneficiary purposes.
Don't rely on trusts for asset protection - courts increasingly look through them.
Related Guide
Follow our step-by-step guide to choosing the right structure for your business.
Read the Business Structuring GuideRelated Reading
Moving from Sole Trader to Company
When your business outgrows sole trader status, incorporating offers liability protection and tax advantages. Here's what's involved in making the transition.
Partnerships: When They Work and When They Don't
Should you form a partnership or choose another structure? We explain how partnerships work and when a company might be better.