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Introduction to business - Business structures

Introduction to Business

Business structures


Inland Revenue's logo appears, together with the series name "An Introduction to Business" below. Next, the title of the video "01 Business structures" appears.

Three coloured strips spin onto the screen. Each strip receives a label: "Sole Trader", "Partnership", and "Company".


"An introduction to business. Business structures. When you're looking to start a business, one of the first things you need to do is choose a business structure that's right for you."

"The three most common business structures are sole trader, partnership, and company."

"In this video, we'll look at each one in turn, and you'll see how "doing your taxes" changes according to the business structure you choose."


The green "Sole Trader" strip moves in to fill the screen. Lisa walks in, carrying a briefcase. A bubble shows numbers flashing past in sequence till "100%" is reached. The message "Personally responsible" appears. The bubble then shows a cellphone sending Inland Revenue a message, and an image of records, reminding us that records must be kept so business people can work out their net profit.

Finally, the bubble shows a calendar flipping from "Apr 1" to "Mar 31", the standard tax year.


"First up, meet Lisa! She's just quit her job and decided to go into business as a sole trader."

"As a sole trader, Lisa runs her business by herself. She gets 100% of the business profits, and she's personally responsible for all taxes and debts."

"You need to tell Inland Revenue when you start working for yourself. Lisa has an online account with us, so she simply sends us a secure email."

"Like anyone in business, Lisa must keep financial records, so she can work out her net profit at the end of the year. She has the "standard" 31 March balance date, which means her tax year runs from 1 April to 31 March."


The words "IRD number" drop in, and an image of an IR3 tax return appears. Then a bubble shows a calculator and the IR3 moves off screen, indicating online filing.


"As a sole trader, Lisa keeps the same IRD number she had as an employee. She only has to file one type of income tax return - the IR3."

"After the end of the tax year, she prepares her financial statements and completes her IR3 return. She must calculate income tax on her net profit. Lisa files her return online, as she finds it easier than filing paper returns."

"So, that's sole traders!"


The green colour spins away and a yellow background - indicating partnerships - replaces it. An image of three people appears. "Personally Responsible" drops in and each person is highlighted in turn, indicating any partner may be called on to pay a partnership debt.


"The next business structure you may like to consider is the partnership. A partnership is formed when two or more people get together to run a business."

"Each partner contributes something to the partnership, and in return, receives a share of any partnership profits or losses."

"Each partner is personally responsible for all partnership debts. That means if the partnership can't pay, the creditor can approach any of the partners individually to collect the money owed."


Jamie and Denise walk to the centre of the screen and shake hands. A bubble shows an IR596 being downloaded and mailed in to Inland Revenue. A calendar showing "Mar 31" appears.


"Here are Jamie and Denise. They've decided to form a partnership to design websites."

"A partnership has its own IRD number. Denise downloads the IR 596 application form from Inland Revenue's website, fills it out, and posts it to Inland Revenue."

"After the end of the tax year, the partners prepare the partnership's financial statements."


A bubble at the top of the screen shows "$100K", the partnership profit, and two smaller bubbles each show "$50K", Jamie and Denise's share of the profit. Next, the large bubble shows an image of an IR7 partnership return, and the smaller bubbles show IR3 individual returns, which must be filed by Jamie and Denise.


"During the year the partnership made a profit of a $100,000."

"As Jamie and Denise agreed to split the profits 50/50, they each receive $50,000."

"Partnerships file an IR7 income tax return, showing the profit or loss for the year and how it's split between the partners."

"But partnerships don't pay income tax. The partners do."

"Jamie and Denise each complete an IR3 return showing they received $50,000 from the partnership as their share of the profit."

"And that's partnerships!"


The yellow colour spins away and a pink background - indicating companies - replaces it. Leeann and John walk on, and enter a building called "Antique Chic". The words "Separate legal entity" appear. Next, the Companies Office web address is shown, along with a bubble labelled "IRD number".

The name on the building becomes "Antique Chic Ltd", indicating a shareholder's limited liability for company debts.


"The next business structure we'll discuss is the company."

"Leeann and John decide a company structure is best for their antique business."

"A company is a separate legal entity. A company can buy assets, and borrow money in its own name."

"Leeann and John contact the Companies Office to register their company, and get an IRD number at the same time."

"When people form a company, they each get shares, usually in proportion to the money they contribute."

"You've probably noticed that most companies have "Limited" after their name. That means if the company gets into financial difficulty, a shareholder's personal liability is limited to their share in the company."


A bubble labelled $150K" appears over the Antique Chic Ltd building. Bubbles showing $40K appear over the images of Leeann and John, and the $150K reduces to $70K. Then the company bubble shows an IR4 return, and Leeann and John's bubbles show IR3 returns. All returns leave the screen and a companies return (to be filed with the Companies Office) is shown.


"In its first year in business, Antique Chic Limited makes a profit of $150,000."

"During the year Antique Chic pays Leeann and John $40,000 each, leaving the company with a profit of $70,000."

"Unlike partnerships, companies pay income tax. Antique Chic files an IR4 return, declaring a profit of $70,000, and Leeann and John each file an IR3 return showing income from the company of $40,000."

"The company also files an annual return with the Companies Office."

"And that's companies!"


The three original strips appear: Sole trader (green), Partnership (yellow), and Company (pink). Each strip shows the appropriate tax returns: IR3 for sole trader, IR7 and IR3 for partnership, and IR4, IR3, and Companies Office return for company.

The three strips combine into a teal circle which shows a "Play" symbol, captioned "Income & provisional tax". Then the circle shows "Mar 31" and "Jul 7".


"You've now heard about the three most common business structures. No matter which structure you choose for your business, you'll need to file income tax returns."

"You pay income tax on your net profit for the year. You can find out more about payment due dates in our video "Income and provisional tax"."

"If you have the standard 31 March balance date you need to file your returns by 7 July, unless you or your tax agent has an extension of time arrangement with us. Please make sure you file your returns by the due date. If you're late, you may have to pay a late-filing penalty."

"Your structure will have an impact on other aspects of your business too, not just income tax. "


A yellow circle appears, showing "$60K", then the word "GST". "GST" is replaced by a "Play" symbol, and a caption "Registering for GST" appears. A teal circle shows an image of people.


"All businesses with a turnover of more than $60,000 have to register for GST and file GST returns. Please check out our video "Registering for GST" for more information. "

"If you're going to employ staff you will also need to register as an employer."


The closing sequence. Inland Revenue's website address is shown, and useful information on the website is listed below: the Tool for business, Set up myIR account, and File returns online.'s web address follows, with a mention of the start-up health check available.

The video ends with Inland Revenue's logo and web address, and a footer reading "New Zealand Government".


"When you're in business for yourself, there's a lot to think about. But don't worry. You're not on your own."

"Our website can help you every step of the way. Our "Tool for business" has everything you need in one convenient place. Once you have set up your myIR account you can send us secure emails and file your returns online. It's quick and secure, and you can do it from anywhere at any time."

"Go to to access further tools and resources for starting in business."