Choosing the right business structure is one of the most important decisions you’ll make when going into business with others. It affects how you’re taxed, how profits and losses are shared, and, critically, how much personal risk you take on.
Two common structures for small and medium-sized businesses in New Zealand are general partnerships and Look-Through Companies (LTCs). While they can appear similar from a tax perspective, they differ significantly in terms of liability, governance, and long-term flexibility.
This guide explains the key differences to help you decide which structure best suits your business.
What Is a General Partnership?
A general partnership exists when two or more people agree to carry on a business together with the intention of making a profit.
Key features of a general partnership:
- Profits and losses are shared between partners (usually per a partnership agreement)
- Income is taxed at each partner’s personal marginal tax rate
- Each partner is jointly and severally liable for the partnership’s debts
- The partnership itself does not pay income tax
While partnerships are relatively simple to establish, the unlimited liability aspect can expose partners’ personal assets if the business encounters financial difficulties.
What Is a Look-Through Company (LTC)?
A Look-Through Company (LTC) is a special type of company structure available in New Zealand. It combines elements of a company and a partnership.
Key features of an LTC:
- The company itself is not taxed
- Profits and losses “look through” to the owners
- Owners are taxed at their personal marginal tax rates
- Owners generally benefit from limited liability, like a standard company
- Losses may be offset against other personal income (subject to rules)
LTCs are commonly used by small businesses seeking tax transparency without sacrificing asset protection.
LTC vs Partnership: Key Differences
- Liability Protection
This is often the deciding factor.
- Partnership: Each partner has unlimited personal liability for business debts.
- LTC: Owners typically have limited liability, meaning personal assets are protected from most business risks.
- Tax Treatment
Both structures are considered tax transparent, meaning:
- Income and expenses flow through to the owners
- Tax is paid at the owners’ marginal tax rates
- Losses may be used to offset other income (subject to eligibility)
From a tax perspective, the two structures are similar, the key differences lie elsewhere.
- Ownership & Eligibility Rules
Partnerships
- No formal limit on the number of partners
- Flexible ownership arrangements
LTCs
- Maximum of five “look-through counted owners”
- Certain relatives are treated as a single owner for counting purposes
- Designed for closely held businesses
- Formation & Ongoing Compliance
Partnership
- Can be formed informally
- A written partnership agreement is strongly recommended
- Less administrative compliance
LTC
- Must be incorporated as a company
- Requires unanimous election to become an LTC
More formal governance and compliance obligation
When Might a Partnership Be Suitable?
A general partnership may be appropriate if:
- The business is low-risk
- Partners fully trust one another
- Personal asset exposure is minimal
- Flexibility is more important than protection
When Is an LTC Usually the Better Option?
An LTC may be preferable when:
- The business carries financial or contractual risk
- Owners want personal asset protection
- Losses need to be utilised efficiently
- A formal structure supports long-term growth
For many small businesses, an LTC offers the best balance between tax efficiency and risk management.
Which Business Structure Is Right for You?
There’s no one-size-fits-all answer. The best structure depends on:
- Your risk profile
- Your income expectations
- Your ownership arrangements
- Your long-term business plans
What works at start-up may not be right as your business grows.
Get Advice Before You Commit
Choosing the wrong structure can have long-term financial and legal consequences. Before entering into a partnership or forming an LTC, it’s worth getting advice tailored to your situation.
Talk to Rodgers & Co about reviewing or setting up the right structure for your business.
📞 03 343 3068
FAQ's for Look-Through Company vs Partnership
An LTC often provides better asset protection while retaining tax transparency, making it a popular choice for small businesses. However, suitability depends on individual circumstances.
No. An LTC can have a maximum of five look-through counted owners, with certain relatives treated as one owner.
In many cases, yes. LTC losses can often be offset against other personal income, subject to loss limitation rules.
No. Income is allocated to partners and taxed at their personal marginal tax rates.
