Setting Up and Running a Business in New Zealand Structure If you intend to run a business in New Zealand, arriving at the most efficient structure of that business is a matter that needs to be determined appropriately at the outset. As well as obtaining appropriate legal advice, it is extremely important to engage a suitably qualified New Zealand accounting professional to assist advise on New Zealand business accounting requirements and taxation compliance. Overseas persons trading in New Zealand wish to ensure that appropriate taxation is paid and not inadvertently create issues of double taxation or inappropriate accounting or record keeping. Your legal and accounting professionals can then give you full advice on the best business structure for you in New Zealand as well as how to appropriately keep records and account for that businesses financial activities. Limited liability companies One of the most common forms of business ownership in New Zealand is the limited liability company. In New Zealand the most relevant piece of legislation applying to companies is the Companies Act 1993 which governs the incorporation, management and liquidation of companies. There is also the Financial Reporting Act 1993 which sets out the reporting requirements of certain forms of company. With a limited liability company, the ultimate ownership of the company is held by one or more shareholders. The liability of each shareholder is limited to the amount of share capital that the shareholder has contributed to the company. Companies are managed by their directors and directors have very important duties and obligations under the Companies Act 1993. It is exceedingly important that people who manage a company as its directors are familiar with their duties and obligations under the Companies Act 1993 and we can assist with advice in this area. In New Zealand, companies can be private or public. Private companies are the most common form of company in New Zealand and the shares are held between a small number of shareholders who are usually known to each other. Every company must have at least one shareholder and one director. If companies have a very extensive number of shareholders then further law (such as the Takeovers Code) may apply to them and advice should be taken. Public companies are known as "listed" and the shares of such companies are listed on the New Zealand Stock Exchange and are regulated by more extensive rules and regulations than private companies. The first step to incorporating a company in New Zealand is to make application for reservation of a company name. The Registrar of Companies will not reserve names it considers would contravene other New Zealand statutes, where the name is identical or almost identical to the name of another company, or where the name is offensive. Once the name reservation has been completed, the reservation remains current for 20 working days. The next step is to pay the prescribed fee and file the following documents with the Registrar of Companies:
- Notice of name approval;
- Application for registration; and
- Consents of shareholders and directors.
A company constitution can also be filed on incorporation or adopted at a later point. The constitution must not contravene, or be inconsistent with, certain provisions of the Companies Act. Once adopted, the constitution becomes publically searchable. If a company does not have a constitution, the rights, powers, duties and obligations of the company, the board, each director and each shareholder will be as set out in the Companies Act. Constitutions can be extremely useful in assisting directors and shareholders understand their rights and to enable a company to do certain things that the Companies Act will only allow if the company adopts a constitution providing for those matters. As examples, certain types of redeemable share are only able to be issued by a company that provides for that sort of share issue in its constitution and the company may only indemnify or provide certain forms of insurance for directors if authorised by its constitution. We can provide full advice as to whether you should adopt a constitution and what that constitution should provide for, depending on your business requirements. Shareholders may also consider entering into a contract known as a "shareholders agreement". Unlike a constitution, a shareholders agreement is a private contract in which the shareholders may agree certain legally binding matters as to how they, as shareholders, will deal with issues that arise between them as shareholders. A shareholders' agreement needs to be consistent with the Companies Act but can provide for matters that shareholders do not wish competitors or the general public to be aware and therefore do not wish to record in the company's constitution or relate to how they will deal with matters as shareholders that are additional to the provisions of the Companies Act 1993. Once registration takes place the company is issued with a certificate of incorporation. A company may then commence trading. You can also apply for a company IRD number and register for GST at the same time as incorporating your company, although your accountant can arrange this separately. Companies will need to comply with our relevant legislation, such as all relevant tax statutes, the Financial Reporting Act 1993 (in respect of preparation and/or auditing of accounts) and potentially the Securities Act 1978 (if issuing shares, debt instruments or other securities to the public). We can provide all relevant advice in respect of these requirements. Overseas Companies under the Companies Act 1993 An "overseas company" is defined by the Companies Act 1993 as a body corporate that is incorporated outside New Zealand. The Companies Act requires every overseas company that "carries on business" in New Zealand to register as an overseas company as set out in the Companies Act and the Companies Act provides that an overseas company and its directors commit an offence if they do not do so. The first thing an overseas company must do before "carrying on business" in New Zealand is reserve its name. It must apply for registration to the Registrar of Companies within 10 working days of commencing business in New Zealand. Where any of the details relating to the overseas company change, the change must be filed with the Registrar of Companies within 20 working days. Note that Australian overseas companies do need to register but do not need to file certain changes with the Registrar of Companies due to an information sharing arrangement between the registries in New Zealand and Australia. Apart from its general meaning of "carrying on business", an overseas company carries on business in New Zealand if it establishes or uses a share transfer office or a share registration office in New Zealand or administers, manages or deals with property in New Zealand as an agent, personal representative, or trustee – whether it does this through employees agents or any other manner. Section 332(a) of the Companies Act 1993 states an "overseas company" does not carry on business in New Zealand if it merely:
- Is or becomes a party to a legal proceeding or settles a legal proceeding or a claim or dispute; or
- Holds meetings of its directors or shareholders or carries on other activities concerning its internal affairs; or
- Maintains a bank account; or
- Effects a sale of property through an independent contractor; or
- Solicits or procures an order that becomes a binding contract only if the order is accepted outside New Zealand; or
- Creates evidence of a debt or creates a charge on property;
- Secures or collects any of its debts or enforces its rights in relation to securities relating to those debts; or
- Conducts an isolated transaction that is completed within a period of 31 days not being one of a number of similar transactions repeated from time to time; or
- Invest its funds or holds property.
As it is potentially an offence to "carry on business" in New Zealand without registering as an "overseas company" on the New Zealand Companies Office Register, if you are in any doubt, you should contact us and take legal advice. Overseas Companies under the Financial Reporting Act 1993 Generally speaking, the Financial Reporting Act 1993 ("FRA") prescribes requirements of financial reporting by issuers of securities to the public and certain other entities – and this includes "overseas companies". The FRA generally prescribes what financial statements need to be filed by reporting entitles and ensures that the financial statements comply with generally accepted accounting practice and give a true and fair view of the entities affairs. Together with the Companies Act 1993, the FRA sets out which entities are exempt from the financial reporting requirements and whether an auditor is required to be appointed in respect of financial accounts prepared. The FRA provides that "overseas companies" must register financial statements that comply with the FRA unless the overseas company meets certain requirements of the Financial Reporting Act 1993 or can take advantage of an exemption to the FRA. Among other things, there are a number of exemptions that apply to overseas companies trading in New Zealand which have similar reporting standards in their country of origin as New Zealand. However, you will need specific legal advice on these matters. The FRA not only applies to "overseas companies" as defined in the Companies Act 1993, but it will also apply to a "large" company (as defined in the FRA) that has shareholding held by overseas legal persons (including overseas companies/body corporates or persons not ordinarily resident in New Zealand) of 25% or more. It also applies to any subsidiary (another technical definition) of such a company. The Financial Reporting Act 1993 is a very technical statute and its application can create accounting, audit and reporting obligations for an "overseas company" that can be quite difficult or costly to comply with. As a consequence it is exceedingly important to get advice from New Zealand lawyers and accountants prior to commencing business as an overseas company in New Zealand. Partnership Partnership is defined in the Partnership Act 1908 as the relationship that subsists between persons who carry on a business in common with a view to profit. A partnership is usually established by partners (who can be individuals or other "legal persons" such as companies) entering into a partnership agreement in writing. The Partnership Act 1908 and general case law regulate partnerships. However, the general rules in the Partnership Act can be varied by agreement between the partners and a partnership agreement is normally recommended, since the Partnership Act 1908 only provides the barest essentials in respect of the setting up, management and termination of a partnership. The acts of every partner in carrying on the business of the partnership will bind the partnership. Each partner is liable jointly and severally for the liabilities of the partnership. To avoid disputes down the track, we usually recommend that a partnership agreement should deal with (among other things) the following essential matters:
- Details regarding each partner's contributions and entitlements;
- The rights and obligations of the partners;
- Details regarding operation and management of the partnership;
- How defaults by partners and disputes will be handled;
- The term of the partnership; and
- How termination occurs and how termination is handled.
Limited partnerships Limited partnerships are a form of partnership involving general and limited partners and are a relatively common investment vehicle worldwide. In limited partnerships, the General Partners transact the business of the partnership while limited partners passively invest in that partnership and are liable only to extent of their capital contribution to the partnership. Many countries have international treaties in respect of limited partnerships which make this an effective investment vehicle. This form of partnership can have benefits for overseas investors who wish to retain some degree of anonymity in respect of their investment, as in almost all cases the identities of the limited partners do not need to be publically revealed (although details are required to be given to the Registrar of Limited Partnerships). When considering whether to trade as a limited partnership in New Zealand, both detailed legal and accounting advice is recommended.