This guide is a summary of information aimed at helping companies and their directors to keep in line with the requirements of the Companies Act 1993. However, it is of value to note that the guide is not to be taken as a form of legal advice of any sort to business owners neither is it a complete guide to the Companies Act 1993. It is merely a quick â€śsummaryâ€ť of the act which means business owners are obliged to make sure their company operates in accordance to the full Act.
- Company Registration
- What is a Company?
- Starting a Business
- Company Names
- Directors and Shareholders
- Business Structure
- Registered Office and Address for Service
- Why Form a Company?
- How to Form a Company
- Books and Registers
- Userful Links
What is a Company?
When an individual chooses to establish a company, they have the choice of choosing between the main companies structures. They may choose between being a sole trader, a registered company, or a partnership. Operating as a sole trader requires no registration
with the Companies Office but Partnership and Company structures do. Here, we are only concerned about the company structure.
Basically, a company is a business structure that legally allows a business owner to operate his/ her organization as a separate entity. That means the companyâ€™s assets and liabilities are kept separate from its owners and shareholdersâ€™ assets.
A company comes into existence once its name has been reserved and incorporated under the Companies Act 1993. Once registered/ incorporated, a company becomes an independent legal entity and becomes recognized as separate from its owner or shareholders. A company may have limited or unlimited liability, with limited liability being the most common.
A company has certain characteristics:
- A name which have been reserved by the Companies Office.
- At least one share, one shareholder and one director â€“ the shareholder and director maybe the same person.
- Addresses for registered office, communications and service â€“ all 3 maybe the same but must be physical addresses.
Starting a Business
In New Zealand, the Companies Office is in charge of the reservations and approval of company names.
A company in New Zealand or a foreign company with plans to run a business in New Zealand (under the company business structure) cannot do so unless the desired name has already being reserved and approved by the Companies Office under the Companies Act 1993 (sections 20 & 333(1)).
A company is allowed to change its name at any point, provided the name is not already in use by another business. To do so, the business must first search the Companies Office database for the desired name and reserve it, if available. Once reservation is confirmed, the director(s) are required to pass resolution to change the name, after which they must then inform the Companies Office of the change.
Registering a company name only ensures the same name will not be used by another business entity. It does not protect the companyâ€™s Trade Marks and intellectual property. These must be registered separately.
- Sole Trader: Anyone can do business as a Sole Trader. If you have a product or service you want to take to the market, you can work as a sole trader, which puts you in complete control of your business. In this case, all of the profits are yours to keep. That also means any loses, debts, liabilities or other responsibilities that “the business” incurs are yours to deal with. To become a sole trader is easy. It requires no legal paperwork or registration. For this reason alone, many businesses in New Zealand start off as sole traders before stepping up and incorporating a company.
- Partnership: A partnership structure, on the other hand, involves pooling your assets with one or more people into one business. An example of this type of business structure is when two or more engineers or lawyers come together to form a firm that provides expert advice or consulting services to their clients.Under this business structure, unlike the sole trader structure, any profits as well as losses, liabilities, debts etc. are shared between the partners. Similar to Sole Traders, these types of businesses are established based on formal or informal partnership agreements and do not require any other legal paperwork. Partnership agreements typically set out how profits and losses are shared.
- Companies: When a company is registered, the business becomes a separate legal entity. Shareholders own the business, but are separate from the business every way, particularly when it comes to liability. In other words, a registered business owns all its assets and liabilities, which means your responsibilities for any debts incurred by the business are generally limited to the amount youâ€™ve invested as share capital in it.
Registered Office and Address for Service
In New Zealand, the Companies Act 1993 strictly requires all companies to have a Registered Office Address and an Address for Service.
Both need not be at the companyâ€™s business location but may be the same address or kept separate. However, it is required that both be a physical location not a postal centre or document exchange. The address for communication on the other hand may be a postal
address, needed mainly for communication between the directors of the business and the Companies Office.
For online communication, a working email address is required. These addresses are first requested during the companyâ€™s incorporation process.
A company wishing to change any of the addresses above may do so by first contacting the Companies Office or logging into their website with the details chosen during the company registration process. The change usually takes at least 5 working days to come to effect.
Why Form a Company?
There are many reasons why it is recommended that a company be incorporated. They are:
Limited Liability – Once a company is registered, it becomes a limited liability company in the sense that it is now a completely separate entity from its directors and shareholders. All registered companies are limited liability companies unless otherwise stated by the companyâ€™s constitution (a rare situation). Although it is quite common to say â€ślimited liability companyâ€ť, it is in fact the liability of the shareholders that is limited.
A limited liability company is accountable for the debt and other liabilities it incur and not the shareholder. That is, if a company runs into debt and a liquidator is appointed, the company will pay for its own debt and the shareholders are only required to pay off any
money owing on their shares. However, if their shares have been fully paid for prior to the companyâ€™s liquidation, they will have no further liability to the companyâ€™s creditors.
By contrast, a sole trader or a person in partnership will not be protected from any loss incurred by the business. They will be personally responsible for any debt owed by the company.
Other benefits of incorporating a company include:
- Continuity â€“ A company will continue to exist long after their founding members are no more unless it is removed from the Companies Office register. It often can survive through the rigors of changing ownership and partnership over the many years it exists. With a sole trader or partnership on the other hand, the company may seize to exist as soon as the owner or one of the partners retire or dies.
- Transferable Shares â€“ Shares of a company can be partly or wholly disposed of or transferred to another business entity or individual by its shareholders. A partnership interest on the other hand if often quite difficult to assign or transfer as such.
- Control â€“ If a shareholder holds on to enough shares to ensure voting power, that shareholder may take part in selecting or removing directors without being concerned about the day-to-day running of the business.
How to Form a Company
Forming a company in New Zealand under the Companies Act 1993 is relatively easy and can be done online or by paying a specialised company to do it. The process is quick, easy and relatively cheap.
To register a company yourself, visit the Companies Office online and follow the steps provided. First, you will have to search for the name in the Companies Office database to make sure it is available before proceeding to the next step â€“ which is filling in the forms
provided and submitting it.
Books and Registers
According to the Companies Act 1993, all registered companies are required to keep certain records. They are:
- Companies records [described in section 189 of the Companies Act]
- Share registers [described in section 87 of the Companies Act]
- Accounting records [described in section 194 of the Companies Act]
These record keeping requirements are described below:
- Company Records
Section 189 Company Act
This section requires a company to keep a number of records in its Registered Office. These include: the companyâ€™s constitution minutes of shareholder and directors meeting, financial statements, accounting records and the share register.
Although it is generally required that these records are kept in the companyâ€™s registered office, they may be kept in other locations within New Zealand provided the Companies Office is made aware of the change in advance â€“ usually a minimum of 10 working days.
Sections 87-94 Companies Act
A company must keep a register containing all its share allocation and state:
- Whether there are any restrictions or limitations on their transfer and
- The location of any document that contain such restrictions or limitations
The share registered is also strictly required to contain the following pieces of information in
- Name (s)
- Last known (or current address) address and
- Number of shares owned
The share register must also contain the date each shares were issued, repurchased or redeemed, and/ or transferred.
The share register may be maintained by the company itself or by a third party â€“ i.e. agent
(e.g. a professional share registry registered accountant).
Accounting Records and Appointment of Auditors
Sections 194 and 196 Companies Act
These sections of the Companies Act require every company to strictly prepare an annual financial statement. The statements must be audited unless all shareholders in the company agree otherwise. If an auditor is to be appointed, the appointed is usually made at each Annual Meeting. Under the Financial Reporting Acts 1993, some companies must file annual financial statements and must always appoint auditors to check their statements.
It is the responsibility of a companyâ€™s board to ensure that its accounting records are kept. These records must:
- Correctly record and explain all of the companyâ€™s transactions
- Ensure that the companyâ€™s financial statements can readily and properly be audited
- Ensure that the financials of the company can easily and accurately be determined at any given point in time
- Enable the directors to make sure the companyâ€™s financial activity constantly meets the requirements of the Financial Reporting Act 1993
Companyâ€™s Annual Meeting
The Companies Act 1993 requires that every company must hold an annual meeting of shareholder, at least once every calendar year. Ideally, the meeting must be held with 6 months after the companyâ€™s balance date but not later than 15 months after the previous
A company is not necessarily required to hold its first annual meeting in the calendar year of its incorporation but must ensure the meeting is held within the first 18 months after its incorporation.