How To Form (Incorporate) a Company in NZ

9 November, 2021 | Wade Hansen

Whether you are starting a new business or buying an investment property, forming a company for your new venture is likely to be on your ‘to do’ list. But what is actually involved in forming a company?  Our partner Wade Hansen takes you through the steps of incorporating a limited liability company in New Zealand.

Decide if a limited liability company is the right choice for your business

Businesses can be set up as a sole trader (you by yourself under your own name), a partnership (you and another person), trading trust (managed by trustees) or limited liability company (a “company” — the most common form of business structure).  Each of the different structures has different implications for how your business will run – for example some of the things that are affected by different types of business structures are:

• the tax that will be owed
• the laws that you need to abide by
• the information you can keep private or must make public
• Your personal liabilities and obligations
• The way that you can sell the business or share it with others
• Ability of other parties (e.g. other shareholders) to influence the business

It is advisable to discuss with your lawyer and your accountant which structure is the best option for you and your business. Assuming you decide to incorporate a company, you will need to make the following decisions:

Decide on Directors

Directors are the people who control the business. There could be just one director, or several. It is important to note that the age of the “silent” or “nominee” director is over – company directors have legal obligations to be active in their duties as directors.  Anyone who is signing on to be a company director should make sure they fully understand all their duties, obligations and liabilities under the various laws (including, for example, the Health and Safety at Work Act 2015, The Companies Act 1993 and the Financial Markets Conduct Act 2013)

Decide on Shareholders & Shareholdings

Shareholders are the owners of the business.  Directors can (and often are) also shareholders, but a shareholder does not have to be a director. This is an option where someone wants to benefit financially from the business, but does not want to be active in the day to day affairs of the business.  The percentage of shares to be allocated to each shareholder reflects the percentage of ownership each shareholder has.

Decide if your company is going to have a Shareholders Agreement

A Shareholders’ Agreement is a private contract between the shareholders and set out their agreement about important matters such as how they plan to run the business and what will happen if or when somebody wants to sell their shares, how the shares are to be valued and how the business will be funded. See our article of Shareholders’ Agreements here.

Decide if your company is going to have a Company Constitution

We generally recommend a constitution for those companies with a range of un-related shareholders – the same shareholders we recommend have a Shareholders Agreement (if you don’t have a constitution then the company’s procedures are governed by the Companies Act)

Reserving your company name

Once you have decided that a limited liability company is the right structure for your business, you will need  to reserve your company name with the Companies Office. Your commercial lawyer will need to make sure your company name isn’t already taken, by searching the companies register on the website first. Read more about choosing a company name here. The Companies Office will email your business lawyer  to let them know if the business  name has been approved.

Once your company name is approved you must then complete the incorporation process within 20 working days, otherwise the name reservation expires and you’ll have to start again.

The Incorporation Process

To complete the incorporation process you need to provide your business lawyer with the particular details of your company, including:

• The full names and addresses of the Directors, and the date, city and country of their birth;
• The full names and addresses of the Shareholders;
• How many shares the company will have and how they will be divided between the shareholders (if there is more than one)
• whether you want to register the company for tax at the same time (recommended if the company will have annual turnover of more than $200, but it can also be done at a later date)
• the company’s address – this will become the registered address (it can be a home address)
• the month in which the company will file its annual return (the company’s annual return is a report about whether any of the details above have changed during the year – it is distinct from the company’s tax return which will be filed by your accountant)
• whether the company has a constitution

Once your business lawyer has completed the application for incorporation and paid the fee, the Companies Office will generate directors’ and shareholders’ consent forms to be signed and returned to them. This must also be done within the 20 working days.

Having completed all of the above your company will then be incorporated and you will receive a Certificate of Incorporation from the Companies Office.

If you require assistance with your business structure, or with company incorporation and deciding whether your company needs a Constitution and/or a Shareholders Agreement, contact the commercial team at Smith and Partners, contact expert business lawyer, Wade Hansen by phone at 09 837 6885 or email wade.hansen@smithpartners.co.nz