What is a Limited Liability Company (LLC)?

22 February, 2024 | Tam Irvine

A Limited Liability Company (LLC) is a business structure that functions as a separate legal entity from its owners, offering them limited liability protection. This means that in New Zealand, where LLCs are particularly popular among both large and small businesses, the personal assets of the shareholders are safeguarded from the company’s debts and liabilities. The unique appeal in New Zealand stems from the balance an LLC offers between flexibility and protection: the company and its Director(s) are responsible for legal obligations, rather than the individual owners. This makes LLCs an ideal choice for those looking to mitigate personal financial risk in business ventures.

The Requirements for Incorporating a Limited Liability Company in New Zealand
Forming an LLC in New Zealand is relatively straightforward. The process involves registering the company with the New Zealand Companies Office. To successfully form an LLC, you will need to meet the following requirements:

• At least one director who lives in New Zealand, or is a director of a company registered in Australia;
• At least one shareholder;
• Share allocation details;
• A unique name for the LLC; and
• A registered office address in New Zealand.

Advantages of Operating an Limited Liability Company in New Zealand
One of the main advantages of an LLC is the limited liability protection it offers. This means that if the company faces financial difficulties, the personal assets of the shareholders are generally not at risk. Additionally, LLCs in New Zealand often benefit from tax efficiencies and flexibility in management and ownership structures. These aspects make LLCs an attractive option for entrepreneurs and investors in New Zealand.

Disadvantages of a Limited Liability Company
There are legal obligations under the New Zealand Companies Act which you are required to meet when operating an LLC. It’s important to understand these to ensure compliance.

Liability in New Zealand’s Limited Liability Companies
Shareholders’ liability in a New Zealand LLC is limited to the unpaid amount on their shares (if any – many companies are formed and shares issued for no consideration, so no money will be payable to the company in those circumstances). If they have fully paid for their shares, they usually have no further liability to the company in case of loss or insolvency. However, in cases of insolvency, if it is found that the company’s business was carried on in a reckless manner or with gross negligence, then thedirectors can be held personally liable.

Impact of Personal Guarantees on Limited Liability Company Protection
Directors and shareholders should note that since an LLC limits individual liability, various businesses your company engages with for services – ranging from your commercial landlord to suppliers – might ask for personal guarantees in their terms and conditions. When a private individual gives a personal guarantee, it can supersede the liability limitations of the LLC structure.

ACC Levies and Limited Liability Companies in New Zealand
Typically, ACC bases your levy on the company’s business activities, rather than on the roles of individual shareholders or directors. It’s wise to contact ACC to ensure your business obtains the most cost-effective coverage.

Tax Considerations for Limited Liability Companies in New Zealand
LLCs in New Zealand are taxed on their profits. The current company tax rate is 28%. However, there are certain tax advantages, such as the ability to distribute profits to shareholders who may be taxed at a lower rate.

Compliance and Reporting for New Zealand Limited Liability Companies
LLCs in New Zealand must adhere to certain compliance and reporting requirements. This includes filing annual returns with the Companies Office, maintaining accurate financial records, and, if applicable, registering for Goods and Services Tax (GST).

Conclusion: The Benefits of Choosing a Limited Liability Company in New Zealand
A Limited Liability Company in New Zealand offers a flexible and efficient way to operate a business while providing protection to its owners. It is a preferred choice for many due to its simplicity of formation, ease of management, tax benefits, and limited liability protection. However, it is important to understand the compliance requirements to ensure smooth operation and avoid legal complications.

If you’re considering forming or incorporating a company in New Zealand, expert guidance can be a game-changer. Specialist business lawyer, Tam Irvine is here to help. With his deep understanding of New Zealand’s business environment, Tam can provide the personalised assistance you need to navigate the process smoothly and effectively.

Want to know more?

Complete the form below, and we will get back to you promptly, or contact Tam Irvine on 09 837 6837 or tam.irvine@smithpartners.co.nz