To incorporate or not: Company structures in New Zealand

New Zealand offers a strong business environment that has everything a startup or business needs to succeed. In fact, the World Bank Group rated New Zealand as the world's top ranked economy – outperforming Singapore for the first time ever. Of considerable interest was the group's claim that New Zealand had the most business-friendly regulatory system.

Incorporation comes with a number of requirements including responsibilities for directors.

This is one of the major reasons why starting a business in New Zealand is so attractive. The only question you need to ask yourself is: Should I incorporate?

Limited Liability Companies: Higher costs, greater protection

The true power of a company is that it is a separate entity from its shareholders, who own the business. What this means is that a company's legal nature limits the liability of its shareholders, so if something goes wrong they may not be held accountable.

A company has a number of upfront and ongoing costs to set up, such as an annual filing fee. Most of these stem from documentation and while some are optional, it is always best to have secure documentation in place to govern internal and external relationships. The other side effect of this is that companies limit the control a single person has over the decision-making process.

The first piece of documentation is the company constitution, which sets out the rights, powers and duties of stakeholders – such as a director. Legal advice is essential to ensure that a constitution is drafted and written so to cover all business aspects necessary.

Incorporating can be a great way to reduce personal risk. Incorporating can be a great way to reduce personal risk.

New Zealand's requirements on directors

In New Zealand, a company must have at least one director and one shareholder. The law also states that every company must have one director that either lives in New Zealand or Australia. New Zealand laws state that an individual cannot be a director if they are under 18, an undischarged bankrupt or prohibited from: "directing, promoting or participating in the management of a company under any statutory provisions".

If there is more than one shareholder, it pays to think about a shareholder agreement. It dictates the relationships between shareholders, such as expected dividends. But unlike a constitution, it can be decided and implemented before incorporation.

As each business and the people behind it are unique, it is essential to talk to commercial lawyers who have experience in business structures. Sitting down with a lawyer can ensure that you are aware of your risk profile and which business structure fits your needs.

If you are looking to start up a business but do not know which option is best, make sure you talk to a representative of Wynyard Wood today.

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