FAQ - What is a Company - What you need to know

What is a company?
What you need to know

Every company has certain basic elements:
·A name which has been reserved by the Registrar of Companies
·At least one share, one shareholder and one director
·A registered office where the company records are kept
·An address for service where legal documents can be served
·The Registrar also requests an address for communication
All companies are limited liability companies unless the particular company's constitution provides otherwise. Unlimited companies are rare.

Liability is limited to the company
Although it is common to speak of a "limited liability company", the company is liable in full for all obligations that it incurs. It is in fact the liability of the shareholders that is limited - they are only liable for any unpaid money owing on their shares (subject to any personal guarantees given).

Companies, once registered, have the status of incorporated
A company comes into existence after it is incorporated under the Companies Act 1993. Once incorporated it is recognised in law as an independent legal entity (a body corporate). This means it is treated as being a separate 'person' from its directors and shareholders. It can therefore do many of the same things as a natural person - for example, hold property in its own name, enter contracts, sue and be sued, etc.

Why form a company?
There are a number of reasons why people choose to incorporate a company rather than one of the other business types:

Limited liability
The primary reason for selecting a limited liability company is the protection that it affords to shareholders. This is because once a company is formed, it is regarded as a separate legal entity from its shareholders.

This concept of limited liability becomes important if the company is unable to pay its debts and a liquidator is appointed. Shareholders of a limited liability company are not liable for the business debts of the company unless:

> They have not fully paid for their shares prior to the company being placed in liquidation. In this case they are liable to the liquidator for any unpaid money owing on their shares.

> They have given personal guarantees to lenders or creditors, such as banks or suppliers.

> They are also directors of the company and have ‘traded recklessly’.

By contrast a sole trader or a person trading in partnership will always be exposed and personally liable for business debts that cannot be met by business funds.

Note
Although it is common to speak of a “limited liability company”, it is in fact the liability of the shareholders that is limited. The company is liable in full for all obligations that it incurs.

Continuity of existence
A company will continue to exist until it is removed from the register. It can often survive many changes in ownership or management.
By contrast, a sole trader business ceases to exist if the trader dies or stops trading. Similarly, in the case of a partnership the retirement or death of a partner usually brings that partnership to an end.

Transferability of shares
Shareholders may sell or otherwise dispose of their shares at any time (subject to any restriction imposed in the company's constitution). This makes a company much easier to sell or pass on to others (such as your children) than other business structures.
A partnership interest, on the other hand, is generally not able to be assigned or transferred (you have to end the partnership).

Marketplace credibility
As an internationally recognised business structure, the limited liability company structure enjoys greater credibility and a more professional image in the marketplace than the sole trader option. This is why many businesses in New Zealand start as sole traders, but upgrade to the company status once they become established.

Control by shareholders
In many smaller New Zealand companies the shareholders are also the directors of the company. Often the largest shareholder is the managing director. In larger companies most shareholders have no say in its daily operations.
However, all shareholders that hold voting shares in a company may participate in the election and removal of directors. This gives shareholders the collective right to elect the directors and have the ultimate control of the company without necessarily being concerned in its day-to-day affairs.

Note
This information is intended as a guide only - it is not intended as legal advice. For more detailed information please refer to the legislation or seek legal advice.

[Source: New Zealand Companies Office]

Can I form a company?
Yes you can if you are not:
¤ under 18
¤ an undischarged bankrupt
¤ prohibited for any other reason under the Companies Act or the Protection of Personal and Property Rights Act.

How do I form a company?
You can do this by clicking here.

Is it possible to form a company with just one person?
Yes it is. There needs to be at least one shareholder and one director. However, one person can carry out the two roles/positions.

Do I need an IRD number or register for GST?
Yes, you will need to register for an IRD number for the company. Individual IRD numbers cannot be used for companies. GST registration is based on your turnover; however, it allows voluntary registration as well. We can help you with these too.

Is it safe to use my credit card on your site?
Absolutely. Please refer to our policies to view our privacy and security policy or payment options to choose the most convenient method of payment for you.

How long will it take to form a company?
Orders are only processed Monday to Friday, 8.30am to 5pm. It all depends how soon you can sign and return the forms we send to you.

What if I want to change my company details?
We also offer services whereby you can make changes to your company details. Please visit our services page for more details.