Limited Liabilities Companies
General information about New Zealand LLC
New Zealand Limited liability Company (LLC) has proved to be the most popular and successful form of business structure. Companies help foster confidence in businesses by governing the relationships between investors (shareholders), directors and creditors and by giving stakeholders a clearer picture of who and what they are dealing with.
A company exists as a formal and legal entity in its own right. It is separate from its shareholder(s) or owner(s) - the person or group of people who own shares in the company. It is similar in structure to a partnership, however its members are not personally liable for the entity's debts and liabilities. Shareholders of a limited liability company are not liable for the business debts of the company (subject to any personal guarantees given) - they are only liable (to the liquidator) for any unpaid money owing on their shares.
As for international business activities and utilization by non New Zealand residents, this company is limited in use to corporate trustee services or holding of assets such as intellectual property and so. That is because a New Zealand company usually has to pay tax on its worldwide income. So if income is made, then tax registration is required and filings of tax need to occur. This structure has limited use but is relatively cheap.
Once registered in New Zealand Tax Department, LLC can also be utilized as an agent, i.e an agency agreement is entered into whereby those companies become agents for say other offshore entity in other jurisdiction and the company earns minimal commission or flat fee on which it pays a standard corporate tax rate.
Characteristics of Limited Liability Company
- At least one director (individuals only, not body corporate),
- At least one shareholder,
- New Zealand registered office (physical New Zealand address, not a postal box or document exchange),
- No share capital required at the moment of incorporation,
- Constitution adoption is not compulsory,
- Registration fee is applicable,
- Tax registration is not compulsory if a company is not going to commence trading,
- Annual maintenance with the Register of the Company includes filing annual returns annually and financial reporting for some types of companies,
- May be subject to compulsory audit,
- May pay taxes on worldwide income.
- More credibility in the marketplace,
- Easier to attract funds and investment (investors can become shareholders),
- Easier to sell the business or pass it on to others as it is a separate entity,
- The shareholders' liability for losses is limited to their share of ownership of the company (except when company directors have given personal guarantees for company debts or where a company has been trading while insolvent or is considered to be trading recklessly).
- Directors need to clearly understand their responsibilities,
- Limited liability advantages are often eroded in practice by the need to provide personal guarantees to lenders or creditors.
Regulation and taxation of New Zealand Limited Liability Companies
New Zealand Limited Liability Companies are regulated by the Companies Act 1993.
The Companies Act 1993 permits investors to form a company on delivering the prescribed application form and consents of shareholders and directors to the Companies Office and paying a prescribed fee. In return the State confers the privilege of limited liability on those investors. This means they are only liable for the amount they have agreed to pay for their shares in the company - hence the term limited liability company.
A companys activities are regulated by the text of the Companies Act 1993 and, where adopted, by an optional document called a constitution. Directors manage the business and affairs of the company. They are accountable to the company for the proper performance of their duties. These duties are written into the Act in a comprehensive but not exhaustive list.
A company does not need to register any financial documents with the Companies Registrar each year unless it:
- Has issued securities to the public (which includes raising money from the public, seeking public investment or seeking public participation in a project, all through a registered prospectus), or
- Is an overseas company that is incorporated outside New Zealand and carries on business in New Zealand, or
- Is a subsidiary of a company or body corporate incorporated outside New Zealand, or
- Is a large company that has between 25% and 50% of its shares (that is, below the level qualifying the company as a subsidiary under 3 above) held or controlled by:
(a) - A company or body corporate incorporated outside New Zealand or a subsidiary of such company or body corporate; or
- An individual (individuals) not ordinarily resident in New Zealand.
When setting up a company you may apply for tax registration and get a tax payer number IRD number. A company must also been registered for GST (Goods and Services Tax, New Zealand analogue of VAT) if its turnover (sales and income) for the last 12 months was more than NZ$60,000, or if turnover in the next 12 months is expected to be more than NZ$60,000.
As soon as company goes into business, it needs to start keeping records (income, profit and losses, asset records, depreciation records etc). The breach of these obligations may cause fine of up to NZ$10,000.
Please remember, the first year is not tax free. Worldwide income of a LLC may also be taxable in New Zealand depending on the source of income and various rules of Double Tax Agreements with different countries where the income comes from. The current tax rate for companies is a flat 28%. GST rate is 15%.
For most businesses the accounting year begins on 1 April and ends the following 31 March.