Starting a business is exciting, but choosing the right legal structure from the outset is one of the most important decisions you will make. In New Zealand, the most common structure for small to medium businesses is a limited liability company, governed by the Companies Act 1993. Here is what you need to know before you incorporate.

Why Incorporate a Company?

A company is a separate legal entity from its owners (shareholders). This means:

  • Limited liability — Shareholders are generally not personally liable for the company's debts beyond their shareholding. This protects your personal assets.
  • Continuity — A company continues to exist regardless of changes in ownership. Shares can be transferred or sold without disrupting the business.
  • Tax flexibility — Companies are taxed at a flat rate of 28%, which may offer advantages depending on your income level and business structure.
  • Credibility — Operating through a company can enhance your professional image with clients, suppliers, and banks.

Key Decisions Before Registration

Company Name

Your company name must be unique and not identical or similar to an existing registered company. You can search the Companies Register to check availability. The name must end with "Limited" or "Ltd".

Shareholders and Share Structure

You need at least one shareholder. If there are multiple shareholders, you should consider:

  • How many shares each person will hold (and the resulting ownership percentages)
  • Whether to issue different classes of shares (for example, ordinary shares and preference shares)
  • Whether a shareholder agreement is needed to regulate the relationship between shareholders

Directors

Every company must have at least one director who lives in New Zealand (or Australia, if a specific exemption applies). Directors have significant legal duties under the Companies Act 1993, including:

  • Acting in good faith and in the best interests of the company
  • Exercising powers for a proper purpose
  • Not trading recklessly or while the company is insolvent
  • Complying with the Companies Act and the company's constitution

Directors can be held personally liable for breaches of these duties, so it is important to understand your obligations before you take on the role.

Constitution

A constitution is an optional document that sets out the rules for how the company is governed. While the Companies Act provides default rules, a tailored constitution can address matters such as decision-making processes, share transfers, and dispute resolution. We generally recommend having one, particularly where there are multiple shareholders.

The Shareholder Agreement

If you are going into business with others, a shareholder agreement is essential. It is a private contract between the shareholders that covers:

  • Decision-making and voting rights
  • Dividend policies
  • What happens if a shareholder wants to sell their shares (pre-emptive rights, tag-along, drag-along)
  • Non-compete and confidentiality obligations
  • Deadlock resolution mechanisms
  • Exit strategies and valuation methods

Without a shareholder agreement, disputes between shareholders can be expensive, protracted, and damaging to the business. It is far cheaper to get the agreement right at the start.

Registration and Compliance

Once you have made these decisions, registration with the Companies Office is straightforward and can be done online. After incorporation, you will also need to:

  • Register for an IRD number and GST (if your turnover will exceed $60,000 per year)
  • Set up a business bank account
  • Register as an employer with IRD if you will have employees
  • Consider ACC levies and workplace health and safety obligations

How Indus Legal Can Help

Our commercial team advises Auckland businesses on company formation, constitutions, and shareholder agreements. We help you set up the right structure from day one so you can focus on growing your business. Whether you are a sole founder or forming a joint venture with partners, we provide clear, practical advice tailored to your situation.

Contact us on 09 869 4888 or email office@induslegal.co.nz.