Companies and Limited Liability



Features of a Company
The list below covers the 9 main features specific to a company in New Zealand:

  1. A company is incorporated.
    This means it is given a body and is recognised under law as a legal person. It is separate from the people who formed it and who own shares in it, and it is also separate from the people who work for it.

  2. A company allows liability to be limited.
    This means that shareholders are part owners in the business because they hold shares in it, but they are not personally liable for the actions of the company or for the debts of the company. Their liability is limited to the purchase price of their shares, so that if the company runs into financial trouble and liquidates, they have to pay up only the amount still owing on the price of their shares. This is basically what is known as "limited liability" and every company that has this feature must display the word "Limited" or "Ltd" at the end of its name.

  3. A company is independent.
    That is, it is a person in the eyes of the law and can enter into contracts and own and deal in property, as well as sue or be sued by outsiders.

  4. A company has to comply with the Company's Act 1993.
    Because it is an entity created by law, this means that the law will control how the company functions. The Companies Act 1993 provides the protection of liability to shareholders in the company, but it also requires the company to comply with regulations and requirements such as the filing of annual returns and a notice of changes of its officers, etc.

  5. Directors are responsible.
    The directors, rather than the shareholders, are responsible for the day-to-day management of the company and they have to perform their duties and responsibilities, acting in the interest of the company. They have to exercise their powers, not only to protect the company from reckless trading, but they also have a duty of care to act in the best interest of the company.

  6. Shareholders can bring action.
    Shareholders can bring action against the directors of the company if they breech their duties and they act outside of the interest of the company, as well as the company owners (the shareholders).

  7. A company's shares can be transferred.
    The ownership of shares in a company can be transferred to other parties by way of disposal or sale and on the basis of price agreed between the parties.

  8. The company continues forever.
    The company has continued existence and only dies when put into liquidation. The death of any shareholder, director or officer of the company does not affect it because they are not the company; they are investors or employees of the company.

  9. A company can have a constitution.
    The company may or may not elect to have a constitution. A constitution covers the rules and other issues that the shareholders agree to, and should dictate how the company is to be managed. It will also cover such areas as the powers given to directors and how directors are to be controlled or replaced. The constitution replaces the old papers known as "Articles of Memorandum and Association" that were required some years ago. If a company does not have its own constitution it can elect to adopt the default constitution contained in the Companies Act 1993.