Advantages and Disadvantages

Rules and Constitution
The company may have a document known as a constitution, which outlines how the company will be operated. It is a document that sets up the rules for running the business and even though you don't have to have one, it is highly recommended that each company sets up its own.

If a company does not set up its own constitution, the default constitution contained in the Companies Act will apply to the company. Even though the draft Constitution in the Act covers most areas, it is still advisable to design a constitution specifically to meet the needs of your business, especially if there are other shareholders involved.

A properly drafted constitution may save a lot of arguments and headaches later when and if disputes arise.

Annual Meeting
Every company must hold an annual meeting of shareholders once in each calendar year. The meeting must be no later than six months after the company's balance date (ten months for an exempt company as defined in the Financial Reporting Act 1993 if all shareholders agree) and no later than 15 months after the previous annual meeting.

A company does not have to hold its first annual meeting in the calendar year of its registration, but must hold that meeting within 18 months of the date of its registration.

Appointment of Auditors
At each annual meeting, a company must appoint an auditor to hold office until the next annual meeting, unless a unanimous resolution is passed at or before the meeting which stipulates that an auditor is not necessary. There are, however, some classes of companies that must always appoint an auditor.

These are:

  • A New Zealand subsidiary of a company that is incorporated outside New Zealand.
  • A company in which 25% or more of the voting power is controlled by overseas interests.
  • A company that is an issuer of securities within the meaning of section 4 of the Financial Reporting Act 1993.

What is a Certificate of Incorporation?
Once your company has been registered you will be issued with a Certificate of Incorporation. This is the "birth certificate" of the company and simply states that the company is now "born" and has been incorporated from the date shown on the certificate.

Basic Features of a Company
The following are the main features specific to most companies:

  1. The company is incorporated. That is, it is recognised as a legal individual in the eyes of the law, and quite separate from those who formed it and those who run it.

  2. The company gives it shareholders limited liability. That means, the shareholders are not personally liable for the actions of the company and will only need to contribute any unpaid monies on the shares they have taken out in the company, should the company be liquidated etc.

  3. A company can enter into contracts, own property, sue and be sued in the normal way.

  4. Each company will be regulated under the Companies Act 1993.

  5. The name of the company must be approved and must not resemble the name of another company or infringe other intellectual property requirements, such as for a trademark etc.

  6. The company continues in existence indefinitely, except where it closes due to liquidation or being struck off the register.

  7. The death of any shareholder or director does not affect the company, which carries on.

  8. Ownership in the company can change periodically by transferring shares from one party to another.

  9. The directors are responsible to the shareholders for the day to day running of the business and must act in good faith and in the best interest of the company and its shareholders.

  10. A company needs only one shareholder and one director to be operational.

  11. Shareholders have a number of options, which can give them remedies against any directors who breach their duty of care.

  12. A company can draft up its own constitution, which sets out rules for managing the company, including setting out clearly controls and how directors can be elected etc. The default constitution in the Act will apply if the company does not set up its own constitution.