About Companies

What a Company Allows You

  1. Security- It allows you to secure your private assets from the consequences of business failure. Many of you would say perhaps that today in light of many lenders requiring private company shareholders to give personal guarantees, that this is now not as advantageous. This is correct, but we submit that in the area of trade creditors there are still advantages in having the protection of limited liability.

  2. Control - It allows people, because of its structure to control their affairs without owning their business entirely themselves. Companies by the use of non-voting shares can effectively allow the capital to remain in one set of hands while the control remains in another. This is an essential advantage from the tax planner’s point of view. If companies control the splitting ability it can be used so that as a company grows the accretion in value to the assets due to:

    1. Inflation
    2. Retaining earnings
    3. Gifting Programmes

    Can be legally passed to and held by one group of shareholders while the control remains in some other group’s hands.

  3. Tax Status - A company is for taxation purposes a separate legal entity and is taxed as such. This means that people forming a company have created another tax entity (and is taxed as such) for themselves outside of spouse and family which can be used for tax planning purposes.

What are “Public” and “Private” companies?

The matter of whether a company is a public company or a private company is important for tax purposes because tax treatment of particular transactions differs depending on the status.

  • Public: A public company is one that meets certain criteria such as stock exchange listing.

  • Private: A private company is any company that is not a public company.

N.Z Company Law Changes

From 1 July 1994, company tax changed to a line up with the company law reforms enacted in the Companies Act 1993.

The principle company law reforms that affect the treatment of companies include:

  • Companies were permitted to repurchase their own shares.
  • Companies could redeem share capital without the approval of the court.
  • The amalgamation of companies was simplified.
  • Shares were no longer required to have a nominal or par value.
  • The company was required to have a constitution rather than a memorandum and article of association.

One of the main areas affected by the changes in tax was the reforms that related to the dividend provisions as to returns of capital and repurchase of shares, as well as the provision of roll-over relief for asset and liability transfers between amalgamating companies.

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Some content was obtained from the IRD and incl without change to ensure total accuracy and compliance with current law.