Most people have heard of resolutions for companies, but at certain times the Companies Act 1993 (the Act) requires companies to issue certificates. We were recently asked what certificates are, when they need to be issued, and how certificates differ from resolutions. These are great questions and we answer them here so more people can have the information.

Both resolutions and certificates are important for appropriate decision-making, due process, and to ensure good governance.

 

What is a resolution?

In meetings (or via email if a decision is needed outside of a meeting), decision-makers will typically discuss something and make a decision. A resolution is the record of that decision. Resolutions must be recorded in the minutes. Schedule 3 of the Act provides a good overview of what is required for board meetings. It is common for company constitutions to include more detail and process around company meeting obligations.

 

When are resolutions needed?

It is advisable to record all important director decisions as resolutions. One important situation requiring a resolution or contingent on approval by special resolution is when a company wishes to enter into a major transaction. This might relate to the acquisition or disposition of assets the value of which is more than half the value of the company’s assets before the acquisition or disposition.

Resolutions are also needed in many other situations, including when adopting a constitution, deciding on the consideration for which shares will be issued, or deciding to exercise an option to redeem a share.

 

What is a certificate?

A certificate is more formal in nature than a resolution and sets out information which directors certify as being true. Certificates are only required in certain situations.  Companies will make many more resolutions than they will issue certificates.

Certificates are typically required to be provided to the Companies Register where they will be publicly accessible. Anyone can do a search on an incorporated company. For example, a search of ‘documents’ for a large company will show many examples of certificates the company has provided to the registrar. The register promotes transparency and accountability, which is intended to help encourage good governance and discourage behaviour by directors that may harm shareholders.

 

When are certificates needed?

When certificates are required by the Act it is common that a resolution is needed first. For example, when directors are determining the consideration for the issue of shares they will vote and there will be a resolution. Only then are they able to sign a certificate and provide that to the Registrar.

Some other examples of when certificates are typically needed include:

  • When the board passes a resolution for the issue of options or convertible financial products, an offer to acquire shares, or for distributions to shareholders
  • When the company is amalgamating with another company
  • If the company has a listing agreement with a stock exchange, after the registration or a transfer of company shares
  • When a director is appointed or removed
  • If authorising a payment, benefit, loan, guarantee or contract to a director
  • If authorising liability insurance for directors or employees.

 

Consequences of not issuing certificates:

  • Fines of up to $5,000 apply for failure to comply with the obligations to provide certificates for shares or failure to sign a certificate of solvency when necessary
  • The company must keep a copy of all certificates for the last 7 years at its registered office
  • Shareholders and any authorised person are able to give notice in writing to view certificates.

 

This article is not a substitute for legal advice and you should consult your lawyer about your specific situation. Please feel free to contact us at Parry Field Lawyers:

Many people mistakenly believe it is best to register a company to operate as a self-employed contractor. In reality, what is ‘best’, depends on your circumstances. We get asked a lot about these options so let’s look at a common misconception.

Isn’t registering a company best for limiting liability?

We tend to encourage entrepreneurs to set up companies. Registering a company creates a separate legal entity which means the company rather than the owner becomes liable if things go wrong. If you deal with multiple creditors this legal separation might be useful. However, company structures do not protect in all situations. If the owners are also managing the company as directors, they are still exposed to certain duties and liabilities as managers. Having a company structure could allow you to get investors in more easily as well – we discuss that in this article.

If you have few creditors and low risk generally, the idea of limiting liability may not be potential reason enough to register a company. Instead, if you are a sole trader it may be prudent to insure yourself against other industry-specific risks that might attach to you, for example, by taking out Professional Indemnity and Public Liability Insurance.

What are the other options?

Company or sole trader structures will work best for many people. However, we recommend thinking about the future, and how your circumstances might change. If you are likely to end up employing people, dealing with multiple creditors and managing complex inventory, it might be best to register as a company from the outset.

There are numerous options other than companies and sole trading, which is why we developed this useful comparison and our Startups Legal Handbook. We look beyond the obvious when we provide advice. We would be pleased to help you tease out your circumstances in more detail to help determine the best legal structure for you.

Should you require assistance, please feel free to contact Steven Moe stevenmoe@parryfield.com, Michael Belay michaelbelay@parryfield.com, Sophie Tremewan sophietremewan@parryfield.com, Yang Su yangsu@parryfield.com at Parry Field Lawyers.

The Limited Partnership regime was introduced fairly recently in New Zealand through the Limited Partnership Act 2008.  As such, limited partnerships may not be as familiar to Kiwi entrepreneurs and founders.  In this article, we highlight a few of the advantages and disadvantages of choosing a limited partnership for your business structure.  In our view, they represent a relatively simple structure which can really be useful in the right situation.

 

What is a Limited Partnership?

Limited partnerships are a corporate structure that combine some key features of companies (such as separate legal personality) and partnerships (such as tax pass-through treatment).  In a limited partnership, on entity is the general partner(s) who manage(s) the limited partnership (day to day running) while other investors are limited partners who act as silent partners (see diagram below).

This structure is often used by venture capitalists or fund managers as the corporate vehicle for investor partners to invest their funds.  For more information on the basic requirements of a limited partnership, along with a comparison of other structures, please see here.

Why choose a Limited Partnership?

Positive Comment
Liability is ring-fenced A limited partnership is a separate legal entity, and limited partners’ liability is restricted to contributed capital
Effective practical and legal control Only general partners may manage the affairs of the limited partnership
Tax pass-through treatment Tax consequences of the limited partnership pass directly to the partners
Privacy Identity of limited partners and contents of partnership agreement do not have to be publicised

 

Why wouldn’t I choose a Limited Partnership?

Drawback Comment
General partner is jointly liable with the limited partnership for the liabilities of the limited partnership Often addressed by choosing a limited liability company to act as general partner, providing liability ring-fencing
More involved set-up All limited partnerships require a written partnership agreement
Investors negotiate their rights and obligations E.g. Right to remove/appoint general partner(s), exit rights, pre-emptive rights
Financial Markets and Conducts Act 2013 A partnership interest in a limited partnership may be a financial product requiring FMCA compliance

We have helped many founders and companies structure their business and each situation is unique.  If you think a limited partnership may be a suitable option for your business, feel free to reach out if you would like specific input on your context.

If you enjoyed this content then we also have a guide for people doing business in New Zealand which you can download for free here.

 

 

 

 

 

 

 

 

 

 

 

 

 

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