There are many business structure options in New Zealand, including companies, partnerships and Trusts, and you want to be sure you are picking the right one. We frequently assist clients who are considering starting a business navigate the different business structure options to find what best suits their needs. The various business structure options each have their own pros and cons. What the best structure is for you will depend on your particular circumstance, desire and purpose.
The simple and easy structure which are well understood, such as a Company or Sole Trader, will work best for most businesses. If you are purpose driven, a Charitable Trust or Incorporated Society may be more appropriate. Increasingly we are also working with clients who want to merge both purpose and profits and for these clients we assist by creating unique dual structure approaches. In this article we have summarised the key points for the most common structures that are used in New Zealand. We are happy to meet and discuss options with you.
Two other critical points before we look at the options:
- Get your strategy and purpose right before you decide on a legal entity type to use. Each one has positives and negatives so know what your end goal and the impact you want to see is first – after that look at which will help you get there. They are each just tools for empowering you to have impact.
- Second, we are offering legal thoughts on key elements of these structures but there are other considerations too – in particular always ensure you get great accounting and tax input on the financial side of these alternatives.
Now turning to the options:
| Company | |
| Who | Owner = Shareholder Manager = DirectorThe owners may also be the manager |
| Liability | Is a separate legally recognised entity |
| Laws | The Companies Act 1993 governs companies |
| Who signs | The Director |
| If things go wrong | Companies limit liability for the owner* |
| Key documents | None required. Can choose to adopt a constitution or shareholders agreement |
| Visibility | Ownership and management is publicly visible on Companies Register |
| Difficulty to start | Moderate |
* There are certain limited circumstances when the owners of the company may be liable. If the owners are also managing the company as directors, they are exposed to certain liability as managers.
| Sole Trader | |
| Who | Owned and managed by ‘sole’ owner |
| Liability | Not separate from entity |
| Laws | No specific law governs sole traders |
| Who signs | The owner |
| If things go wrong | The owner is personally liable |
| Key documents | None required |
| Visibility | Private and not registered |
| Difficulty to start | Easy |
| Partnerships | |
| Who | Owner = the Partners Manager = the Partners manage |
| Liability | Not separate from entity |
| Laws | Partnership Law Act 2019 |
| Who signs | Partners |
| If things go wrong | Owners are personally and jointly liable |
| Key documents | None required Can choose to have a Partnership Agreement |
| Visibility | Private and not registered |
| Difficulty to start | Moderate |
* One owner can bind all owners.
| Limited Partnership | |
| Who | Owner = Limited Partner Manager = General Partner |
| Liability | Is a separate legally recognised entity |
| Laws | Limited Partnership Act 2008 |
| Who signs | The General Partner |
| If things go wrong | The General Partner Limit liability for the owner** |
| Key documents | Requires a Limited Partnership Agreement |
| Visibility | Private for the Limited Partners, public for General Partner |
| Difficulty to start | High |
* Each Limited Partner will account for tax in accordance with its individual tax position.
** If the owner participates in the management of the business, they will be liable.
| Unincorporated Joint Venture | |
| Who | Owners = Partners Management determined by the Joint Venture Agreement |
| Liability | Not separate from entity |
| Laws | Contract law, but no specific law governs Unincorporated Join Venture |
| Who signs | Each partner |
| If things go wrong | Partners separately liable or as decided by the Joint Venture Agreement* |
| Key documents | None required Can choose to have a Joint Venture Agreement |
| Visibility | Private and not registered |
| Difficulty to start | High |
* Owner will account for tax in accordance with its individual tax position.
| Trading Trust | |
| Who | Owner = settlor/donor gives assets (trust fund) to the Trading Trust on trust for the benefit of the beneficiary Management = the Trustee Company, manages the trust fund and pass on benefits to the beneficiary |
| Liability | Not separate from entity, creates an equitable relationship |
| Laws | Trusts Act 2019 and Companies Act 1993 |
| Who signs | The Trustee Company |
| If things go wrong | The Trustee Company |
| Key documents | Trust Deed |
| Visibility | Private and not registered |
| Difficulty to start | High |
| Charitable Trust | |
| Who | Owners = settlor/donor gives property (trust fund) to the Charitable Trust to benefit the community through charitable purposes Management = Trustees manage the trust fund to advance the charitable purposes |
| Liability | Is a separate legally recognised entity |
| Laws | Trusts Act 2019 and Charitable Trust Act 1957 |
| Who signs | The Trustees |
| If things go wrong | The Trustees |
| Key documents | Trust Deed |
| Visibility | Registered on Charitable Trust Register and if a registered charity on Charities Services |
| Difficulty to start | Moderate |
| Incorporated Society | |
| Who | Management = the Committee manages the funds to advance the purpose |
| Liability | Is a separate legally recognised entity |
| Laws | Incorporated Society Act 2022* |
| Who signs | The Committee, but this depends on the Constitution |
| If things go wrong | The Committee |
| Key documents | Constitution |
| Visibility | Registered on Incorporated Societies Register and if a registered charity on Charities Services |
| Difficulty to start | Moderate |
* This is a new Act which has recently come into force, for more information on the new Act and requirements see our Incorporated Societies Act 2022: Information Hub.
| Co-operatives Companies | |
| Who | Owner = Members/shareholders Governance = Directors |
| Liability | Is a separate legally recognised entity |
| Laws | Co-operative Companies Act 1996 and Companies Act 1993 |
| Who signs | The Directors |
| If things go wrong | Companies limit liability for the owners |
| Key documents | Constitution |
| Visibility | Registered on Companies |
| Difficulty to start | Moderate |
For lots more information on co-operatives visit Cooperative Business New Zealand – https://nz.coop/
If you would like to discuss or set up the above-mentioned business structure or other commercial matters, you can contact:
- Steven Moe, Partner – stevenmoe@parryfield.com
- Michael Belay, Solicitor – michaelbelay@parryfield.com
- Yang Su, Law Clerk – yangsu@parryfield.com
- Sophie Tremewan, Law Clerk – sophietremewan@parryfield.com
