What is a company?

When people decide to start or buy a business, they generally do so in one of three ways: as a sole trader, in partnership, or through a company. Apart from tax registration, there is no formality in trading on your own account. Partnerships usually need an agreement setting out the terms of the relationship. They are governed by the Partnerships Act 1908. In both cases the individual and the partners are responsible for the operation of the business and paying its debts. 

Companies are incorporated under the Companies Act 1993 by application to the Companies Office. A company has:
· One or more shareholders who invest in it by purchasing one or more shares from the company to an agreed amount so it has the money needed to start and develop the business; and
· One or more directors appointed by the shareholders to manage the company's business and make the day-to-day decisions. In small companies the shareholders and the directors are often the same people. Directors owe certain duties of good faith, acting honestly, legally and in the company's best interests for which they are accountable to the company. It is most important to note that a company is a legal entity in its own right, separate from its shareholders. It can hold property in its own name, can sue and be sued and has an indefinite existence unless brought to an end in accordance with the Act. 

While the requirements to operate a company are relatively simple, people usually only incorporate a company to obtain a specific benefit when trading. 

For further information on Companies please visit www.companies.govt.nz or contact their info help line on 0508 266 726.

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