{"id":1558,"date":"2020-12-17T00:20:38","date_gmt":"2020-12-17T00:20:38","guid":{"rendered":"http:\/\/nz.legalvision.com.au\/?p=1558"},"modified":"2023-04-05T19:45:16","modified_gmt":"2023-04-05T06:45:16","slug":"limited-liability","status":"publish","type":"post","link":"https:\/\/legalvision.co.nz\/business-structures\/limited-liability\/","title":{"rendered":"What is a Limited Liability Company in New Zealand?"},"content":{"rendered":"<p><span style=\"font-weight: 400\">When business owners are looking to establish their business, there are a number of different <\/span><a href=\"https:\/\/legalvision.co.nz\/business-structures\/choosing-structure-new-zealand-business-sole-trader-partnership-or-company\/\"><span style=\"font-weight: 400\">business structures<\/span><\/a><span style=\"font-weight: 400\"> they can consider. One of the most common business structures is a limited liability company. Its distinguishing characteristic is that the company is a separate legal entity from its owners, and the company itself is responsible for performing its obligations. Accordingly, owners do not personally take on company liabilities. This article explains the following:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">characteristics of a limited liability company;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">other types of companies in New Zealand; and<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">the extent to which directors and shareholders are responsible for the liabilities of a limited liability company.<\/span><\/li>\n<\/ul>\n<h2><span style=\"font-weight: 400\">What is a Company?<\/span><\/h2>\n<p><span style=\"font-weight: 400\">A company is a type of legal entity that is a separate legal entity from its owners, directors and management team. It can take many of the actions that an individual can take, such as:\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">entering into contracts;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">providing services;\u00a0<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">suing others; and\u00a0<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">being sued itself.<\/span><\/li>\n<\/ul>\n<h2><span style=\"font-weight: 400\">Limited Liability Companies<\/span><\/h2>\n<p><span style=\"font-weight: 400\">A limited liability company is the most common type of company. It is called a \u2018limited liability\u2019 company because the liability of the shareholders of the company is limited. As such, the company is responsible for its own liabilities, and shareholders do not take on any company debts personally, thus protecting shareholders\u2019 personal assets.<\/span><\/p>\n<p><span style=\"font-weight: 400\">For example, suppose a creditor makes a claim against a limited liability company, and that company cannot satisfy that claim out of its own assets. In that case, the creditor cannot take action against the company\u2019s shareholders personally. An exception is if shareholders have provided personal guarantees to that creditor.<\/span><\/p>\n<p><span style=\"font-weight: 400\">Limited liability companies are the most common type of company structure because they limit the personal risk incurred by people when running a business. Limitation of risk helps promote business activity and grows the economy.\u00a0<\/span><\/p>\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400\">A limited liability company can be identified by the \u2018Limited\u2019, \u2018Ltd\u2019, or \u2018Tapui\u2019 (limited) at the end of its name.<\/span><\/p>\n<\/div>\n\n<a href=\"#content-next\"\n   class=\"block p-4 mt-10 text-xl font-bold text-center text-white no-underline bg-gray-800 rounded-t-xl\">\n    Continue reading this article below the form\n    <i class=\"text-xl fa-regular fa-arrow-down\"><\/i>\n<\/a>\n<div class=\"px-6 pt-10 pb-12 mb-10 text-center bg-gray-100 rounded-b-xl sm:px-12 test\">\n    <div class=\"mb-8 text-2xl font-bold text-orange\">\n        Need legal advice?\n        <br>\n        <span class=\"text-lg not-prose\">\n                            Call <a href=\"tel:+64800005570\" class=\"not-prose\">0800 005 570<\/a> for urgent assistance.\n                <br>\n                Otherwise, 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Limited liability protects the shareholders from taking on the company\u2019s debts. However, there are several other advantages of limited liability companies.<\/span><\/p>\n<p><span style=\"font-weight: 400\">Firstly, limited liability companies are not tied to one person. As such, the business can continue to grow indefinitely, even beyond the death of the founder, making it easier to sell the business if needed.<\/span><\/p>\n<p><span style=\"font-weight: 400\">Secondly, the tax rates for limited liability companies can be much lower than that of personal tax rates. This can make limited liability companies financially advantageous over other structure types, such as <\/span><a href=\"https:\/\/legalvision.co.nz\/business-structures\/company-or-sole-trader\/\"><span style=\"font-weight: 400\">sole tradership<\/span><\/a><span style=\"font-weight: 400\">.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">Finally, the limited liability structure typically carries more business credibility than that of a sole trader. This is appealing to clients, investors and even prospective employees and can mean funding is easier to access.<\/span><\/p>\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400\">Despite the advantages of limited liability companies, there are also some downsides, including:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">limited liability companies are subject to strict regulations. Consequently, the administration associated with operating a limited liability company is a lot more burdensome than some other business structures;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">directors must understand and comply with strict rules and responsibilities; and<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">companies typically require more investment than other business types to grow.\u00a0<\/span><\/li>\n<\/ul>\n<\/div>\n<h2><span style=\"font-weight: 400\">Other Types of Companies<\/span><\/h2>\n<p><span style=\"font-weight: 400\">There are two other types of companies in New Zealand:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">co-operative companies; and<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">unlimited companies.<\/span><\/li>\n<\/ul>\n<h3><span style=\"font-weight: 400\">Co-operative Companies<\/span><\/h3>\n<p><span style=\"font-weight: 400\">A co-operative company is a type of limited liability company that:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">supports its shareholders; or<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">promotes a specific purpose or social cause.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400\">A requirement of a co-op company is that at least 60% of its shareholders must commercially transact with the company. For example, shareholders might supply services to the company or purchase its goods.<\/span><\/p>\n<p><span style=\"font-weight: 400\">The co-op\u2019s constitution must also describe the purpose or cause that the co-op is promoting. You must file the constitution with the Companies Office.<\/span><\/p>\n<h3><span style=\"font-weight: 400\">Unlimited Companies<\/span><\/h3>\n<p><a href=\"https:\/\/legalvision.co.nz\/corporations\/limited-vs-unlimited-company\/\"><span style=\"font-weight: 400\">Unlimited companies<\/span><\/a><span style=\"font-weight: 400\"> are companies where the liability of shareholders on behalf of the company is unlimited. This means that if a creditor makes a claim against an unlimited company if that company cannot satisfy that claim out of its own assets, the creditor will be able to take action against the company\u2019s shareholders personally.<\/span><\/p>\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400\">Unlimited companies are very rare because of the personal risk taken on by the shareholders and are generally only established to meet very specific, often foreign, legal requirements.<\/span><\/p>\n<\/div>\n<h2><span style=\"font-weight: 400\">Directors and Shareholders of Limited Liability Companies<\/span><\/h2>\n<p><span style=\"font-weight: 400\">The two key parties involved in a limited liability company are:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">directors; and<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">shareholders.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400\">Directors are the people who have been appointed to manage the company\u2019s business and affairs. Shareholders are the owners of the company and have contributed capital to the company.<\/span><\/p>\n<p><span style=\"font-weight: 400\">Directors are generally not personally liable on behalf of the companies except if they have:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">breached their <\/span><a href=\"https:\/\/legalvision.co.nz\/corporations\/directors-duties\/\"><span style=\"font-weight: 400\">directors\u2019 duties<\/span><\/a><span style=\"font-weight: 400\">; or<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">provided personal guarantees to lenders or creditors.<\/span><\/li>\n<\/ul>\n    <div class=\"my-7 lg:my-10 border-y-2 border-gray-100 py-7 lg:py-10 flex flex-col sm:flex-row items-start gap-10\">\n                    <img decoding=\"async\" class=\"w-52 mx-auto my-0! rounded\" src=\"https:\/\/img.legalvision.com.au\/wp-content\/uploads\/sites\/2\/2022\/10\/11133736\/NZ-Directors-Duties-560x792-1.jpg\" alt=\"Front page of publication\"\n                 loading=\"lazy\" width=\"208\" height=\"298\">\n                <section>\n            <div class=\"text-2xl font-bold\">NZ Directors Duties<\/div>\n            <div class=\"body-text\">\n                <p>Understand your role as a director and how to meet your legal obligations. Download our free guide today.<\/p>\n            <\/div>\n            \n\n<a href=\"https:\/\/go.legalvision.co.nz\/nz-directors-duties-guide.html\" class=\" block px-5 py-3.5 max-w-fit bg-orange button__hover transition rounded text-white font-bold text-lg no-underline uppercase leading-tight text-center\" target=\"\" rel=\"\">Download Now<\/a>        <\/section>\n    <\/div>\n\n<p><span style=\"font-weight: 400\">Shareholders are also generally only liable for the following:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">the money they owe on their shares; and<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">personal guarantees they have provided to lenders or creditors.<\/span><\/li>\n<\/ul>\n<h2><span style=\"font-weight: 400\">Key Takeaways<\/span><\/h2>\n<p><span style=\"font-weight: 400\">Limited liability companies are the most common type of companies used in New Zealand to operate businesses. Some key advantages of limited liability companies include the following:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">liability of the shareholders on behalf of the company is limited;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">capacity for growth;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">promoting the legitimacy of the business; and\u00a0<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">certain tax benefits.\u00a0<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400\">If you need assistance with setting up a company, our experienced <\/span><a href=\"https:\/\/legalvision.co.nz\/business-lawyers-lp-new-zealand\"><span style=\"font-weight: 400\">business structuring lawyers<\/span><\/a><span style=\"font-weight: 400\"> can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on <a href=\"tel:+64800005570\" class=\"AVANSERnumber dynamic-number\">0800 005 570<\/a> or visit our <\/span><a href=\"https:\/\/legalvision.co.nz\/membership\/\"><span style=\"font-weight: 400\">membership page<\/span><\/a><span style=\"font-weight: 400\">.\u00a0\u00a0\u00a0<\/span><\/p>\n<h2><span style=\"font-weight: 400\">Frequently Asked Questions<\/span><\/h2>\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1680582500698\"><strong class=\"schema-faq-question\"><strong>What is a limited liability company?<\/strong><\/strong> <p class=\"schema-faq-answer\">A limited liability company is a business structure where the company is responsible for its own liabilities, and its shareholders do not take on those liabilities personally.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1680582511778\"><strong class=\"schema-faq-question\"><strong>What is an unlimited company?<\/strong><\/strong> <p class=\"schema-faq-answer\">Unlimited companies are companies where the liability of shareholders on behalf of the company is unlimited. Therefore, if a creditor makes a claim against an unlimited company if that company cannot satisfy that claim out of its own assets, the creditor can take action against the company\u2019s shareholders personally.\u00a0<\/p> <\/div> <\/div>\n<div class=\"not-prose m-feedback-prompt\">\n    <!-- Thumbs up\/down bar -->\n    <div class=\"m-feedback-prompt__main\">\n        <div class=\"m-feedback-prompt__title\">Was this article helpful?<\/div>\n        <div>\n            <!--span class=\"m-feedback-prompt__button--text\">Thanks!<\/span-->\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--yes\"\n                    data-analytics-link=\"feedback-prompt:yes\" aria-label=\"Agree\">\n                <i class=\"fa-regular fa-thumbs-up fa-3x\"><\/i>\n            <\/button>\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--no\"\n                    data-analytics-link=\"feedback-prompt:no\" aria-label=\"Disagree\">\n                <i class=\"fa-regular fa-thumbs-down fa-3x\"><\/i>\n            <\/button>\n        <\/div>\n    <\/div>\n\n    <!-- Feedback form -->\n    <div class=\"m-feedback-prompt__form\">\n        <div class=\"m-feedback-prompt__form--thanks \">\n            <div>Thanks!<\/div>\n            <p>\n                We appreciate your feedback \u2013 your submission has been successfully received.            <\/p>\n        <\/div>\n        <form id=\"contact-form\" class=\"m-feedback-prompt__form--form\" action=\"\" method=\"post\">\n            <input type=\"hidden\" id=\"authenticity_token\" name=\"authenticity_token\" value=\"5d238358bb\" \/><input type=\"hidden\" name=\"_wp_http_referer\" value=\"\/api\/wp\/v2\/posts\/1558\" \/>            <input value=\"https:\/\/legalvision.co.nz\/business-structures\/limited-liability\/\" type=\"hidden\" name=\"currenturl\"\n                   id=\"currenturl\">\n            <input value=\"What is a Limited Liability Company in New Zealand?\" type=\"hidden\" name=\"currenttitle\"\n                   id=\"currenttitle\">\n            <label>\n                <!-- display on thumbs-up -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--yes\">\n                    Can you tell us <span class=\"font-semibold\">why<\/span> you found it helpful?\n                <\/span>\n\n                <!-- display on thumbs-down -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--no text-lg\">\n                    How can we better improve this article?\n                <\/span>\n                <textarea name=\"feedbackmessage\" id=\"feedbackmessage\" required><\/textarea>\n            <\/label>\n\n            <div class=\"m-feedback-prompt__form--error\" id=\"form-submit-error\"><\/div>\n            <button id=\"submit-contact-form-button\" type=\"submit\" name=\"commit\" class=\"m-feedback-prompt__form--submit\"\n                    data-analytics-link=\"feedback-prompt:submit\">\n                Submit            <\/button>\n        <\/form>\n    <\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>When business owners are looking to establish their business, there are a number of different business structures they can consider. One of the most common business structures is a limited liability company. Its distinguishing characteristic is that the company is a separate legal entity from its owners, and the company itself is responsible for performing<a href=\"https:\/\/legalvision.co.nz\/business-structures\/limited-liability\/\">Continue reading <span class=\"sr-only\">&#8220;What is a Limited Liability Company in New Zealand?&#8221;<\/span><\/a><\/p>\n","protected":false},"author":13267,"featured_media":935,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"1420,202036,213469,1288,1205,212499","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[4],"tags":[24,25,54,199,200,236],"class_list":["post-1558","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business-structures","tag-startup","tag-small-business","tag-medium-business","tag-limited-company","tag-unlimited-company","tag-business-structuring"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>What is a Limited Liability Company in NZ? 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