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If you are starting a business, knowing which business structure to adopt is essential. Structuring your business as a company is one option available to you. However, when setting up a company, there are a few important aspects of companies that you should review to ensure that you are choosing the right structure for your business. If you are thinking of starting a company, this article will outline three things that you should consider, namely:

  • the characteristics of a company;
  • the different types of companies; and
  • how you can prepare your company for success.

Characteristics of a Company

It is crucial to consider how companies operate when setting up a company. Unlike other business structures, a company has several unique elements. 

Firstly, companies are separate legal entities, which can be in litigation and collect debts on their own. Therefore, the shareholders and directors of these companies are not liable for any debts the company owes. However, this only applies to limited liability companies, which are explained below.

Additionally, companies last indefinitely. Unlike partnerships and sole traders, they are not dependent on the people running them to retain the same identity. They exist no matter who is running them. 

3 Different Company Types 

In New Zealand, there are three different types of company structures. The different types of companies have a few key differences, which the following paragraphs describe. 

1. Limited Liability Companies

Firstly, limited liability companies are the most common type of company registered in New Zealand. As the name suggests, these companies provide limited personal liability for the directors and shareholders of the company for the company’s debts. Shareholders are only liable for:

  • money owing on their specific shares; and
  • any personal guarantees they have made to creditors. 

2. Unlimited Companies

Additionally, you can register an unlimited liability company. This structure does not limit the shareholders’ liability for company debts, which is very different from the limited liability structure. This heightened liability is generally very unattractive to potential shareholders. Therefore, this type of company is very uncommon. 

3. Co-operative Companies

You can also create a co-operative company. These companies are a form of limited liability company. They typically provide goods or services to their shareholders, who own and often control the business. These shareholders can be:

  • suppliers;
  • customers; or
  • employees of the co-operative.

Notably, shareholders are all generally involved with the company. Therefore, they are typically created and run for the specific benefit of the shareholders. The most famous example of a New Zealand co-operative is Fonterra. Co-operative companies are usually used in specific industries, especially:

  • agriculture;
  • horticulture;
  • manufacturing;
  • wholesale; and 
  • utilities. 

Make Sure You Prepare Your Company for Success!

Starting a company does not guarantee success. You will need to have good business acumen and a business plan to ensure that your company can be successful. When creating a business plan, you should consider:

  • your goals for starting a business;
  • a description of your business, including its name and intellectual property;
  • an outline of all products and services your business creates or plans to build;
  • an analysis of your competitors and the market your company is operating in;
  • a financial plan and financial goals for your business; and
  • any possible plans for expansion. 

Having these aspects in place and written down will allow you to run better and plan your company to ensure that it can be successful and achieve your goals in the long run. 

You should also make sure that you thoroughly research the market you are entering into. It would be best if you had a good understanding of the industry to ensure that you can operate a company in it. You should ascertain the target market and audience to which you want to market your goods and services.

It would be best to consider other aspects of your business as well. For example, you should consider: 

  • your company and income tax obligations;
  • any important documents you may need to develop; and
  • how you plan to source capital for the company.

Furthermore, you should ensure that your company has a unique selling point to attract your target market to your business. Ensure that you have a unique and eye-catching brand so that people remember your company. 

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Key Takeaways

Starting a company can be an exciting venture, but there are also many important considerations you will need to understand to guarantee your company’s success. These include:

  • the unique characteristics of companies;
  • the possible structures of a company; and
  • how to prepare your company for success. 

If you need help with starting a company, our experienced business lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 0800 005 570 or visit our membership page.

Frequently Asked Questions

What company structure is best for my company?

That depends on the type of company you want to run. Typically, unlimited companies are less attractive to shareholders and investors as they have higher liability. Therefore, they place these individuals at greater risk of needing to use their personal assets to pay off company debts. Additionally, co-operatives work very well for some businesses but may not suit all companies. 

How long does a company last?

As a company is a separate legal entity, it can last for an extended period as it is not tied to an individual’s lifetime or working career.

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