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Setting up a company in New Zealand is a relatively straightforward process. Still, there are extra complexities to keep in mind compared to other business structures. It is easy to get part of the process wrong or underestimate the time investment involved. It is good to be aware of some of the common mistakes people often make when setting up a company in New Zealand. This article sets out three mistakes to avoid, including: 

  • underestimating the administrative burden of a company; 
  • being unprepared to pay GST; and 
  • not choosing a unique company name that complies with the requirements of the Companies Office. 

Underestimating the Administrative Burden

There are certainly additional administrative costs and burdens associated with setting up a company in New Zealand. There are also costs with continuing to operate as a company. Setting up as a company in New Zealand is more straightforward than in other countries. Still, it involves a rigorous process through the Companies Office and some additional fees compared to starting as a sole trader and partnership.

Additionally, you should be aware of the administrative requirements throughout the life of the company. For instance, every company, including overseas companies, must prepare and file an annual return with the Companies Office in New Zealand. If you do not file an annual return by the due date, the Registrar of Companies can remove your company from the register of registered companies. These annual returns cover basic information about your business, including any changes to: 

  • your company’s address; 
  • directors’ details; and 
  • shareholdings. 

A company director must authorise these changes. 

While it is not too difficult to complete an annual return, the time required can add up. It is a good example of the kind of administrative burden associated with a company that you can underestimate if you are not used to the process.

Not Preparing to Pay GST

Most people are aware of their tax obligations, including the company tax rate in New Zealand and differences with their personal tax rate. However, a common mistake is not factoring in GST and the need for the company to register and pay GST if it expects to earn a certain amount of money.

The misconception likely stems from the fact that not all businesses have to register for GST, including companies. In that sense, it is not a ‘minimum requirement’ for all companies. However, if your business earns at least $60,000 in 12 months or expects to do so in the next 12 months, you must register and pay GST. This should be part of your preparation when setting up a company, just like other tax obligations. 

Further, there are other requirements around GST to prepare for if your business is likely to qualify as earning more than $60,000. For instance, you will need to ensure that you are:

  • charging GST to your company’s customers;
  • filing GST returns; and
  • keeping GST records.

You should get assistance from an auditor and your account to comply with all of the relevant rules and requirements. 

Not Having a Unique Company Name

Finally, a common mistake from businesspeople when starting a new company is neglecting to pay enough attention to finding a business name that fits the requirements of the Companies Office. Any new company in New Zealand must choose a name through the Companies Office that is unique and does not breach the rules. Otherwise, you will not be allowed to reserve the name you have thought of. Next, you need to pay the registration fee again and try with another name.

When thinking of a name, make sure that it is:

  • unique and not identical or too similar to any other company; 
  • not offensive or overly provocative; 
  • made up out of words, rather than numbers; and 
  • without any macrons, apart from in the context of a Māori name.  

Key Takeaways

A company is a terrific way of organising a business in New Zealand, with plenty of benefits and advantages. However, there the process to set up one is more complicated than other kinds of business structures. Common mistakes to be aware of include:

  • underestimating the administrative burden of a company; 
  • being unprepared to pay GST; and 
  • not choosing a unique company name that complies with the requirements of the Companies Office. 

If you want to know more about setting up a company in New Zealand, including how to avoid some of the pitfalls covered above, contact LegalVision’s business lawyers on 0800 005 570 or complete the form on this page.

Frequently Asked Questions

Do all companies need to pay GST?

Yes, just like other businesses (whether sole traders, partnerships or other structures), companies need to pay GST if they are earning (or expect to earn) more than $60,000 in a 12-month period.

Do all companies need to reserve a unique name with the Companies Office?

Yes, companies must go through the Companies Office in New Zealand to register themselves. This involves choosing a name that does not breach any of the rules. One of these rules means that you cannot have a name that is identical or almost identical to any other company.

Can new companies have names with macrons in them?

No, companies generally cannot use macrons in their name reserved with the Companies Office. However, there is an exception for when the macrons are within a Māori name.

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