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When establishing the structure of your New Zealand company, there are three different types of companies to note. Companies can either be a limited company or an unlimited company. Within limited companies, a company can be a limited liability or a co-operative company. All of these types of companies are a separate legal entity in their own right and owners can conduct business in similar ways. However, there are significant differences between a limited and unlimited company. These differences are especially significant from the perspective of company shareholders. This article explains the difference between a limited and unlimited company. 

Limited Companies

A limited company is fully liable for all obligations it owes to third parties who contract with it. The only limited liability is that of its shareholders. This means that the shareholders are not liable for the debts and obligations owed by the company. 

For example, if a person lends money to a limited company which then runs into financial difficulties, shareholders do not have any personal liability to provide their own money if the company is unable to repay the loan in full.

There are two types of limited companies; a limited liability company and a co-operative company. 

Limited Liability Companies

These are the most common types of company in New Zealand. You can recognise them because they have Limited, Ltd or Tapui (Limited) at the end of their name. 

Shareholders of a limited liability company are only liable for the amount they have agreed to pay for their shares. If a shareholder provides its full investment upfront when issued with shares, there are no additional amounts that the company can request from them. If a shareholder receives partly-paid shares, the company for those shares can demand any money owing, but no more than this amount. 

Another payment that a shareholder of a limited liability company can be liable for is if the shareholder provides a personal guarantee in respect of a liability of the company. In this circumstance, the shareholder will also be liable under the terms of the guarantee where the company defaults. 

Co-Operative Companies

A co-operative company is a limited liability company which has also registered as a co-operative. You can register your company as a co-operative:

  • at the time of incorporation; or
  • any time afterwards, provided your company meets the criteria to become a co-operative set out below.

You can recognise a co-operative company where they have the word ‘co-operative’ in their company name (as well as Limited, Ltd or Tapui).

Co-operative company structures are the most appropriate structure for members who want to work together collaboratively or who want to promote a shared purpose or social goal. At least 60% of the shareholders of a co-operative company must either:

  • supply goods or services to the company; 
  • buy goods or services from the company; or
  • enter into commercial transactions with the company. 

Additionally, to register as a co-operative, your company must return its profits to shareholders as rebates or shares, and its constitution or companies act must contain a description of its activities. You must file this description with the Companies Register.

Similar to a limited liability company, shareholders of a co-operative company are not liable for any more than the amount they invest for their shares.

Unlimited Companies

The difference between a limited and unlimited liability company is important from the perspective of shareholders. 

Shareholders of an unlimited company have unlimited liability. Unlimited liability means that shareholders are responsible for all business debts and liabilities, even those that the company cannot pay. This amount can be more than the initial amount that they invested when subscribing for shares. The nature of shareholders’ liability is set in the company’s constitution.

For example, suppose a person lends money to an unlimited company which runs into financial difficulties. In that case, the lender can look to the shareholders of the company for payment if the company is unable to pay its debts itself.

This is not an attractive proposition for shareholders. Consequently, it is rare to find unlimited companies, except when this structure is ideal to meet niche legal (and often foreign) requirements. 

Key Takeaways

Unlimited companies are rare in New Zealand. Instead, it is more common for companies to be limited liability companies. The main advantage of a limited company is that the shareholders are protected from the liabilities incurred by the company. Also, they cannot be required to contribute any additional funding above the amount that they initially invested in return for their shares. If you need help understanding how to best structure your company, contact LegalVision’s New Zealand business lawyers on 0800 005 570 or complete the form on this page.

FAQs

What is a limited company?

A limited company is one where the shareholders are not liable for the debts and obligations owed by the company. However, the company itself is still liable for all obligations it owes to third parties who contract with it.

What is an unlimited company?

Shareholders of an unlimited company have unlimited liability. Unlimited liability means that shareholders are responsible for all business debts and liabilities, even those that the company cannot pay.

What is a co-operative company?

A co-operative company is a limited liability company which has also registered as a co-operative, meaning that its members work together for a shared purpose of producing, consuming or dealing with the company.

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