Forms of Business

The three main forms of business in New Zealand are sole traders, partnerships and companies.

A sole trader owns all the assets of the business and is solely responsible for al the business’s risks, obligations and debts.

If you want to operate a business with other people in New Zealand, you can establish an ordinary or special partnership under the guidelines established by the Partnership Act 1908.

The Companies Act 1993 provides the basic rules for established and operating a company in New Zealand. Any person may, either alone or together with another person, apply for registration of a company.

What constitutes a company?
A company must have:

• A registered name.
• One or more shares.
• One or more shareholders with limited or unlimited liability for the obligations of the company.
• One or more Directors.

A company may have a constitution and, in certain circumstances, a constitution can be adopted to alter the Act’s rules to suit a company’s individual requirements. A company is a legal entity in its own right, separate from its shareholders, and continues in existence until it is removed from the Companies Register.

A company may enter into contracts with its shareholders and under the Financial Reporting Act 1993 only companies that are ‘reporting entities’ need to prepare and register financial statements. Reporting entities are companies that issue shares, overseas companies, subsidiary companies or companies with at least one subsidiary. Companies with assets valued at $450,000 or with a turnover of $1 million must also file financial statements.

Companies that offer securities, including shares, to the public, and overseas-owned or overseas-controlled companies, must be independently audited and unless otherwise agreed, contracts entered into by the company do not impose liability on individual members.

A company has access to the Australian market under CER (Australia New Zealand Closer Economic Relations Trade Agreement).

Business Conduct
Business in New Zealand is not strictly controlled. However, all businesses have to follow some standard principles. Business conduct is overseen by three government agencies – the Commerce Commission, Securities Commission and Takeovers Panel. The following summarizes the principal functions of these and other agencies and identifies key aspects of the legislation they operate under.

Commerce Commission
The Commission is an independent organization charged with promoting market efficiency by fostering healthy competition, informed consumer choice and sound economic regulation. It is responsible for ensuring that businesses meet the provisions of a number of regulatory Acts, including the Commerce Act 1986, the Fair Trading Act 1986 and the Electricity Industry Reform Act 1998. The Commission undertakes a range of activities including:

• Investigating and acting on breaches of the Commerce Act, the Fair Trading Act and the Electricity Reform Act.
• Prosecuting traders found to be operating in contravention of these Acts.
• Adjudicating on proposed business acquisitions that are subject to a clearance or authorization application.
• Regulating competition in the telecommunications and electricity industries.

The Commerce Act 1986
The Commerce Act promotes competition in markets within New Zealand by:

• Prohibiting conduct that restricts competition (restrictive trade practices).
• Prohibiting the purchase of a business’s shares or assets if that purchase leads to the lessening of competition in a market.
• Allowing the Commerce Commission to authorize proposed restrictive trade practices and business acquisitions that lead to the lessening of competition in a market on public benefits grounds.
• Allowing the Commerce Commission to recommend to the Minister of Commerce that the price of specific goods and services be controlled.

The Fair Trading Act 1986
The Fair Trading Act was developed with the Commerce Act to encourage competition and protect the public from misleading and deceptive conduct and unfair trading practices. The Act applies to all aspects of the promotion of goods and services – from advertising and price to sales techniques and finance agreements. The Act prohibits:

• Misleading or deceptive conduct generally.
• False or misleading representations about employment and goods and services generally.
• False claims about the price, standard, quality, history or origin of particular goods and services.
• False claims about particular uses or benefits or particular endorsements or approvals.
• Unfair trading practices.

The Act also provides for consumer information and safety standards.

The Consumer Guarantees Act 1993
The Consumer Guarantees Act makes traders responsible for guaranteeing the quality of the goods and services they provide. The Act describes certain standards and obligations manufacturers and retailers must meet to protect customers against poor quality. It also covers such issues as prices, parts and representations.

Business and Consumer Complaints
Suspected instances of anti-competitive business practices, or unfair or misleading trading practices, can be reported to the Commerce Commission Contact Centre. The Centre provides advice and investigates if necessary. A range of handy booklets on business and consumer topics is also available. There is no charge for these services.

Securities Commission
An independent body established under the Securities Act 1978, the Commission promotes more efficient and cost-effective management and regulatory practices within the capital investment market. The Securities Commission also regulates how securities are offered for public subscription. It has extensive powers to investigate cases of insider trading and can recommend the reform of existing securities laws and practices.

The Health and Safety in Employment Act 1992
This legislation aims to prevent harm to employees while they are at work. It requires employers to ensure that employees work in a safe and healthy environment.

Employment Relations Service
Run by the Department of Labour, the Employment Relations Service provides up-to-date information on all aspects of employer/employee responsibilities under the Employment Relations Act 2000.

The service provides comprehensive information about all aspects of employer/employee relationships. It provides a handy series of booklets in English and other languages, dealing with the concept of good faith relationships and explaining how the various provisions of the Employment Relations Act 2000 influence employer/employee responsibilities. If problems arise in an employment relationship, employers can get help from the Employment Relations Infoline.

The Employment Relations Act
The Employment Relations Act 2000 recognizes that good employment relationships are built on good faith behavior. It promotes collective bargaining through unions, but also protects the rights of individuals who choose not to join a union and who wish to negotiate their own individual Employment Agreement.

Resource Management
If your business activity either uses or affects a natural resource, you may need to apply for resource consent from your local authority.

Application forms are available from your local council and you will need to provide an assessment of the effects your business activity will have on the local environment. Land use consents are dealt with by city and district councils and consents for the use of air, water or coastal areas are managed by regional councils.

The Resource Management Act 1991
Provides for the sustainable management of New Zealand’s natural resources and establishes compliance standards for both private and business activities.