United States Legal Documents


Limited Liability Companies

A range of key documents used in the formation of a US limited liability company.

4

How to form a company

Is a limited liability company the best option for me?

You need to decide whether a limited-liability company is the best legal form for your business. The alternatives are a partnership (see related articles How to enter into a business partnership agreement) and How to structure your business). A business may change its legal form at any time. Each form provides a different legal framework for your business activities, including your liabilities. A company has a legal identity of its own, separate from its owners.

What are the essential elements of a company?

Before it can be registered and incorporated, a company must have the following elements:

  • a name reserved by the Companies Office
  • at least one share
  • at least one shareholder
  • at least one director
  • a registered office
  • an address for service

Selecting a name for the company

You will need to select a suitable name for your company. The Companies Office provides a website (www.companies.govt.nz) where you can check whether your proposed name is already in use. You can search for company details on this website by company name, directors, shareholders and addresses.

It is also a good idea to check that your proposed company name does not infringe on anyone else's trademark name. You can do at the website of the Intellectual Property Office of New Zealand (www.iponz.govt.nz).

Be aware that information obtained at the Companies Office website is no guarantee of a complete search.

Reserving a name for the company

Before you can apply to register your proposed company you must first reserve a name for it with the Companies Office. Your application must be sent to its Auckland Office, together with the prescribed fee.

When the Companies Office has reserved your proposed name, it will send you a notice of reservation. This notice is valid for 20 working days after it is issued, which means that if you wish to register the company under that name you must apply within those 20 days.

If your name reservation is declined the Companies Office will notify you and ask you to select another. There is no additional fee for this.

Applying to register your proposed company

If your desired name has been reserved, one or two people authorised by the company may then apply for the company to be registered. You must file an application for registration on the standard form, along with the following documents:

  • a written consent and certificate from every director that he or she consents to be a director and is not disqualified from acting as one
  • a written consent from every shareholder (or his or her agent) to take the class and number of shares specified (if the consent is from an agent, you must also include the written authority given to the agent by the shareholder)
  • the notice from the Companies Office that the name has been reserved
  • a copy of the company's constitution (if there is one) certified by you, the applicant
  • the prescribed fee

Where can I get the necessary forms?

You can get all the necessary forms from the Companies Office (these are also available on-line at their website: www.companies.govt.nz) and from some large stationery shops.

Certificate of incorporation

When the Companies Office is satisfied that your application complies with all the requirements, including payment of the required fee, it will register the company and issue you with a certificate of incorporation for the company. The company is then incorporated under the COMPANIES ACT 1993 from the date stated in the certificate.

Do I have to draw up a constitution for the company?

The constitution is a document that sets out the rules for running the company. You are able to have a company without a constitution and to rely instead on the constitution in the first three schedules of the COMPANIES ACT 1993, which will then automatically apply to your company. This would be acceptable for a husband and wife company, but it is advisable to have a specially designed constitution in any other situation. See How to draft a company constitution .

Buying "off-the-shelf" companies

You may also buy an off-the-shelf company that has already been registered, and then apply for a name change with the Companies Office. Most lawyers or accountants will offer this service.

Cautionary notes
  • It is essential to note that you have 20 working days from the date the name is reserved to apply for registration. Don't delay: make sure that you have all the necessary documents that are to accompany your application so that your application will be accepted in the specified time period.
  • Ensure that you include the details of your company's registered office and address for service in your application for registration. These need not be the same location as the place of business, but note that PO Box numbers will not be accepted.
  • Forming a company will place important liabilities and obligations on the people involved. Each shareholder and director of the proposed company must consent formally to these.
  • Usually when a company is formed a person's livelihood and large amounts of money will be involved. In order to ensure that both of these are protected in the best possible way it is highly recommended that you seek professional and legal advice.
  • One step often forgotten when forming a company is to check that the company's name is available as an Internet domain name. You can check this at www.domainz.co.nz.

How to: The powers and duties of company directors

How do I find out what my powers and duties as a director are?

The specific powers, rights, duties and obligations of company directors are determined by the company's constitution, if there is one, and by the COMPANIES ACT 1993. If there is no constitution then these matters are determined by the Act.

Directors' duties

The law has developed a set of rules, known as "directors duties", that limit the ways in which directors can exercise their rights and powers by outlining the minimum standard of behaviour that is expected of them. These are contained in the COMPANIES ACT 1993 and in decisions of the courts, and they are outlined below.

These rules strike a balance between, on the one hand, not hindering directors in the performance of their roles by placing too much control on them, and on the other, not allowing directors to have uncontrolled discretion.

A director's "fiduciary" obligation as agent for the company

Directors act as agents for the company and therefore all their actions should be taken with the company in mind. Because of this agency relationship, directors have a "fiduciary" obligation to both the company and the shareholders, which means that a director is in a special position of trust.

Duty to act in good faith and in the company's best interests, and related duties

One of the most important duties of company directors is to act in good faith and in the interests of the company. There are a number of specific obligations that are related to this:

  • to exercise their powers for proper purposes only
  • not to use company funds other than as authorised
  • to act honestly ("bona fide") at all times
  • to comply with the COMPANIES ACT 1993 and the company's constitution, if there is one
  • to not trade recklessly – that is, to not carry on the company's business in a manner likely to create a substantial risk of serious loss to the company's creditors

Duty to the company's employees

As employer for the company, a director must have regard to and take into account the interests of the company's employees.

Duty of care and skill

Whenever you exercise a power or perform a duty as a company director, you are under a duty of care and skill. This means that you must exercise the care, diligence, and skill that a reasonable director would exercise in the same circumstances, taking into account, among other things, the nature of the company and the particular decision.

This is a high standard, and the courts will not find it to be breached merely because of an error in judgement. In performing their duties, a director is not required to exhibit a greater degree of skill than may be reasonably expected of a person with his or her knowledge and experience.

Shareholders may sue directors if they breach their duties

The shareholders of a company have a collective right to bring an action in the courts against a company director if they have legitimate reasons for doing so, which would include a breach of any of the duties outlined above.

Cautionary notes
  • Should any question as to the powers, rights, obligations or liabilities of a company's director arise, the first step is to examine either the constitution or the personal employment contract if one exists.
  • There are a wide range of possible conflicts that may arise between a company and any one of its directors. This is an area where there will often be personal friendships and large amounts of money involved. Further, it is not at all uncommon for the survival of a company to depend on the performance of the company's director. It is therefore important that either the company constitution (if there is one) or the director's personal employment contract, or both, states what the directors' duties are, what the procedures are for dealing with any issues that may arise, and what action will be taken for certain behaviour or conduct. This will provide certainty should any conflict arise. It is vital that the constitution and the contract are compatible to avoid any unclarity about what the provisions are.
  • To ensure that proper provision has been made in these documents for potential conflicts and that the company and the director are protected, it is highly advisable that you enlist the services of a lawyer who is experienced in company law.

How to maintain a company share register

Introduction

The COMPANIES ACT 1993 requires all companies to maintain a share register, and sets out some requirements for the way in which this must be done (see below).

The share register is of particular importance as it is deemed to be evidence of the named shareholder's legal title to the shares, subject to any evidence to the contrary. The company treats the person named in the share register as the registered holder of the relevant shares, and the only person entitled to exercise the voting rights that attach to the shares, to receive notices, to receive distributions in respect of the shares, and to exercise any other rights and powers that attach to the shares.

What information must be included in the share register?

The share register must:

  • record the shares issued by the company
  • state whether the company's constitution (if there is one) or the terms of issue of the shares restricts or limits the transferring of these shares
  • state where any document containing any such restrictions or limitations can be inspected

The register must also include the following information for each class of share:

  • the names, in alphabetical order, and the last known address of each person who currently is, or has been within the last 10 years, a shareholder
  • the number of shares of that class held by each shareholder within the last 10 years
  • the date of any issue of shares to each shareholder within the last 10 years
  • the date of any repurchase or redemption of shares from each shareholder within the last 10 years
  • the date of any transfer of shares by or to each shareholder within the last 10 years, including the name of the other party to the transfer

Register can be divided

If the constitution expressly permits it, the share register may be divided into two or more registers kept in different places, so long as the company's principal register is kept in New Zealand. (In this context, the "principal register" means the register described as the principal register in the most recent notice sent to the Registrar.)

The Registrar of Companies must be notified of the division of the register within 10 working days. Further, if the register has been divided a copy of every register must be kept at the same place as the principal register.

Register may be maintained by an agent

An agent of the company may maintain the share register on the company's behalf.

Trusts may not be entered on register

No notice of a trust (whether express, implied or constructive) may be entered on the share register.

Can a company be fined for not maintaining a register?

Yes. A company commits an offence if it fails to maintain a share register as required by the Act, and it will be liable to a fine of up to $10,000. Every director will also be liable for a fine up to the same maximum amount.

Directors must supervise the register

Each director must take reasonable steps to ensure that the register is properly kept and that share transfers are recorded promptly. It is an offence for a director to fail to comply with these duties, punishable by a fine of up to $10,000.

Court may order correction of register or compensation

If the name of a person is wrongly entered in or omitted from the share register, the person aggrieved or a shareholder may apply to the court for it to order that the register be rectified, or that compensation be paid for any loss caused, or both.

Cautionary notes
  • Because of the substantial penalties that apply if the share register is not properly maintained, it would be advisable that you seek the services of a lawyer experienced in company law to ensure that your register does in fact comply with the legal requirements.

A range of key documents used in the formation of a limited liability company.

Document Delivery Format:Delivery format: Download MS Word or PDF file
Document Source:Complies with US and State law
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Help Support Email/Telephone:Limited - not legal advice
Country:US jurisdiction
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United States
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