A range of key documents used in the formation of a US limited liability company.
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.
Before it can be registered and incorporated, a company must have the following elements:
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.
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.
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:
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.
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.
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 .
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.
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.
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.
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.
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:
As employer for the company, a director must have regard to and take into account the interests of the company's employees.
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.
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.
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.
The share register must:
The register must also include the following information for each class of share:
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.
An agent of the company may maintain the share register on the company's behalf.
No notice of a trust (whether express, implied or constructive) may be entered on the share 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.
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.
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.
A range of key documents used in the formation of a limited liability company.
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