10 crucial considerations before setting up a company in New Zealand

Whilst setting up a company in New Zealand can be an exciting time, there’s a lot to consider. From choosing a business structure to understanding your legal obligations, new business owners can face a bit of a learning curve. Let’s dive into some key things to keep in mind as you learn how to set up a trading company.​

When it comes to new businesses, most choose to trade either as a sole trader or as a limited company set-up. To help you make an informed decision, we've prepared an e-book outlining the differences between the two, as well as guidance on choosing the most suitable business structure. Feel free to access it here. ​

However, the key thing to know is whilst a limited liability company structure offers you more protection and less liability, there are also greater compliance requirements and responsibilities.​

In New Zealand, the structure of your company can take several forms, each catering to different business needs and objectives. The most common type is the limited liability company, where the financial responsibility of the company's shareholders is limited to the amount of money they have invested in shares. ​

This structure is ideal for businesses intending to operate for profit, offering protection to shareholders' personal assets against the company's debts and liabilities.​

How is a company set up, and how do you legalise the name? Your company's legal name is the one you register with Companies Office. However, it doesn’t need to be the name your company ‘trades’ under.​

There are also specific rules to follow when it comes to company names. For instance, it cannot be identical (or too similar) to an unrelated company, and it cannot include sensitive, abusive, offensive, or illegal words or phrases. It also needs to end in "Limited" or "Ltd."​

When setting up a company in New Zealand, it's important to understand the roles and structures that are inherently part of its operation. By requirement, your company must have both directors and shareholders. ​

Directors are responsible for the day-to-day management of the company, whereas shareholders own the company through their shares and can profit from it via dividends. While it's common for individuals to hold both positions simultaneously, offering flexibility in how you wish to structure your involvement, the distinction between the two roles is crucial.​

Directors typically do not receive a regular salary as one might expect in traditional employment roles. Instead, they may be compensated through directors' fees, although this practice varies and is not commonplace among all clients. On the other hand, shareholders may be eligible for a shareholder salary, a form of remuneration we frequently facilitate towards the year's end, reflecting their ownership stake and contributions to the company's success.​

The decision lies in whom you appoint to these roles, as each brings specific duties and benefits. Understanding the financial nuances of how directors and shareholders are compensated can significantly impact the strategic planning and financial management of your limited company.​

Before you register your limited company, an important preliminary step is to reserve your company name with the Companies Office. Submit your desired company name for approval once you ensure it meets the regulatory requirements and is not already in use or too similar to existing names. There's a nominal fee of $11.50 for this service. ​

Once your company name is approved, it secures your chosen name and allows you to proceed with the registration process. The next step is to pay the $136.55 incorporation fee for setting up your company. The Companies Office does not guarantee a specific timeframe for this process—it can take 2-3 weeks depending on their workload. ​

During registration, you will need to provide detailed information about the directors and shareholders. This includes their addresses, places and dates of birth, and IRD numbers. ​

Additionally, you must provide the company's contact details, including the registered office and address for service. This information ensures your company is properly documented and legally recognised, setting a solid foundation for your business operations. ​

Once registered, you will receive your company's Incorporation certificate. This can be downloaded any time from the list of documents at the Companies Office. Keep this safe as you will need it to open a company bank account!​

In New Zealand, there is no fixed timeframe for when you need to register your company for tax purposes. You have the option to apply for an IRD number or GST (Goods and Services Tax) number at the same time as incorporating your company. Alternatively, you can choose to complete this step at a later date or have your accountant handle the application on your behalf. ​

If your company plans to hire staff, you will need to register as an employer during the tax registration process. This approach provides the flexibility to align the tax registration with your business needs and timeline.​

You will also need to register for GST once your company's income reaches the threshold of $60,000 within a 12-month period. From that point onwards, it's essential to start filing GST returns regularly. This process ensures compliance with New Zealand's tax laws and helps maintain accurate financial records for your business. ​

Lastly, when employing staff or paying a Directors Fee, registering for PAYE (Pay As You Earn) with Inland Revenue is mandatory in New Zealand. After registration, it's required that you operate a payroll system to report earnings and deductions to Inland Revenue within 3 days of making payments. ​

Typically, PAYE payments for most businesses are due on the 20th of each month. This ensures that your business stays compliant with tax laws and regulations, facilitating the timely and accurate reporting of employee wages and directors' fees.​

Setting up as a limited company? You’ll soon need a new bank account. A limited liability company is a distinct legal entity separate from yourself, even if you're the owner and operator. You will need a company bank account separate from any private use. All your company’s income and expenditures should go through this account.​

It's important to note that setting up a company bank account can take some time. Therefore, it's advisable to initiate this process as soon as you receive your Certificate of Incorporation. This approach will ensure you're prepared to manage your company's finances efficiently right from the start, avoiding any delays in handling transactions as your business activities commence.​

Read more: Do I need a business bank account?​

Choosing the right software is a crucial step in setting up your limited liability company, and accounting software like Xero brings numerous advantages. It not only provides a comprehensive view of your business's financial health, highlighting successful products or services and pinpointing areas needing improvement but also ensures that your records are accurately and systematically organised. ​

This is particularly important given the legal requirement for companies to maintain records for at least seven years. With a tool like Xero, you can confidently manage your records in one streamlined location. Using Xero or similar software for GST returns not only simplifies the filing process but also maintains a precise record of submissions and facilitates the automation of data exchange with Inland Revenue.​

For GST-registered businesses, while it's highly beneficial to utilise compliance software such as Xero for filing GST returns due to its convenience, accuracy, and integration capabilities with Inland Revenue, remember that it's not a compulsory approach. Businesses have the flexibility to file GST returns directly through MyIR, offering an alternative for those at varying levels of digital adoption.​

From 1 April 2023, to reclaim GST on your purchases, it's essential to keep "Taxable Supply Information" for all purchases exceeding $200 (including GST). This new guideline simplifies compliance by eliminating the need for GST tax invoices for these transactions. Accurate record-keeping of these purchases is vital for both compliance purposes and to ensure you can correctly reclaim GST on business-related expenses.​

Advanced accounting software typically allows for the direct uploading of invoices and receipts to transactions, making it easier to manage and retrieve necessary documentation for IRD audits or reviews.​

For more information check out our article on 7 ways to enrich your business with Xero accounting software.​

Writing a business plan helps to scrutinise the finer details of your ideas. Know your market, conduct thorough research, and craft a comprehensive plan for achieving your goals. This step is critical, as by doing so you will gain insight into how you'll deliver your new product or service to customers whilst avoiding any pitfalls!​

Creating a budget helps you keep track of your expenditures and identify any potential overspending early on. Accounting software can, again, come in handy here as you can monitor revenue and spend against a set budget. You’ll likely need to revise and refine your budget as you go.​

There's a lot to wrap your head around as you set up a limited company. If this is your first time, we strongly recommend seeking assistance from a professional, such as a Beany accountant. They can help with all the topics discussed in this article, and make sure you're compliant right from the start.​

Learn more about your start-up costs here: The cost of starting a business in New Zealand ​

Another vital aspect to consider is establishing a Company Constitution. This document outlines the rights, powers, and duties of the company, its board, individual directors, and shareholders. While not mandatory (many companies operate without one) a constitution can prove invaluable in times of change or when resolving disputes. You have the flexibility to adopt a constitution at any stage, allowing you to tailor it to your company's evolving needs and circumstances. ​

Adopting a company constitution involves a few key steps, which can vary slightly depending on local laws and regulations: ​

If you want to run your business but you’re not quite ready, bookmark this page to refer back to how to set up a company in New Zealand. ​

We’re an online accounting firm that is always right here for you, your accounting pain relief. The most advanced technology lets us work way more closely with you than a normal accountant would. We have a dedicated team of certified accountants and a support team to take care of your business no matter where you are, so you can focus on growing your business. We take out the ‘fluff’, break down the barriers and get things done. Looking out for you is what we are all about. Register today.​