Stricter requirements for New Zealand companies and limited partnerships now in force

Article written by: Tim Jackson    |   Tuesday 2nd September 2014

New Zealand is acknowledged as being one of the easiest places to start a business as well as one of the most trusted countries in which to do business.

The World Bank Doing Business Index ranks New Zealand as number one for starting a business and number three, behind Singapore and Hong Kong, for overall ease of doing business.  Intellectual property rights are often commercialised in New Zealand using a New Zealand company that is specifically formed as a vehicle for that exploitation. The transfer of technology into New Zealand is encouraged by the New Zealand government and the ease of company formation is one of the incentives to encourage that transfer.  

However, this trust, and the ease by which shell companies can be formed in New Zealand, has been used in the past to facilitate illegal activity on an international scale.  For example, New Zealand registered shell companies have been implicated in arms smuggling between North Korea and Iran, and also in illegal payments to eastern European officials (which resulted in New Zealand being removed from the European Union’s “white list” of trusted banking jurisdictions). A 2012 report prepared for the New Zealand government said that New Zealand was becoming the “domicile of choice” from which to base illegal activities. One of the main windows of opportunity for those seeking to abuse New Zealand’s open approach to company formation was the ability to create a New Zealand registered company and have all directors of that company be domiciled in countries outside of New Zealand, making enforcement difficult for the authorities.

Two new Acts have now been passed by the New Zealand government in an effort to address these issues and to protect New Zealand’s international reputation. The Companies Amendment Act 2014 and the Limited Partnerships Amendment Act 2014. Commerce Minister Craig Foss said of these Acts:

New Zealand now has a robust regime that will limit the opportunity for dodgy individuals to use shell companies to exploit our good name.”

One of the main provisions of the new Acts is to require all New Zealand registered companies and limited partnerships to have a director or general partner who lives in New Zealand or is a director of a company in a prescribed enforcement country (which is currently restricted to Australia, but may be extended at a later date) and have all directors provide identifying information to the Registrar of Companies.  This will include identification of the company’s ultimate owner.  This is intended to ensure that New Zealand has the ability to identify and control the activities of directors of New Zealand registered companies in an effort to prevent the abuses that occurred under the previous system.  Further provisions give new powers to the Registrar of Companies to better investigate companies and limited partnerships; introduce offences for very serious misconduct by directors that results in serious losses to the company or its creditors; and align the company reconstruction provisions in the Companies Act with the Takeovers Code.

This new requirement for a company to include a resident director comes into force on 1 July 2015. However, there will be a 180 day transitional period for existing companies, who will be required to meet the new requirements by 28 October 2015.

It is inevitable that the new requirements will make it less straightforward to start a company in New Zealand.  Any intellectual property owner looking to enter the New Zealand market or already in the New Zealand market will need to be aware of the new provisions.

Please contact us if you have any questions on how the provisions might affect your business.  We can provide you with further information on the new legislation, and assist you in determining your business’s compliance with the new provisions.

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