What Is A Company, Anyway?

The term “company” is commonly used to describe a profit-oriented organisation. However, in the legal context, being a company has a specific definition.

Essentially, a company is an entity that is legally distinct from its shareholders. This means it can enter into contracts, own property, and be involved in legal proceedings, just like an individual. Forming a company is one of the various legal structures available for setting up a business in New Zealand. It provides shareholders with limited liability, which protects their personal assets from the company’s financial and legal obligations.

You can learn more about the specific duties and responsibilities of company directors and shareholders in New Zealand here.

The Origins of Companies

The concept of a company is ancient, with some evidence suggesting it may have originated with the ancient Greeks. However, companies as we know them today began to take shape during the Industrial Revolution.

During this period, the need arose for businesses to be accountable as separate entities, distinct from their owners, which led to the development of the modern company structure.

What Is Limited Liability?

Limited liability is a fundamental aspect of company structure. It means that the personal financial risk of shareholders is limited to the amount they invested in the company’s shares. This separation ensures that personal assets are protected from the company’s liabilities.

For instance, if your company faces a legal issue, such as a contractual dispute or unpaid debt, the most you could lose is the value of your investment in the company’s shares.

This protection is crucial for business owners, as it shields personal assets like homes, vehicles, or savings from being targeted in legal claims against the company.

Does Limited Liability Mean I’m Exempt From Penalties?

Limited liability does not grant complete immunity from legal consequences.

As a director, you must still adhere to your legal obligations. Failure to do so can result in personal financial losses and penalties, especially if you engage in fraudulent activities or neglect your directorial duties.

Is Insurance Necessary If I Own A Company?

Company directors in New Zealand have specific duties and obligations. It’s advisable for directors to consider obtaining Directors and Officers (D&O) insurance.

While the responsibilities of a director are significant, D&O insurance can provide a safety net in case of unintentional breaches of duty.

If you’re uncertain about the insurance coverage needed for your role or business, it’s wise to consult with an insurance specialist. Unfortunately, we cannot provide a direct recommendation for New Zealand insurance providers in this context.

Need More Information?

If you need assistance with understanding company structures or determining the best legal setup for your new business in New Zealand, reach out to the team at Sprintlaw. We’re here to help you find the right solution. Call 0800 002 184 or email us at [email protected].

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