Setting Up A Pty Ltd Company

As a business owner, you may have thought long and hard about the legal structure your venture is going to have. For many of you, a Pty Ltd company will be the way to go. Setting up your Pty Ltd company is an exciting phase, as it makes you an extra bit closer to bringing your business vision to life.

Keep in mind, the way you go about setting up your Pty Ltd company will play a significant role in establishing the foundations for your company. Due to this, you want to make sure execution is perfect and you know everything there is to know, before you get started.

So, if you’re ready to learn more about setting up a Pty Ltd company, keep reading.

What Is A Pty Ltd Company?

When you decide to start a business, one of the most fundamental questions you will be required to answer is, what kind of legal structure will my business have? In New Zealand, the most common types of business structures are:

• Sole trader
• Partnership
• Company

When it comes to registering a company, there are different types of company structures you can choose from. There’s:

• Public Companies
• Trust Based Companies
• Dual Company Structures 
• Special Purpose Company 
• Limited By Guarantee Companies  
• Pty Ltd Companies

If you opt to go with a Pty Ltd company, it essentially means there will be a limited number of shareholders. The ‘Pty Ltd’ in a company name stands for proprietary limited. Basically, the terms refers to the limited number of proprietors the company has.

Still a little confused? Let's break it down further. The word limited suggests a restricted number whereas proprietor literally means the owner of a business or property. In a company, the shareholders claim ownership of the company.

So, a Pty Ltd company means there’s a restricted number of shareholders. Generally, smaller companies tend to be Pty Ltd, as they will have only a certain amount of shareholders. However, much larger companies can also operate as a Pty Ltd company.

What Do I Need To Set Up A Pty Ltd Company In New Zealand?

In New Zealand, all companies are registered with Companies Office. In order to set up a Pty Ltd company, it’s imperative to follow the rules and regulations set out by Companies Office. Having an understanding of their requirements is crucial, as they will also play a role in your reporting duties when running the company. 

If you have any questions or need any help, it’s best to have a legal expert clarify things for you, that way you can be assured you’re on the right path when setting up your Pty Ltd company. 

Setting Up A Pty Ltd Company: A Step By Step Guide

We’ve broken down the process of setting up a Pty Ltd company in a few simple steps. They are as follows:

• Pick a company name: You’ll need to pick something that’s appropriate and fits in with the requirement set by Companies Office

• Decide on important matters: Before you officially register your company, you’ll need to determine how your company will be governed. This can be done by creating your own Company Constitution. You will also need to figure out how shares will be divided any anything else that's relevant 

• Set up office holders: It’s important to ensure all of your companies office holders are aware of their obligations. If your the only office holder, it’s essential to properly understand your duties

• Register your company online: Once you have all the important elements sorted, you can proceed to register your pty ltd company online. The application process demands a fee and requires you to know details such as company operations, address, structure and number of employees 

There’s a lot of different steps and a number of details that need to be taken care of when Setting Up Your Pty Ltd Company. It can be a pretty stressful process when you’re trying to do this alone, so getting a legal expert to help you out is a wise idea. That way, you can rest assured that everything is done correctly. 

Is A Pty Ltd A Private Company?

Yes, a Pty Ltd company is considered to be a private company. Public companies can sell their shares on the stock exchange. This way, they can gain funding from the public, rather than just private investors. However, a private company cannot do this. Instead, they have private investors who purchase shares in the company. Due to this, buying shares in a private company isn’t as easy as going on the stock exchange, as it usually requires some kind of invitation.

Aside from the way private and public companies attain their investment capital. There’s also a number of reporting and regulatory differences between the two types of companies. For instance, all public companies must provide yearly financial reports (only private companies that meet the threshold need to do this) and the process for removing directors is also different. If you’re thinking of starting a company and deciding between public or private, it’s a good idea to talk to a legal expert and get a clear idea on the differences between a public and a private company, so you can make the right decision. 

Whether a company is private or public, some of the legal instruments they opt to utilise to protect their shares is likely to be similar. A Shareholders Agreement for example, records the details of each shareholder, what their portion of the company is and what happens if they ever want to leave the company as a shareholder. We recommend getting your agreements drafted by a legal expert, so they cover everything necessary. 

Can A Pty Ltd Company Buy Shares?

It is possible for a Pty Ltd company to purchase shares. All companies, whether they are private or public, are able to function as a separate legal entity. This means, they can run up debt, make a profit, own property, sell property and be involved in legal matters. Their status as a legal entity even gives companies the ability to buy and sell shares in another company.

Choosing to set up a company is often appealing for business owners who want their business venture to be separate from them personally, as this helps with minimising risk and liability.

Next Steps

Setting up a Pty Ltd company has many perks however, it needs to be done the right way as this will set the foundations for your business. Seeking the help of a legal professional can make this process a lot easier, so don’t be afraid to reach out to us.

To summarise what we’ve discussed:

• A Pty Ltd company offers limited liability protection and is a common business structure
• Setting up a Pty Ltd company is a crucial step in establishing your business foundation
• Pty Ltd stands for "proprietary limited," indicating a limited number of shareholders
• Pty Ltd companies can be small or large, depending on the number of shareholders
• All New Zealand companies, including Pty Ltd companies, are registered with Companies Office
• Seeking legal advice is advisable to ensure compliance with Companies Office regulations
• The process of setting up a Pty Ltd company involves choosing a suitable name, determining governance, appointing office holders, and registering online
• Hiring a legal expert can help alleviate the complexities of the setup process
• Pty Ltd companies are considered private companies in New Zealand
• Private companies have private investors and cannot sell shares on the stock exchange
• Public and private companies have different reporting and regulatory requirements
• Legal instruments like Shareholders Agreements are important for protecting shares in both public and private companies
• Pty Ltd companies can buy and sell shares in other companies as separate legal entities
• Seeking legal assistance is advisable when setting up a Pty Ltd company to ensure a strong foundation for your business

If you would like a consultation on your options moving forward, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.