Setting Up a Subsidiary Company in NZ

If your business is growing, taking on new projects, or moving into a new market, it’s normal to start thinking: “Should we keep everything under one company, or split things out?”

That’s where the idea of setting up a subsidiary company often comes up. For many New Zealand businesses, a subsidiary can be a practical way to manage risk, organise different parts of the business, and prepare for investment or a future sale.

But the details matter. A subsidiary isn’t just a “second company” - it’s a legal structure with real consequences for liability, governance, contracts, and compliance. (Tax can also be relevant, but you should get advice from a qualified tax adviser or accountant for anything tax-specific.)

Below, we break down what a subsidiary company is, why you might set one up, and what you’ll want to get right from day one.

What Is A Subsidiary Company In New Zealand?

A subsidiary company is a company that is controlled by another company (often called the “parent” company or “holding” company).

In plain terms: your parent company owns enough of the subsidiary (usually through shares) to control how it operates.

How Does “Control” Work?

Control is defined under the Companies Act 1993, and it generally turns on shareholding and/or governance rights. Most commonly, a parent company will control a subsidiary because it:

owns more than 50% of the subsidiary’s voting shares; and/or
has the power to appoint or remove a majority of the subsidiary’s directors.

Even where a parent company controls a subsidiary, each company is still a separate legal entity. That separation is the whole point - but it’s also where businesses can make mistakes if the structure isn’t set up and operated properly.

Subsidiary Vs Division: Why The Difference Matters

Some businesses run different “arms” under one company (for example, a retail arm and a wholesale arm), but those are usually just business units - not separate legal entities.

A subsidiary is different because it is its own registered company with:

its own directors (even if they overlap with the parent’s directors)
its own bank account (ideally)
its own contracts and assets
its own legal obligations under the Companies Act 1993 and other laws

If you’re still at the “should we incorporate?” stage, it can help to start with the basics of Company set up before you decide how many entities you actually need.

Why Would A Small Business Set Up A Subsidiary Company?

There’s no one-size-fits-all answer, but there are some common commercial reasons New Zealand businesses use a subsidiary company structure.

1. Managing Risk And Liability

If your business is moving into a higher-risk activity (for example, importing products, manufacturing, running events, or taking on a major contract), a subsidiary can help isolate that risk away from the rest of the group.

Because each company is a separate legal entity, liabilities (like debts or claims) incurred by the subsidiary generally stay with the subsidiary - as long as the structure is run properly.

That said, “limited liability” isn’t a magic shield. Parent companies can still end up exposed in certain situations, including where:

the parent has guaranteed the subsidiary’s obligations (common with leases and bank lending)
the same directors fail to meet their duties in either company
the businesses are not kept genuinely separate in practice (for example, muddled finances or unclear contracting)

2. Keeping Different Business Lines Separate

If you operate multiple brands, locations, or services, subsidiaries can make it easier to:

track performance separately
bring in a business partner for one part of the business (without giving them a stake in everything)
sell one part of the business later

For example, you might keep a valuable IP-holding company separate from the trading business, so the trading company “licenses” the IP. In that scenario, an Intercompany IP Licence is often a key document to make sure ownership and permissions are clear.

3. Investment And Growth Planning

Investors often want clarity about what exactly they are investing in.

Sometimes it’s cleaner to invest into one subsidiary that runs a particular product or venture, rather than investing into the parent company (which might own other unrelated assets or businesses).

This can also make it easier to create different share rights or governance arrangements - but you’ll want to document that properly, including via a Shareholders Agreement that reflects how control, voting, dividends, and exits should work.

4. Buying A Business Or Ring-Fencing A New Acquisition

If you’re acquiring a business, it’s common to set up a new subsidiary to purchase and run that acquired business. This can help keep the liabilities and operations of the acquired business separate from your existing operations.

It also makes it easier to sell that acquired business later (for example, by selling the shares in the subsidiary - depending on the transaction structure and advice).

How Does A Subsidiary Fit Into A Holding Company Structure?

Most subsidiary arrangements sit under a “holding company” model. In simple terms:

Holding company (parent): owns shares in one or more subsidiaries and may hold assets, IP, or cash reserves.
Subsidiary company (trading/operating company): runs day-to-day operations, employs staff, signs customer and supplier contracts, and earns revenue.

If you’re weighing up whether a group structure makes sense, it helps to understand the logic behind a holding company model - especially around risk management and long-term growth.

Who Owns The Shares In A Subsidiary?

Typically, the parent company will own:

100% of the subsidiary’s shares (a wholly-owned subsidiary), or
a majority stake (if there are other investors or a joint venture element).

Ownership is recorded on the subsidiary’s share register and reflected in its constitutional documents and shareholder arrangements (where relevant).

Do Subsidiaries Have Their Own Directors?

Yes - a subsidiary is its own company, so it must have its own director(s) and comply with director duties under the Companies Act 1993.

In practice, the parent company’s directors are often appointed as directors of the subsidiary too. That’s normal, but it means you should be extra careful about governance and documenting decisions properly (including identifying which company is making which decision).

How Do You Set Up A Subsidiary Company In NZ?

Setting up a subsidiary company involves both the “Companies Office” steps and the practical legal steps that make it actually work in the real world.

At a high level, you’ll usually:

incorporate a new company (the subsidiary)
issue shares in that company to the parent company
put governance documents in place
set up separate operations (banking, contracting, record-keeping)

If you want the step-by-step process, the subsidiary company set-up guide is a helpful starting point - but it’s still worth getting tailored advice, because the “right” structure depends on what you’re trying to achieve.

Practical Tip: Keep The Companies Genuinely Separate

A common issue we see is businesses creating a subsidiary on paper, but not separating operations properly. To keep the structure clean, you’ll generally want to ensure:

the subsidiary signs its own contracts in its own name
the subsidiary invoices customers (not the parent)
money isn’t freely mixed between bank accounts without documentation
assets are clearly owned by the correct company
intercompany transactions are documented (for example, loans, management fees, IP licensing)

This isn’t just admin - it’s what makes the structure effective if something goes wrong later.

What Legal Documents And Compliance Issues Should You Plan For?

Setting up a subsidiary company is usually the easy part. The bigger (and more important) question is: “How will these companies actually operate together without creating confusion or risk?”

Here are key documents and legal areas to think about.

Company Constitution And Governance Documents

Not every company needs a constitution, but in a group structure it’s often helpful - particularly if you want specific rules around:

how shares can be issued or transferred
director appointment and removal processes
decision-making thresholds
minority shareholder protections (if relevant)

This is where a tailored Company Constitution can be a smart investment, especially if you expect growth, investment, or multiple shareholders.

Shareholder And Intercompany Agreements

Depending on your structure, you might need:

a Shareholders Agreement (especially where there are multiple shareholders in the subsidiary)
intercompany loan agreements (if the parent funds the subsidiary)
management services agreements (if the parent provides staff, admin, or back-office services)
IP licensing agreements (if the parent owns the brand, software, or other IP)

These agreements help avoid messy disputes like: “Which company actually owns this asset?” or “Who’s responsible for this cost?” - which can become a serious issue if there’s a relationship breakdown, creditor pressure, or a sale.

Employment Law: Who Employs The Team?

If you have staff working across the group, it’s crucial to be clear about which entity employs them.

In New Zealand, employers must meet obligations under employment law (including good faith obligations and minimum entitlements). If the “wrong” company is listed as employer, or the employment arrangement doesn’t reflect reality, you can end up with disputes and unexpected liabilities.

For many businesses, it’s simplest for the trading subsidiary to employ staff under a proper Employment Contract, with clear policies around secondments or shared services if staff work across multiple entities.

Contracts And Leasing: Make Sure The Right Entity Signs

One of the most common (and costly) mistakes in a group structure is having contracts signed by the wrong company.

For example:

the parent company signs a customer contract, but the subsidiary delivers the services
the subsidiary operates from premises, but the parent is on the lease
payments are taken into one entity’s bank account while invoices are issued by another

These mismatches can create real problems if a customer dispute arises, you’re trying to enforce payment, or you’re selling the business and due diligence uncovers inconsistent contracting.

Privacy And Data: Group Structures Still Need Compliance

If your subsidiary collects customer information (names, emails, delivery addresses, health info, payment details, etc.), it must comply with the Privacy Act 2020.

Even if the parent company “runs the website” or centralises marketing, you should still ensure you have a clear, accurate Privacy Policy that reflects which entity is collecting and using the data (and what third parties it’s shared with).

Privacy compliance often gets overlooked in group structures because businesses assume everything is “internal” - but legally, each entity’s role matters.

Director Duties And Decision-Making

When you have a parent company and a subsidiary, directors may be wearing multiple hats. That’s fine, but remember:

directors owe duties to each company they are a director of
what’s best for the parent may not always be best for the subsidiary (and vice versa)
decisions should be documented for the correct company (board minutes and resolutions)

This is one of those areas where getting advice early can save you headaches later, particularly if the subsidiary will have other shareholders, external funding, or significant liabilities.

Key Takeaways

A subsidiary company is a company controlled by another company, usually through majority voting share ownership and/or the power to appoint or remove most directors (as set out in the Companies Act 1993).
Subsidiaries can help New Zealand businesses manage risk, separate business lines, plan for investment, and structure acquisitions more cleanly.
A parent-subsidiary structure only works properly if you keep entities genuinely separate in practice (banking, contracts, assets, and record-keeping).
Core documents often include governance documents (like a constitution), shareholder arrangements, and intercompany agreements (such as IP licences or loans).
Be careful that the right entity is employing staff and signing contracts - mistakes here can create disputes and unexpected liability.
Each company in the group still has legal compliance obligations, including under the Companies Act 1993 and (where relevant) the Privacy Act 2020.

If you’d like help setting up a subsidiary company (or figuring out whether you even need one), you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.

Setting Up a Subsidiary Company in New Zealand