Related Companies and Parties in New Zealand: What Counts

If you run a small business, you’ll probably deal with a related party at some point - even if you don’t realise it.

It might be as simple as paying your spouse for bookkeeping, leasing a workspace from a company you also own, or doing a “mates rates” deal with a sister company. These can all be completely legitimate business decisions.

The tricky part is that “related party” (and “related company”) doesn’t have just one meaning in New Zealand. The definition can change depending on whether you’re talking about company law, tax, accounting, lending, or even how you manage conflicts inside your business.

Below, we’ll break down what “related party” and “related entity” concepts usually mean in NZ, why it matters for small businesses, and the practical steps you can take to stay protected from day one.

Why Does “Related Party” Matter For Small Businesses?

Most small business owners aren’t trying to do anything dodgy when they transact with a related party. You’re usually just trying to run your business efficiently and keep things in the family (sometimes literally).

But related party arrangements can raise red flags because they create a built-in risk that the deal isn’t on normal commercial terms.

In practice, related party questions usually come up when you’re dealing with:

• Accountants and financial statements (related party disclosure requirements).
• Tax (especially when transactions impact income, deductions, losses, or GST positions).
• Investors, banks, or buyers (they’ll want to understand whether profits are “real” or inflated by related party pricing).
• Business partners or shareholders (related party deals can create disputes if one person benefits more than others).
• Compliance and governance (conflicts of interest, director duties, and decision-making processes).

Even when a related party transaction is fair, you may still need to:

• document it properly (so it looks and operates like a real commercial deal);
• approve it correctly (especially if directors have conflicts); and
• disclose it appropriately (depending on who is relying on your financial information).

Getting this right early can save you serious time (and cost) later, especially if you plan to grow, bring in investors, or sell.

What Does “Related Party” Mean In New Zealand?

In NZ, there isn’t one single all-purpose definition of related party. Different laws and frameworks use related entity concepts in different ways.

Here are the most common “buckets” you’ll see in small business life.

1) Company Law: “Related Company” (Companies Act)

If you operate through a company, you’ll often see the phrase related company. Under the Companies Act 1993, companies can be “related” through control relationships.

In plain English, companies are generally related if:

• one company is a holding company of the other (it controls it), or
• both companies are subsidiaries of the same holding company, or
• there’s control through shareholding and/or the ability to appoint or control directors.

This matters because company decision-making, director duties, and certain processes can look different when another company in the “group” is involved.

It also comes up in practical moments like issuing or transferring shares, updating ownership records, and setting rules about who can approve what. If you’re adjusting who owns the company (or how control is structured), having a clear Company Constitution and a tailored Shareholders Agreement often makes these conversations much easier.

2) Accounting: “Related Party” Disclosures (Financial Reporting Standards)

Even if you’re not a large corporate, your accountant may ask you to list your related party transactions.

In accounting standards (including NZ IFRS for entities that report under those standards), a “related party” often includes:

• people who control or significantly influence your business (for example, a director or majority shareholder);
• their close family members (depending on the context);
• entities controlled or influenced by those people (for example, another company they own); and
• some key management personnel arrangements.

The reason is simple: users of financial statements (banks, investors, buyers) want to know whether transactions happened on “normal” terms, or whether profits and costs were shifted around inside a group.

Common examples include management fees charged between entities, loans to directors, or rent paid to a related entity that owns the building.

3) Tax: “Associated Persons” (Related Party Tax Concepts)

In tax law, you’ll often hear “associated persons” rather than “related party”, but it’s the same core idea: relationships that may allow people to set prices or terms that wouldn’t happen between independent parties.

Associated person rules can affect things like:

• how certain transactions are treated for tax purposes (including whether specific tax rules apply because of the relationship);
• loss utilisation and grouping rules (depending on structure);
• how IRD views deductions and whether transactions look commercially genuine; and
• pricing and terms where parties aren’t independent (the “arm’s length” concept is often relevant, including in some cross-border situations).

Because tax outcomes can change depending on whether someone is “associated,” it’s worth getting specialist tax advice early if you’re moving assets, income, or costs between entities you own or control. (This article is general information only and isn’t tax advice.)

4) Governance And Conflicts: “Related Party” As A Practical Risk Concept

Sometimes “related party” isn’t just about a legal definition - it’s about risk management.

For example, if you’re a director and you approve a deal where your other company benefits, you’re stepping into a potential conflict of interest situation.

That’s where director obligations and decision-making processes matter. A helpful starting point is understanding fiduciary duty (the obligation to act in good faith and in the best interests of the company), and putting in place a practical Conflict of Interest Policy if you have a team or a governance structure where conflicts may arise.

Common Related Party Examples We See In NZ Small Businesses

If you’re thinking “this still sounds like big-company stuff,” here are some very normal scenarios where a related party issue can come up for an SME.

Paying Family Members Or Employing Them

Many businesses employ a partner, spouse, or other family member - especially in the early days.

This can be totally fine, but keep it business-like:

• ensure the role is real and the pay is reasonable for the work;
• document expectations and duties; and
• treat it like any other hire.

In most cases, you’ll want an Employment Contract in place so the arrangement is clear, fair, and enforceable (and so you don’t end up with misunderstandings later).

Leasing A Property You Own To Your Business

Another common related party arrangement is leasing a home office, workshop, or commercial unit from yourself (or from a company/trust you control) to your operating business.

This is where documentation matters. A written lease or licence arrangement helps show:

• what the rent is and when it’s paid;
• who pays outgoings;
• what happens if you terminate; and
• how damage, maintenance, and access are handled.

If you’re putting a formal arrangement in place, a Commercial Lease Agreement (or property licence) is often the backbone of an “arm’s length” looking transaction.

Buying Or Selling Between Two Businesses You Control

Maybe you have an online retail company and a separate logistics company, and the logistics company invoices the retailer for warehousing and shipping.

Or you have one company that owns IP (like your brand and software) and another that trades with customers, and you charge a licence fee between them.

These are classic related party transactions. They can be smart structuring, but you need to price and document them properly so they hold up under scrutiny from:

• accountants and auditors (if applicable);
• banks;
• potential buyers; and
• IRD (especially if the tax impact is meaningful).

Director Loans And Shareholder Advances

It’s also common for business owners to:

• inject cash into the business when things are tight; or
• take drawings out when cashflow is strong.

But depending on how it’s recorded, this can be a loan, wages, dividends, or something else - and the classification matters.

Where it’s a loan, a basic written loan document (interest rate, repayment terms, default terms) can help prove it’s a genuine arrangement rather than an informal “we’ll figure it out later”.

Changing Ownership Or Moving Shares Within A Family Group

Ownership changes are another point where related party and related entity concepts show up, especially if shares are being moved within a group (for example, to a family trust, to a spouse, or between holding companies).

From a legal perspective, you want the paperwork right so the Companies Office records and internal registers match what was intended. If you’re making changes, you may need guidance on how to transfer shares and the related approvals and records.

If the change is part of a broader restructure, it can also help to understand the options for changing company ownership in a way that aligns with your growth plans.

How Do You Handle Related Party Transactions Properly?

If you take one thing away, let it be this: a related party deal isn’t automatically a problem - but you should treat it like a deal with a stranger.

Here’s a practical checklist you can use.

1) Identify Whether It’s A Related Party Transaction

Ask:

• Is the other party a company I own or control (or that my co-founder owns or controls)?
• Is the other party a director, shareholder, or key decision-maker (or their close family member)?
• Would an outsider question whether the price or terms are “mates rates”?

If the answer is “yes” to any of those, treat it as a related party transaction and slow down long enough to document it.

2) Use Arm’s Length Terms (And Record How You Got There)

“Arm’s length” basically means you set terms as if you were dealing with an independent third party.

That might mean:

• getting one or two market quotes;
• using a clear pricing formula (for example, cost + margin); or
• recording the rationale in writing (even a short board note or email trail can help).

This is especially useful if your business is growing and you later want to raise capital or sell - due diligence processes often scrutinise related party transactions because they can distort profitability.

3) Approve The Deal Properly (Especially If There’s A Conflict)

If you’re a director and you’re “on both sides” of a transaction, you need to be careful about conflict management.

Depending on your structure, it may be appropriate to:

• declare the conflict;
• have another director approve it (if possible);
• have shareholders approve it; and/or
• keep a written resolution recording the approval and why it’s in the company’s interests.

This is one of those areas where a quick legal check can save a lot of stress later, because the right process depends on your setup and your governing documents.

4) Put It In Writing (Even If You Trust Each Other)

Related party arrangements often start informally because everyone involved already trusts each other. The problem is that businesses change, people leave, relationships shift, and memories fade.

A written agreement helps you:

• avoid disputes about what was agreed;
• set clear payment terms and consequences for non-payment;
• define deliverables and service levels; and
• support your accounting and tax positions.

If you’re not sure what to use, it often comes back to the basics: a services agreement, a lease, a loan agreement, or clear employment documentation.

What Are The Risks If You Get Related Party Deals Wrong?

Most related party problems don’t start with bad intent - they start with “we didn’t think we needed to document it.”

Here are the common risks we see for small businesses.

Disputes Between Founders, Shareholders, Or Family Members

Imagine your business is going well, and you bring in a co-founder or investor. Later they discover the company is paying significant “management fees” to a related party entity you control, without any clear agreement or rationale.

Even if the fees are fair, the lack of transparency can trigger mistrust and disputes.

This is one reason a tailored Shareholders Agreement (and clear approval processes) is so valuable as your business grows.

Problems When Selling Your Business Or Raising Investment

During legal and financial due diligence, buyers and investors often ask:

• Which customers or suppliers are related parties?
• Are any wages, rent, or management fees paid to related parties?
• Would the business still perform the same way if those related party arrangements stopped?

If the business relies heavily on undocumented related party arrangements, it can reduce buyer confidence and impact valuation.

Tax And Compliance Headaches

Related party transactions can attract more attention because they can change taxable income or deductions in ways that don’t reflect true commercial reality.

We’re not saying every related party transaction triggers an IRD issue - but if you haven’t documented the arrangement, it’s harder to defend if questions are asked later. For anything that could materially affect your tax position, it’s sensible to speak with a New Zealand tax adviser.

Director Duty And Conflict Issues

Directors have duties to act in the best interests of the company. If a related party deal benefits you personally and harms the company (or looks like it does), that’s where risk increases.

Using proper approval processes, clear documentation, and genuine commercial terms is often the difference between a smart business decision and a messy governance problem.

Key Takeaways

• A related party can include companies you control, directors, shareholders, and sometimes close family members - but the exact definition depends on the legal or financial context.
• In NZ, “related company” concepts often come from control relationships (like holding companies and subsidiaries), while tax and accounting may use broader related party or associated person concepts.
• Common small business related party transactions include paying family members, leasing property to your own business, director loans, and trading between entities you own.
• Related party transactions aren’t automatically a problem - but you should treat them like an arm’s length deal by using commercial terms, documenting the rationale, and keeping the paperwork tidy.
• If there’s a conflict of interest, make sure the deal is approved properly and recorded, especially if you’re “on both sides” of the transaction.
• Clear legal foundations (like a Company Constitution, Shareholders Agreement, written contracts, and policies) can make related party issues much easier to manage as you grow.

If you’d like help setting up or reviewing a related party arrangement (or you’re restructuring ownership and want to make sure the legal steps are done properly), you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat. (We can also help you coordinate with a specialist tax adviser where needed.)