Many whānau, hapū and iwi are taking advantage of the company structure under the Companies Act 1993.
Since 1993 it has been easier to operate a company. Set-up costs have decreased and name approvals are available almost immediately.
The main advantages of a company are:
- Limited liability. The liability of shareholders is limited to any amounts unpaid on their shares.
- The shareholders are not liable for the debts of the company.
- Perpetual succession. A company is a legal entity separate from its shareholders and continues indefinitely in existence until wound up or dissolved.
- The continuation of a company is not affected by the death or withdrawal of shareholders.
- The continuation of a company is not affected by the debt of shareholders.
- The company structure allows considerable flexibility in the organisation, management and financing of the company.
- Ownership and management of companies can be separated and control can be vested in directors.
- Shares can be bought and sold without interfering with the corporate structure.
- There is considerable scope for tax planning. For instance options exist to allow a loss making company to transfer those losses to its shareholders.
- A company formed under the Companies Act 1993 must be managed by or under the direction or supervision of directors and is subject to transparent governance and accountability structures.
- Directors must act in good faith and in the best interests of the company.
- Directors must exercise their powers for a proper purpose.
- Directors cannot cause or allow the company to be carried on in a manner likely to create a substantial risk of serious loss to the company's creditors.
- Directors must not agree to the company incurring an obligation unless the directors believe that the company will be able to perform the obligation.
- Directors must exercise the care, diligence and skill that a reasonable director would exercise in the circumstances.
The main disadvantages of a company are:
- The requirement that the owners hold shares can create difficulties in relation to hapū or iwi shareholders.
- Iwi can experience real practical difficulties in identifying all hapū or iwi members and in particular the individuals to whom shares should be issued.
- Unless tax-exempt, companies are liable for tax at company rates of 33 cents in the dollar.
- Directors have added responsibilities.
- Directors can be personally liable in the event they carry on the business in circumstances where they fail to meet their obligations or duties.
- Directors should be aware that many suppliers will insist on personal guarantees on accounts if credit is required.
- Consideration may also need to be given to ensure future generations of hapū or iwi members benefit from the assets.
- Companies may not be suitable to meet the non-commercial objectives of whānau, hapū and iwi.
Suitability of company structures
The company structure is suited for commercial operations. Examples of Māori Companies include Whale Watch Kaikoura Ltd, Mai Media Ltd and Shotover Jet Ltd.
The requirement that shareholders hold shares makes it a less appropriate structure for hapū and iwi due to the difficulties in identifying all the persons to whom shares should be issued.
The company structure may not be suitable as a vehicle to retain treasured assets such as land due to the requirement by many Māori that those assets not be put at risk at any cost.
The company structure may also not be appropriate for hapū or iwi whose objectives are solely or primarily political, social or cultural.