Turner Hopkins would welcome your enquiry concerning the prospect of New Zealand look through company structures and/or New Zealand offshore/foreign trust structures being of use to you, your clients or your family. All enquiries will be treated with the utmost confidence and subject to the normal solicitor/client confidentiality commitments.
About New Zealand Look Through Companies
A New Zealand Look Through Company (NZLTC) is a company incorporated in New Zealand. Upon incorporation it is entered into the register of companies. It is a separate legal entity providing limited liability to its owners. Its capital is divided into shares. A NZLTC is a transparent vehicle for New Zealand tax purposes akin to the US LLC. This is another useful vehicle that is finding traction with foreign owners. As opposed to Limited Partnership an owner can be the shareholder and the director of a NZLTC.
There are a few criteria that have to be met with NZLTC's; such as that there can be only class of shares with the same rights, shareholders can be natural persons, another NZLTC, a Trust, or can be a NZFT. NZLTC's must be resident in New Zealand and cannot be non-resident by virtue of application of a double tax treaty. Directors of NZLTC must be natural persons and cannot be corporate directors.
Taxation of the NZLTC
NZLTCs are treated as transparent for tax purposes and follows partnership taxation. Where the shareholders of NZLTC are individuals, tax resident outside New Zealand or New Zealand resident Trustees of a NZFT, then the shareholders will not be liable to New Zealand income tax on their foreign sourced income or any withholding tax at the time the dividend is distributed to its shareholders.
NZLTCs work well in combination with the NZFT's. At times it may be beneficial for the owners to have a company interposed between the underlying investments in the source country and the NZFT. A good reason for this could be a requirement of the settlor in a NZFT to further distance himself from the underlying assets of the NZFT. NZLTC's, just like NZFT's, provide a flow through tax treatment with addition of limited liability.
A visual representation of a typical NZLTC structure is as follows:
Frequently Asked Questions
A Sale and Purchase of a Business Agreement (SPA) is the agreement between the owner of a business (the Vendor) and a purchaser relating to the sale of the goodwill and assets (both tangible i.e. the physical assets such as equipment and the intangible assets such as good will and any intellectual property)and any stock. In New Zealand the most common form of agreement which is used is the agreement which is produced by the Auckland District Law Society Inc.
The agreement contains the commercial terms which have been agreed including the purchase price, the amount of any deposit payable, the main terms of any premises lease, a list of the assets which are being purchased, the name of the business, details of any warranty provided in relation to turnover, details relating to any assistance to be provided by the vendor after the settlement date, details of any restraint of trade which will apply to the vendor after the business is sold.
There may also be conditions which must be satisfied within specified time frames before the purchaser is legally obliged to proceed to purchase the business. These typically include:
- Landlord approval (where the purchaser is taking over a lease of the premises from which the business operates);
- Due Diligence - this allows the purchaser a specified period of time to make detailed investigations about the business to ensure that they want to proceed to purchase; and
- Finance - this provides that the agreement is conditional on the purchaser obtaining the funding they need to be able to fund the purchase of the business.
The agreement also contains general terms relating to the operation of any conditions, what happens if either the vendor or the purchaser breaches any term of the agreement or there is a dispute between them and details of the settlement process.
It is most often the case that there will need to be additional terms added to the standard Agreement for Sale and Purchase of a Business. These additional terms may deal with matters such as employees, intellectual property, additional vendor warranties and vendor finance.
Whether you are a vendor or a purchaser of a business, it is essential that you obtain professional advice from both an accountant and a lawyer. The commercial team at Turner Hopkins can help you understand the areas of risk and help you negotiate an agreement which you are comfortable with.
Each transaction will invariably involve consideration and agreement as to how certain issues are to be treated, e.g. finance conditions, due diligence conditions, treatment of existing staff, compliance issues, leasing issues a lawyer can assist in tailoring the "special conditions" to the particular transaction.
There are a number of different business structures, which are available to complete the purchase of the business. Often a prospective purchaser will initially enter into the agreement in their own name and nominate the business structure to finally complete the purchase prior to settlement. When considering the most appropriate business structure, normally advice is taken from both the purchaser's accountant and lawyer.
The most common type of business structures are:
As a sole trader you will operate the business in your own name. Generally, sole trading is appropriate for smaller businesses operated by a single individual who may employ a limited number of employees to assist in the running of the business.
Where two or more individuals (or entities) jointly pool their assets and share the liabilities in the operation of a business. It is common for partners to enter into a partnership agreement defining their rights and responsibilities. If there is no written partnership agreement, the Partnership Act will govern their relationship. Like sole traders, each partner is responsible for all partnership obligations.
Limited Liability Company
This is the most popular entity by virtue of which small to medium sized businesses are operated in New Zealand. The company is a separate legal entity from its shareholders and directors and in most cases all liabilities incurred by the company remain with the company and cannot be levied against the shareholders and directors.
There are other entities which are used such as joint ventures, trading trusts and public companies.
It is critical to choose the right business structure for your commercial requirements as the structure will impact on:
- Start up costs
- Taxation matters and applicable tax rates
- Your legal obligations and liabilities
- Ability to obtain finance and give security
- Asset protection
- Administration requirements
- Succession issues.
This has been dealt with to some extent in our Leasing page. However, we offer comments below in relation to business leases.
- It is essential a purchaser satisfies themselves that the premises are fully complaint to enable the business use to be carried out from the same, eg food and hygiene regulations in respect of cafés, restaurants and the like.
- Are there any significant liabilities, which will accrue on settlement for reinstatement of the premises to the original state?
- Is the rental a fair market rental for the premises or is it under-rented and it is likely the Landlord will be entitled to increase the rental significantly upon the next rent review date.
- Can the business afford the rental, which it is obliged to pay pursuant to the lease? Normally there are ratios relating to businesses, which dictate the percentage of turnover, which the rental should constitute.
- Is there a demolition clause contained in the lease, which entitles the Landlord to terminate the lease if they wish to renovate the premises.
“I just wanted to send my compliments for your service Joy, in particular in seeking an appropriate property for my business. During that period you have given me valuable information and guidance in processing the buying procedures smoothly.”
“I have used Turner Hopkins for my legal services for over eight years. I have always found their level of service excellent and their work to a very high standard. I have used various lawyers at their firm for various businesses I have been involved with and have always had very positive experiences. I would highly recommend them.”
“To Michael Robinson – I wanted to thank you and your colleagues for many years of excellent service to the Bank. You have an outstanding business that has proved to be one of the most reliable and ethical businesses that Collections have dealt with in the almost 9 years I was with the Bank.”
“Joy, we cannot thank you enough for your help with our purchase! You have been wonderful to deal with and so proactive (and patient with my numerous emails). We will be visiting NZ in April so will make sure we drop in to thank you in person.”