The scheme continued until 1957 when altered commitments – the decision, taken in 1955, to provide a division in South-East Asia – caused the Government to reduce the strength of the force required from 33,000 to 23,000 men. As a result the age limit for trainees was raised to 20, the annual intake was reduced to 5,600, and the Reserve liability was cut to three years. Following political changes in 1957 the new Government decided (in 1958) to abolish compulsory military training. New Zealand's strategic interest in South-East Asia indicated that existing arrangements did not provide a sufficiently flexible or mobile force. It was decided to provide a Regular Army field formation (including an armoured regiment) having an establishment strength of 5,600 men. There would be a Regular Force of 2,500 and, as from 1 April 1959, a volunteer Territorial Force of 7,000.

As any war in South-East Asia was likely to require a highly trained force at short notice, the 23,000-strong division was discarded in favour of a compact, highly trained, operational force which could be reinforced from the Territorials. In spite of extensive recruiting campaigns since 1958 it proved impossible to bring the Regular Brigade Group up to the strength authorised. The Territorial Force, although more successful in obtaining recruits, did not achieve a high state of efficiency. This was due, principally, to shortness of training given, to poor attendance at camps, and to the quick turnover of personnel. For these reasons the Government decided in 1961 to reorganise the Army establishment. A group of Regular Force field units, numbering 3,000 men, is to be built up over five years. The Territorial Force, numbering 10,000 men – organised in three smaller brigades, is to be built up over four years, and there is to be a static Regular Force of 3,250 men, including young soldiers under training. Volunteers are still accepted for Territorial service, but deficiencies are being made good by a selective national service scheme. This is expected not only to supply sufficient recruits, but also to allow an adequate standard of training to be maintained.

by Richard Ainslie Barber, N.Z.L.A.CERT., Librarian, Army Department, Wellington.

• Militia Acts, 1845, 1858
• The Defence Act, 1909
• Appendices to Journals of the House of Representatives
• Defence Department Annual Reports (H. 19 of each year); Statement on Compulsory Military Training (H. 19B of 1949); National Service Department Annual Report (H. 19A of 1945); Statement of Strengths and Losses in the Armed Services in 1939–45 War (H. 19B of 1948); Review of Defence Policy (A. 14 of 1957); Review of Defence Policy (A. 12 of 1958);Population Census, 1945, Department of Statistics (1950), Appendix B – War Service
• Official History of New Zealand's Effort in the Great War Vol. 4, Drew, H. T. B. (1923)
• The Maori in the Great War, Cowan, J. (1926).

After 1918 Territorial training was resumed but it was not until 1926 that its scale approached that laid down in the Defence Act. In 1930 compulsory military training was suspended for economy reasons, and the Territorial Force was reorganised on a basis of voluntary enlistment. The compulsory sections of the Defence Act were not invoked again, and in the nine months after the outbreak of war in September 1939, in which the voluntary system operated, approximately 60,000 men volunteered for service with the forces. Conscription was introduced in the National Service Emergency Regulations of 1940. Under these a General Reserve was formed – all males between 16 and 46 automatically becoming members. Voluntary enlistment ended on 22 July 1940 when all males between 18 and 46 became liable to be called up by ballot. New regulations, issued on 22 June 1942, made any member of any armed service liable to serve whenever required, whether in New Zealand or elsewhere and, as a matter of policy, no soldier under 21 was permitted beyond New Zealand. This wartime version of compulsory military service was administered by the National Service Department, which was responsible for recruiting and training men for service overseas with each of the three Services. The Department also built up a reserve force for home defence. By the end of 1941 the combined Services' strength (including Territorials) was over 109,000 men.

With Japan's entry into the war in December 1941, policy was changed to concentrate upon home defence. Military and industrial mobilisation was intensified, and by July 1942 the combined Services strength stood at 154,549, representing 43 percent of the eligible population. Of these, 58,200 were serving overseas. Following enemy reverses at Guadalcanal and El Alamein and the consequent easing of pressure on home defence, policy changed to emphasise overseas service. In 1942 a Third Division was dispatched to the Pacific area, and during 1943 this was increased to 18,000 men. Manpower difficulties at home rendered it impossible to maintain divisions both in the Middle East and in the Pacific areas and, as the production of foodstuffs and supplies appeared of crucial importance, the Government decided, in April 1944, to recall the Third Division who were quickly reabsorbed into essential work, or as reinforcements for the Division in the Middle East.

In September 1944 the Government adopted a scheme to replace all men in the Middle East Division who had served overseas for three years or longer. To do this, since the number of men reaching military age was inadequate, a large number of men were withdrawn from key industries and from the Third (Pacific) Division. Middle East, Air Force, and Naval establishments were maintained until the end of the war, but only at the expense of industrial manpower. Up to November 1944, 340,846 men had been called up for military service and, of these, 80,959 served overseas, including volunteers.

Within four years of the end of the war New Zealand realised that the country's collective defence commitments would require holding a strong force in readiness. This necessity induced the Labour Government to reverse its traditional attitude towards peacetime compulsory military training. In May 1949 the annual conference of the Labour Party rejected the proposal, with the result that on 25 May Fraser, the Prime Minister, announced that a referendum would be taken. This was held on 3 August 1949 and strongly approved the reintroduction of compulsory military training. Under the Compulsory Military Training Act of 1949 all males, whether European or Maori, became liable for military service upon reaching 18 years of age. Trainees had to undergo 14 weeks' intensive, full-time training, three years' part-time service, followed by six years on the Army Reserve. All trainees were allowed the option of serving with the Army, Navy, or Air Force.

By April 1914 the defence forces comprised 25,684 Territorials, 25,332 senior cadets, and 6,306 rifle club members, making in all 57,322 men out of a total population of 1,100,000. When war began in August 1914 the new defence system had been in existence for three years. The administrative arrangements were functioning smoothly, a fact which enabled the quick mobilisation and dispatch overseas of a strong expeditionary force. Although there was no lack of volunteers for overseas service the Government decided, in 1915, to form a national register of all males between the ages of 17 and 60. Volunteer enlistments appeared ample to supply all war requirements, but inequities in the system became apparent as larger reinforcements were required. The upshot was the Military Service Act of 1916, which established the Expeditionary Force Reserve consisting of every male European between the ages of 20 and 46 years. From this Reserve all future reinforcements were to be selected by ballot. Maoris were not specified, but power was given to extend the provisions to include the native race. Some tribes, notably the Arawas, Ngati Porou, and Ngapuhi, considered that compulsion should be extended to Maoris. The powerful Waikato, however, used their influence to prevent most of the young men from volunteering. The Government therefore decided that the Military Service Act should apply to natives, and three ballots were held in 1918, but the number of recruits thus produced was small. Voluntary enlistment was not abolished and, between 1916 and 1918, 26,000 men volunteered while 32,000 joined compulsorily. From the outbreak of war to the armistice, 124,211 men served with the Expeditionary Force out of an eligible male population of under 250,000.

The Defence Act of 1909 created the Territorial Force; suggestions from Lord Kitchener and new ideas gained from experience were embodied in amendments passed in 1910 and 1912 respectively. Apart from certain organisational changes the chief legislative feature of the new force was a universal obligation to be trained in:

1. Junior cadets from 12 to 14 years of age. (Abolished 1912.)

2. Senior cadets from 14 to 18.

3. Territorials from 18 to 21, later extended to 25 years, when men were posted to the Reserve until they were 30.

4. Territorials were liable to serve in New Zealand only, but could volunteer for service overseas.

For administrative purposes New Zealand was divided into four military districts, each with its headquarters staff. Each district was in turn subdivided into four areas, each staffed by Regular officers and instructors. Rigorous courses were prescribed and training was strictly territorial and arranged at convenient times. General Godley's reports for 1911, 1912, and 1913 gave evidence of the speed and thoroughness with which the new scheme was put into effect.

Until after the passing of the 1909 Act there was no organised group to oppose the National Defence League. Opposition arose, however, immediately the implications of the Act became clear. A large number of youths were prosecuted for failing to register, and those who refused on conscientious grounds were fined or imprisoned. Defence Department officers were charged with the administration of the compulsory sections of the Act and their record here and in other aspects soon roused widespread public misgivings. By mid-1911, anti-conscriptionist and anti-militarist feelings found expression in the formation of the New Zealand Peace Council and the Passive Resister's Union. By 1913 the emerging political Labour Party added its weight to the opposition. There were increasing criticisms voiced in Parliament, from Labour members on ideological grounds, and from the Liberal Opposition on the grounds of unnecessary expenditure and alleged incompetence of the responsible military authorities. The outbreak of war in 1914, however, provided ample justification of the scheme.

Compulsory military service has been adopted in New Zealand on a number of occasions. Under the Militia Ordinances of 1845 and 1858 it was enacted that European males should be trained to form an effective military force for the defence of lives and property within the colony. All between the ages of 18 and 60 were liable for service under the 1845 Ordinance, though on no account could they serve beyond a certain distance from their local police office. The 1858 Act of the New Zealand Parliament divided militiamen into three classes – the first class comprised unmarried men and widowers; the second class were married men and widowers with dependants; and the third, reserve men, were all men between 16 and 40 years of age. Whenever only a portion of the militia was required, volunteers were first called for and the balance was obtained by a ballot of the first class. Training was set at 168 hours a year, instead of 28 days as prescribed in the 1845 Ordinance. Militia districts were reduced from a 25–mile radius to 15 miles, and battalions were frequently called out in North Island districts. The militia was disbanded in 1872, although statutory provisions for its reconstitution remained in force.

From the Maori Wars until 1910 the volunteer system provided New Zealand's principal means of defence.After the South African War and particularly after the granting of Dominion status in 1907, colonists began to see international affairs from an Imperial viewpoint. They realised that any dispute involving Britain also concerned her Empire and that this might necessitate New Zealand troops serving overseas. As the volunteer system appeared to have outlasted its usefulness, the Council of Defence – formed in 1907–advised a return to compulsory enlistment “whereby the burden of service in the defence force will be more evenly distributed”. For some years prior to 1908 compulsory military training had been argued in the country and public opinion had been gradually won over. This was due, principally, to vigorous propaganda campaigns undertaken by the National Defence League, an organisation led by Lieutenant-Colonel Allen Bell, of the Auckland Mounted Rifles.

The term “company” in New Zealand ordinarily refers to a limited liability company registered under the Companies Act of 1955 or its predecessors. All such companies are corporate bodies – that is, they are legal entities distinct from their members – but not all corporate bodies are companies. Public corporations, local authorities, charitable trust boards, and incorporated societies are examples. This article deals solely with companies in the above sense.

The economic significance of the limited liability company during the last century would be difficult to exaggerate. It has permitted investors to participate in the profits and hazards of industrial enterprise without imperilling their whole property and has made the capital of many available for productive use by a relatively few entrepreneurs. The divorce of ownership and control which company organisation has brought about has played an essential role in fashioning an affluent society. This could probably have been achieved otherwise, as it is being achieved in the U.S.S.R. and elsewhere, only by the assumption of dictatorial powers by the State. In most Western countries the great bulk of productive property is controlled by companies. This is less true of New Zealand, where the principal base of the economy is the farming industry, still largely in individual hands. Nevertheless, the company form of organisation is of great importance. Indeed, in proportion to population New Zealand has many more companies than the United Kingdom.

The first New Zealand companies legislation was the Joint Stock Companies Act of 1860, modelled on United Kingdom legislation. Our law has continued to follow that of the United Kingdom. Many of its fundamental principles are contained in the common law, but the details are mostly, and the machinery wholly, the creation of statute. There is room for thinking that in some respects (for example, the rules as to winding up) a greater degree of divergence would have been advantageous. There are special provisions relating to companies that were or are of particular importance in New Zealand, notably mining and cooperative producer-owned companies.

The Companies Act provides for companies limited by guarantee as well as companies limited by shares. Limitation by guarantee, which is appropriate for non-profit associations, is little used in this country where such associations are normally registered under the Incorporated Societies Act.

Companies may be public or private. A public company must have at least seven members. A private company may have as few as two but not more than 25. It is exempt from the provisions of the Act requiring the filing of accounts and prohibiting loans to directors, but it may not offer shares to the public.

Economically, although not legally, there are two very different types of private company, the small one-man family or partnership business and the subsidiary of a large public company. The second type is of great importance in the semicolonial New Zealand economy. In contrast with the United Kingdom, the paid-up capital of private companies considerably exceeds that of public companies, the relative proportion of the two types being about the same. A high proportion of larger enterprises, especially in the manufacturing field, is overseas owned through private subsidiaries registered here. It can be strongly argued that the freedom from disclosure enjoyed by such companies is not in the public interest.

The legislation contains numerous provisions designed to protect the interests of the investing public, the shareholders, and (largely in the case of public companies) creditors. As in the United Kingdom and Australia, this is attempted by requiring disclosure, rather than by any measure of supervision. There is, however, some unofficial supervision through the stock exchanges. No counterpart exists of the Securities and Exchange Commission in the United States or of corresponding bodies in Canada.

The former control of capital issues was removed in 1962 and there are now no restrictions on new share or debenture issues or on interest rates on capital borrowed by companies. On 31 March 1964 there were 1,562 public and 47,771 private companies registered in New Zealand. The number has been increasing markedly in recent years.

by Bruce James Cameron, B.A., LL.M., Legal Adviser, Department of Justice, Wellington.

In New Zealand available figures on company finance are limited, particularly as regards private companies. Some insight, however, into the operations and financing of public companies is provided by an analysis made annually in the Reserve Bank of New Zealand of the financial statements of about 300 such companies, including all the major ones listed on the stock exchange. The analysis covering the operations of 307 companies balancing during the year ended 31 March 1960 showed among other interesting facts that:

1. Four companies each have total shareholders' funds of £5 million or more.

2. Net profit to shareholders' funds varies considerably among companies engaged in different activities, ranging from 3.9 per cent for companies in the “gas” group to 10.1 percent for companies in “printing and publishing”.

3. Of the total funds available to the 307 companies (over £29 million) two-fifths represented depreciation and one-fifth long-term retained profits. Short-term sources of funds, namely increases in liabilities such as bank overdrafts, creditors, and deposits plus decreases in such assets as cash, debtors, and stock, provided nearly 8 per cent, and other long-term sources, largely paid-up capital, accounted for the balance of 32 per cent. The funds were mainly used in expenditure on property, plant, and depreciation, which totalled over £24 million or nearly 83 percent of the total.

4. Excluding meat-processing companies, which as a group sustained net losses in the period covered by the analysis, the proportion of net profits (after tax) distributed by companies was 58.9 per cent. This figure appears high but must be related to the figures for taxation. In 1960 the 307 companies' total income to be appropriated was just over £26 million, of which £13.3 million was paid in tax. Net profit after tax was £12.8 million.

Companies in New Zealand pay tax on their assessable incomes before the distribution of dividends. There are no special exemptions as in the case of individual taxpayers. The rate of tax for every £1 of taxable income is: (i) where the taxable income does not exceed £3,600, 2s 6d. increased by one-hundredth of a penny for every £1 of taxable income; (ii) where the taxable income exceeds £3,600, a flat 8s. 6d. per £1. In addition, companies pay the social security charge of 1s. 6d. per £1. Thus the maximum rate of tax is 10s. in the £1, but for certain companies the excess retention tax may be an additional charge. Excess retention tax, at the flat rate of 7s. per £1, is paid where dividends distributed are less than 40 per cent of income after normal taxation in the case of companies in which the public is not substantially interested, and where the shares are held by 20 or fewer persons, or where the company is under the control of seven persons or less.

The directors and management of a company requiring additional funds for expansion have a large number of factors to consider in determining the most suitable source or sources. If an issue of ordinary shares is being examined, they would have to take into account the cost of an issue, the need to comply with various statutory requirements and the implications for future dividend distribution, having regard to taxation that further profits would incur. If they are considering a debenture or preference share issue or the acceptance of deposits, they would have to take into account the company's capacity to raise the necessary funds at the current market rates of interest and to service the debt.

As a result of various measures announced in the 1962 Budget, there are, however, some factors which companies no longer have to take into account. Unless a New Zealand company wishes to borrow overseas, it no longer needs the approval of the Minister of Finance for the reason that capital issues control, exercised under delegated authority by the Capital Issues Committee, was abolished and the Committee's services terminated. If a company wishes to accept deposits, the maximum rates of interest it may pay are no longer fixed as the Interest on Deposits Order was revoked. If it decides to issue convertible notes, it is no longer handicapped by the fact that the interest payable on the notes is not deductible from the company's income for tax purposes. This concession only applies, however, to New Zealand companies officially listed on the stock exchange and in respect of interest on notes which are convertible into shares within five years of the date of issue.

An overseas company wishing to commence business in New Zealand must obtain the approval of the Minister of Finance. In his 1962 Budget the Minister gave the reason: “While welcoming overseas investment in this country, the Government desires to retain power to withhold approval for overseas companies wanting to commence business in New Zealand where this could, for example, lead to undue dominance of New Zealand industry by overseas concerns.”

The Overseas Take-overs Regulations of 1964 require that certain take-over offers made, or proposed to be made, by “overseas persons”, be registered for approval at the Reserve Bank of New Zealand in Wellington. “Overseas persons” are defined as persons not ordinarily resident in New Zealand; companies or bodies corporate incorporated outside New Zealand, or their New Zealand subsidiaries; or New Zealand companies in which 25 percent or more of the voting power is controlled by overseas persons. The regulations apply if the result of the acquisition of shares under an offer will be that the offerer controls 25 percent or more of the voting power in the offeree company. The Government has announced that it proposes to keep intervention to a minimum and that only a small percentage of take-over proposals is likely to be affected.

In the nineteen fifties 188 overseas companies were registered in New Zealand. One indication of their importance is provided by the statistics for overseas direct investment in New Zealand. In the year ended 31 March 1961 this amounted to £14.4 million made up by investment in New Zealand subsidiaries, £10.2 million (comprising holdings of paid-up capital £3.9 million, intercompany indebtedness £3.0 million, undistributed profits £3.4 million), and by increased net assets of branches, £4.2 million. New Zealand companies, in contrast, increased their investment overseas by £1.4 million. It seems probable that investment by overseas companies in New Zealand will expand in future years. It also seems equally probable that, while there may not be a steady annual increase in the number of companies registered, there will be significantly more at the end of the present decade than there were at the beginning.

by Robert John Familton, M.COM., Economist, Reserve Bank, Wellington.

• Morison's Company Law in New Zealand, Spratt, F. C., and Taylor, H. (3rd ed. 1958)
• Introduction to Company Law in New Zealand, Northey, J. F. (1954)
• Company Secretarial Practice in New Zealand, Dale, D. A. (1959)
• Reserve Bank of New Zealand Bulletins, Nov 1960 and Jan-Feb 1965.

The better financing facilities available to a company are often a major consideration in a decision to incorporate either to carry on an individual existing business or to commence a new one. A company can issue shares, ordinary or preference, and debentures, and give security for loans by way of floating charge on its stock and its future property.

The other advantages, perhaps not as important, to be gained from forming a company are nevertheless real ones. Members may, subject to the company's articles of association, freely transfer their shares and thus are able to realise their investment should they so wish. Furthermore, as a company is a legal entity its existence is not affected by a transfer of shares or by the death or bankruptcy of a member.

Incorporation does, however, also possess some disadvantages. Briefly, the main ones are:

1. The statutory requirements in regard to information that has to be disclosed to the Companies Office where, for a fee, members of the public are able to peruse it – a facility which is of some relevance to “take-overs”;

2. Restrictions on a company's powers to those contained in its memorandum of association may mean that some profitable new business cannot be undertaken because the necessary power is not provided; and

3. The inclusion in the Companies Act of numerous statutory obligations which, unless strictly adhered to, will result in penalties for officers of a company in default.

A decision to form a company obviously reflects a careful assessment of the foregoing pros and cons and any other relevant factors, such as the implications of incorporation for a businessman's taxation commitments and, to be soundly based, should not be taken without the advice of people well versed in the requirements of the legislation. But, as the statistics previously quoted indicate, company formation has proceeded apace and it is clear that even relatively small firms have found it advantageous to incorporate.

“Company” is a word without any technical meaning but is commonly used to denote a gathering or meeting of people. In the plural, however, the word is readily understood as referring to associations of persons incorporated into a separate legal entity for trading purposes. In New Zealand the great majority of companies in business are incorporated under local legislation which is based on United Kingdom law modified in the light of local conditions and requirements. Thus the Companies Act 1955, which came into force on 1 January 1957, was substantially modelled on the United Kingdom Companies Act 1948. Previous to the 1955 Act, the primary source of law relating to companies was the 1933 Act which repealed the 1908 Act. This, in turn, repealed earlier statutory provisions.

In the United Kingdom, prior to the passing of the Companies Act 1844, trading companies were incorporated by Royal Charter or by special Act of Parliament. One notable example was the East India Company, which was formed under Royal Charter in 1600. Another is the Hudson's Bay Company, formed as long ago as 1670. In 1825 the principle of limited liability was recognised for the first time in the Bubbles Company Act, but applied only to chartered companies. It was not until 1862 that statutory authority was given for the registration of companies with members' liability limited by shares or by guarantee. Since then United Kingdom legislation has, of course, been considerably altered and is at present contained in the 1948 Act.

The contribution made to economic growth by the introduction of limited liability, which substantially paved the way for the ensuing expansion in the number and size of companies, is incalculable. As even a cursory glance at any business directory will reveal, a large proportion of trading, manufacturing, and commercial activity is now carried on by limited liability companies. In passing it may be noted, however, that it is exceptional in New Zealand for farms to be owned and operated by companies.

The scope and importance of companies may be briefly illustrated by the figure for company income (before distribution). In 1962–63 it amounted to £159 million (in a total private income of £1,344 million), compared with £20 million in 1938–39. On 31 March 1964 the number of companies registered in New Zealand was 49,333. This total comprised 1,562 public companies and 47,771 private companies.

Under the Companies Act 1955 any number of persons from two to 25 may form a private company but a public company must have at least seven members. In the 10 years to 1962 over 30,000 private, about 229 public, and 216 overseas companies were registered. All but a handful, which were limited by guarantee, were companies with members' liabilities limited by shares.

Several factors explain this activity in company formation, prominent among them being the general growth in population, trade, and production, and the associated business expansion. Within the general framework of growth there has been the development and manufacture of new products by new as well as established firms and a trend for overseas companies to establish local subsidiaries. Undoubtedly, however, a principal factor especially in regard to the formation of private companies has been recognition of the advantages to be obtained from incorporation of a business as a company. These advantages include the limitation of members' liability, access to better financing facilities, transferability of shares, and continuity of existence. With relatively high death duties, this last is often the main factor influencing members of a private company to change to public company status.

As the recent experience of the liquidation of a major public company, the Standard Insurance Co. Ltd., shows, limited liability is an advantage not to be regarded lightly. Liability usually is limited by shares, that is to say, the liability of members – the shareholders – to contribute to the assets of the company is limited to the amount, if any, unpaid on their shares. The Act, however, also provides for a company to have “the liability of its members limited by the memorandum (of association) to such amount as the members may respectively thereby undertake to contribute to the assets of the company in the event of its being wound up”; that is, limitation by guarantee. Very few companies registered in recent years have been limited by guarantee.

The unit trust in New Zealand corresponds to the investment company in the United States. It provides a means whereby the smaller investor may share the benefits of skilled investment in a wide range of securities. In the typical unit trust a substantial sum (say £500,000) is subscribed by the public; each investor is allocated “units” corresponding to the amount he has subscribed and is known as a unit-holder. The subscriptions are pooled to purchase stock or shares in enterprises selected by the managers of the trust with an eye to profitability and safety. Investments can be varied in the light of market conditions. The shares are vested in a trustee for the unit-holders; the profits are pooled and distributed among unit holders. Partly because of the small share market, unit trusts were not established in New Zealand until 1960. The comparatively depressed state of the economy since then has limited expansion, there being only four in 1963.

Unit trusts are closely regulated by the Unit Trusts Act of 1960. Based to some extent on Victorian legislation, the Act is most comprehensive. Its aim is to give unit holders a measure of protection similar to that enjoyed by shareholders. In addition, because of the likely business inexperience of many unit trust investors, the Act places certain supervisory responsibilities on the trustee.

by Bruce James Cameron, B.A., LL.M., Legal Adviser, Department of Justice, Wellington.

• Commercial Law in New Zealand, Leys, W. C. S., and Northey, J. F. (1961)
• Personal Property in New Zealand, Garrow J. M. E., and Gray, H. R. (1959)
• Mercantile Law in New Zealand, Ward, D. A. S., and Wild, H. R. C. (1960).