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.