As the top-ranked country in the world in the World Bank’s 2020 Ease of Doing Business index and the least corrupt out of 180 countries as seen by its first-place ranking in Transparency International’s 2020 Corruption Perception Index, New Zealand has become a very popular place for new investors to start businesses. This is because topping both these rankings has shown that New Zealand has a comprehensive and transparent regulatory framework in its business and political environment. This provides investors and business owners the reassurance and certainty that they crave in doing business. In particular, the territory is suited to those who speak English or are familiar with the English legal system. Being a commonwealth nation, New Zealand law has its roots in British Common Law, and most of the country’s residents speak English. This would make it easy for you to do business since it would be in a legal system and in a language you are familiar with. In particular, one of the most popular structures for doing business is to register limited partnership in New Zealand. Established under the Limited Partnership Act 2008, it is relatively cheaper to incorporate and manage as compared to register company in New Zealand, whilst still allowing for the benefits of liability protection that a company would offer.
What is a limited liability partnership? How does it compare to other traditional company structures?
A limited liability partnership structure is relatively less common globally but presents in other reputable jurisdictions such as Singapore and the United Kingdom. It combines elements of a traditional limited partnership with limited liability companies. Like a traditional limited partnership, it is formed by at least one general partner and at least one limited partner. Only the general partner is allowed to be involved in the management of the partnership. The limited partner solely serves as a source of funding and may not participate in management activities. The biggest distinction between a traditional limited partnership and the limited liability partnership is that it represents a distinct legal entity from its partners. This means that the general partners of a limited liability partnership will not be personally responsible for all the debts incurred by the partnership. This is where it is similar to a limited liability company. However, unlike a company, a limited liability partnership will only have a New Zealand Business Number (NZBN) and not a company registration number.
What are some of the requirements to register a limited liability partnership in New Zealand?
To incorporate a limited liability partnership, you will need:
#1 Online services account with the New Zealand Companies Office
- Other than being used for registration, it can also be used to manage your company subsequently.
#2 Reserved company name
- Similar to the process to register business name in NZ, your company name cannot be offensive, misleading, or similar to an existing name.
- It must also contain “LP”, “L.P.” or “Limited Partnership”.
#3 Minimally one general partner
- At least one of the general partners must be a resident of New Zealand or Australia or is a director of an Australian-incorporated company.
- Additional supporting documents required include the name and address of the partners and proof of the incorporated company.
- All partners must also submit a signed consent form.
- Tetra Consultants works with an extensive network of business partners in both New Zealand and Australia that can help you to satisfy this requirement. We will draft a nominee partner agreement for you and also provide KYC documents of the partner.
- Limited partners, however, do not need to be New Zealand residents, offering the limited liability partnership plenty of flexibility in terms of incorporation and foreign ownership.
- As with company incorporation, you are required to have a registered office address.
- You also need an address for service and a postal address.
- You will also need to submit your email address.
- If needed, Tetra Consultants can provide your partnership with a physical address to satisfy these requirements since virtual offices are not allowed.
#5 Partnership agreement
- While it behaves similarly to a company’s constitution, it does not to be filed publicly, offering partners slightly more privacy. Regardless, it is strongly recommended to have one to outline how the partners intend to distribute their authority and how profit-sharing will subsequently take place.
#6 Application fee
- The application fee would be NZ$240.78 (US$174.46) and this includes levies from both the Financial Markets Authority and External Reporting Board.
What are some of the advantages of setting up a limited liability partnership?
#1 Greater privacy:
- As previously mentioned, the partnership agreement will not need to be publicly filled. Only the name of the general partner will be publicly accessible, granting the remaining investors considerable secrecy. Considering that this public general partner can be a nominee partner so long as he or she fulfils the residency requirement, there is an additional layer of privacy as well.
- Apart from the personal details of the partners and investors, this privacy extends to the financial performance of the firm as well. Foreign-owned and controlled firms are subjected to audit requirements, and these audited accounts must subsequently be filed with the New Zealand Companies Office. Revealing such financial or business information might be considered a disadvantage as it allows competitors to closely monitor the firm’s performance and respond accordingly.
#2 Reduced compliance costs:
- Another benefit of not needing to file audited accounts is the reduction in compliance costs. Since the company no longer has to hire an external auditor and saves significantly on internal administration costs, compliance costs are lower for a limited liability partnership as compared to a company.
#3 Lesser tax obligations:
- Profits in a limited liability partnership are taxed based on the partners’ individual personal tax rates, and they will not face the same kind of double taxation that they might in a company. A company must first pay a corporate tax rate (base rate of 28%) and then a non-resident withholding tax of either 10% or 15% depending on your country of residence. Therefore, the “flow-through” tax treatment of a limited liability partnership allows profits to be directly distributed to partners without taxation, who are then subject to their personal tax obligations. This also simplifies the tax reporting process for the partnership.
What are some of the disadvantages of setting up a limited liability partnership?
#1 Lack of capital:
- However, partners in a limited liability partnership might find that it is hard for them to raise capital as compared to a company. This makes it harder for the business to be expanded due to the lack of capital.
#2 Difficult ownership transfer:
- In addition, since the partnership is tied to the partners, it makes it hard in terms of transfer of ownership and it cannot directly be sold off. Termination of the partnership might even occur if one of the partners withdraws.
How can Tetra Consultants assist you to register limited partnership in New Zealand?
We offer a full suite of services to make registering your limited liability partnership as smooth a process as possible:
- Company registration with New Zealand Companies Registry
- Provision of New Zealand nominee director
- Local company secretary and registered address
- Registration of tax
- Annual accounting and tax services