Investing in agriculture in New Zealand – legal framework
New Zealand is one of the world's most efficient agricultural producers, with a reputation of being at the forefront in both agricultural practices and industry research. The agriculture industry, including its support and processing components, is New Zealand's largest industry, both in terms of contribution to GDP and in terms of employment.
The dairy industry is New Zealand's biggest export earner with annual exports in excess of NZ$11 billion.
In recent times there have been increased levels of foreign investment in the New Zealand agriculture sector as food safety and securing supply have become increasingly important.
Type of business structure
There are many different business structures that can be used to set up a business in New Zealand. Businesses in New Zealand can be operated by an individual as a sole trader or through a:
- Company, either a New Zealand incorporated company or a branch of a foreign company.
- Partnership, either a general partnership or a limited partnership.
- Joint venture, either an incorporated or unincorporated joint venture.
The choice of business structure will often be affected by tax considerations particularly for overseas investors. All New Zealand businesses must have a tax file number (commonly called an IRD number) and must maintain proper books and records for tax purposes. Depending upon the structure chosen and the nature of the business undertaken, additional registration requirements may apply and additional records may need to be kept.
Companies are the most common business structure in New Zealand. A company is recognised in law as an independent legal entity. This means it is treated as being a separate 'person' from its directors and shareholders. It can therefore do many of the same things as a natural person – for example, hold property in its own name, enter contracts, sue and be sued, etc.
A company is liable in full for all obligations that it incurs, however the liability of shareholders may be either limited or unlimited. The majority of companies have shareholder liability limited - they are only liable for any unpaid money owing on their shares (subject to any personal guarantees given).
In a general partnership, the partners are jointly and severally liable for the obligations of the partnership. Although partnerships can be based on an oral agreement, most will have a written partnership agreement to govern the relationship of the partners. There is no register of general partnerships.
A limited partnership has a legal personality separate from that of its partners (similar to limited partnerships in the United Kingdom or the United States). A limited partnership must have:
- A general partner responsible for conducting the partnership's business and who is personally liable for its obligations if the partnership cannot meet them; and
- At least one limited partner, not the general partner, who contributes capital but does not take part in the management of the partnership's business. The limited partner is not liable for the partnership's obligations beyond the amount of the capital contributed as long as the limited partner's involvement in the partnership does not exceed certain thresholds.
The Companies Office maintains a register of limited partnerships. This discloses details of the general partner but not of the limited partners.
Joint ventures are usually formed when two or more businesses join together for a limited time and a specific purpose or project. The participants in a joint venture usually sign a contract to outline their relationship and responsibilities.
Unincorporated joint ventures are not recognised as separate legal entities. Often what the participants call an unincorporated joint venture is, in fact, a partnership. If the joint venture is incorporated, then the laws applicable to that body corporate (usually an incorporated company) will apply.
Trusts and trading trusts
It is not uncommon in New Zealand for some businesses (particularly land-owning businesses) to be run by the trustees of a trust, the beneficiaries of which are discretionary and usually include the family members of the trust's settlor. These are often referred to as trading trusts.
New Zealand uses the Torrens land registration system, which originated in Australia and has been adopted by countries such as the United Kingdom and Singapore. Under this system, generally all parcels of land have their own titles showing the dimensions and location, and record ownership and other interests.
Titles are held in an electronic database maintained by Land Information New Zealand. This format allows online access and faster processing times. Only registered and authenticated users are allowed access to ensure the integrity of the system is maintained at all times.
The Government guarantees the correctness of titles, which can be searched by any member of the public for a nominal fee.
DLA Piper New Zealand is a full service business law firm in New Zealand, with offices in Auckland and Wellington, and it is part of the DLA Piper group. DLA Piper New Zealand has a strong background working in the agriculture sector. The farming team, led by Martin Thomson is expert in providing legal advice on dairying in particular, but also in the wider farming sector. It has acted on a number of significant acquisitions in this industry and the firm remains an adviser to Federated Farmers. DLA Piper New Zealand also has extensive experience and an impressive track record in obtaining Overseas Investment Office consents and exemptions on behalf of overseas investors. DLA Piper New Zealand can also assist overseas investors setting up and structuring their business in New Zealand.
If you require any further information about the overseas investment process or setting up a business in New Zealand, DLA Piper New Zealand will be happy to assist. For clients considering an investment in farmland via MyFarm, DLA Piper New Zealand will provide a free initial one hour consultation on the overseas investment approval process and setting up your business in New Zealand.
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