New reforms to Companies Act underpins directors’ need to understand roles

The Ministry of Business Innovation and Enterprise (MBIE) is embarking on a review of the Companies Act 1993, primarily to better reflect the modern business environment. 

According to MBIE, of the 750,000 registered companies in New Zealand, just two in seven have a constitution, meaning the remaining businesses are restricted to the rules of the Companies Act.  

How many directors understand their obligations under the Act - think anything from insurance, workplace safety, succession or share transfer rules - is unclear but with the new reforms taking place it’s important to fully understand those obligations, allowing the business to safely navigate its way forward without the risks of uninformed governance decisions. 

Whether a New Zealand business should have a constitution depends on its structure, size, and governance needs. While not legally required under the Companies Act 1993, a company constitution can provide additional flexibility and control over how a business is managed and allows for modifications to certain default rules in the Act. 

Why a NZ business with multiple shareholders should have a constitution

 A constitution can set specific rules on decision-making, the scope of director powers, and shareholder rights and provide protection for shareholders and investors. It can outline how shares are issued, transferred, or sold and helps prevent unwanted takeovers, conflicts or disputes between shareholders. Family businesses or privately owned businesses benefit from clear succession rules with agreements to manage ownership changes and governance can be better aligned with strategy. 

How can governance training support the growth of your business? 

 Icehouse now offers a dedicated governance programme designed specifically for owners of businesses with multiple shareholders and $5M + revenue. A pilot last year saw 10 business owners complete the non-residential programme, held at the Icehouse over three months. 

Talking to Tom Sherratt from Ashburton-based business Winseed Group after the Programme, he said the learning had given him the knowledge, the discipline and the frameworks to strategically add more direct value across the business.  Other participants had been able to work through new structure for their family businesses, some were preparing to raise capital, and all agreed they were able to operate with more certainty and clear direction. 

Regulatory compliance:

New Zealand businesses must adhere to various legal and regulatory requirements, including the Companies Act 1993 and Financial Markets Conduct Act 2013. Governance training helps business owners and directors stay compliant and avoid legal issues. 

Access to funding and investment:

Strong governance practices make businesses more attractive to banks and investors. Lenders and investors prefer businesses that demonstrate accountability, transparency, and sound decision-making. 

Improved decision-making

Good governance ensures that business owners and directors make informed, strategic decisions that align with long-term goals. Training helps business leaders understand best practices in risk management, financial oversight, and compliance. 

Risk management  

Training helps businesses identify and manage risks, whether financial, operational, or reputational. This is particularly important in a country prone to natural disasters like earthquakes and floods, as well as economic fluctuations. 

Succession planning and growth 

Many privately owned businesses are family-run - training can help with succession planning. A well-structured governance framework ensures smooth leadership transitions. 

Being professional 

As businesses grow, informal decision-making processes may no longer be effective. Training helps establish clear roles, responsibilities, and structures, leading to better management and operational efficiency. 

 Protecting shareholders and stakeholders 

Training helps business owners understand fiduciary duties and how to balance the interests of shareholders, employees, and other stakeholders. 

 If you are a business owner or shareholder, now is the time to upskill. 

Talk to us about the Smart Governance Programme starting May 29th in Auckland at the Icehouse in Parnell. This programme is non-residential and held over three months. 

Email grow@theicehouse.co.nz or contact the Icehouse regional lead in your area: 

Auckland and Northland – David Thompson d.thompson@theicehouse.co.nz 

Waikato, Bay of Plenty, Taranaki – Maryse Dinan m.dinan@theicehouse.co.nz 

Hawkes Bay, Gisborne – Michaela Vodanovich m.vodanovich@theicehouse.co.nz 

South Island – Andrea Smith a.smith@theicehouse.co.nz 

All other regions: Liliana Peneva – l.peneva@theicehouse.co.nz