In 2024, the Government announced that they would be introducing a two-phase plan to reform the Companies Act 1993 (Act) starting this year, with the aim of modernising corporate governance and improving transparency across all levels of business. While these changes are often discussed in the context of large corporations, they carry important implications for small businesses as well.
Key Changes and Their Impact
- Major Transactions and Shareholder Approval:
The definition of a “major transaction” has been amended to prevent companies from structuring deals in ways that avoid shareholder scrutiny. For small businesses, this means greater care must be taken when entering into significant financial commitments. Directors should ensure that shareholders are properly informed and that approvals are documented. The changes also clarify that transactions relating to capital related matters (e.g. share issues, buybacks, dividends and redemptions) are no longer captured under the major transaction rules.
- Embracing Digital Governance:
The reforms formally recognise the use of digital tools for company meetings and communications. Small businesses can now hold virtual annual general meetings (AGMs) and use electronic signatures and records more freely. This reduces administrative burdens and costs, particularly for businesses operating remotely or with limited resources.
- Director Identification Numbers (DINs):
All company directors are now required to obtain a unique identification number. This measure is designed to improve accountability and reduce the risk of fraudulent or repeat misconduct. For small business owners who serve as directors, this adds a layer of transparency and may affect how past business conduct is viewed by lenders, partners, and regulators.
- Extended Clawback Periods in Insolvency:
The period during which liquidators can recover funds from related-party transactions has been extended from two to four years. Small businesses must be more cautious when transferring funds to related entities or individuals, especially in times of financial stress. Proper documentation and legal advice are essential to avoid future complications.
- Enhanced Privacy for Directors:
Directors can now list a service address instead of their residential address on the Companies Register. This is particularly beneficial for small business owners who operate from home, offering greater privacy and security.
What Small Businesses Should Do
- Review and update company constitutions to ensure compliance with the new rules.
- Implement or improve digital governance practices, including secure platforms for meetings and document storage.
- Ensure all directors are registered and understand their responsibilities under the new regime.
- Seek legal or accounting advice before entering into significant transactions or restructuring arrangements.
These reforms reflect a shift toward transparency, accountability, and digital efficiency in New Zealand’s business environment. For small businesses, staying informed and proactive will be central to managing these changes successfully.
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