It’s vital for your business to understand the implications of shareholding changes in New Zealand.
Life can throw you curve balls and sometimes you can make changes to your company ownership structure without thinking through (or knowing about) the implications of changes to who owns your company.
For example, there can be marital changes, shareholders spitting the dummy and walking out, taking on an amazing new person or even death.
What should you watch out for with shareholding model changes in 2019?
- If the company shareholding changes by more than 50%, you breach the shareholder continuity test and your tax losses are forfeited. This can be a major issue and needs careful consideration.
- If the shareholding changes by more than 34%, you can lose imputation credits – put simply this means that any tax paid by the company can be forfeited and you have to pay again when it’s transferred out to shareholders via dividend or on windup.
- If more than 25% of your company is owned by an overseas person/entity, and you are defined as ‘large (ie your assets are over 60million OR revenue is 30million), you will need an audit. This can be a significant and largely useless cost on a business.
- If a company has more than 10 shareholders, you could be required to prepare accounts under International Financial Reporting Standards (IFRS) if you don’t opt out in time. IFRS is not something you want to deal with in a small privately owned company as the cost is significant, so beware when taking on new investors.
- If your company has a special tax status (ie a qualifying company or look-through company (LTC), changing the shareholding in the company could result in the loss of that status or a tax liability for the shareholder.
- Shareholder agreements – these are not compulsory but are important as they detail what is to happen in the event of a shareholder leaving the company, whether voluntarily, involuntarily, or if the company ceases trading. Make sure these are updated!