Choosing the right business structure is one of the most important decisions you’ll make when starting or growing a business in New Zealand.
Two of the most commonly confused structures are a limited company and limited partnership. While the two share some similarities, they work in very different ways.
Both offer limited liability protections, must be registered with the New Zealand Companies Office, and create a separate legal entity from their owners.
But the way they’re governed, taxed, managed and structured differs significantly.
This article breaks down the key differences between these two structures so you can make a more informed choice about which one is right for your situation.
How Is a Limited Company Structured?
A limited company in New Zealand is incorporated under the Companies Act 1993 and is the most common business structure in the country.
It creates a separate legal entity that can own property, enter into contracts, and take on debts independently from its owners.
Directors and Shareholders
A limited company is managed by its directors and owned by its shareholders.
Directors are responsible for the day-to-day running of the business and have legal duties under the Companies Act 1993 to act in good faith and in the best interests of the company.
Shareholders, on the other hand, own shares in the company but aren’t generally involved in daily management unless they also hold a director role.
At least one director must be a natural person (not another company), and they must be 18 years of age or older.
Every company is required to have at least one director who lives in New Zealand, or who lives in Australia and is also a director of an Australian-registered company.
There’s no cap on the number of shareholders a company can have, and shareholders can be individuals, companies, or other legal entities from anywhere in the world.
Liability Protection
One of the biggest advantages of a limited company is the protection it offers shareholders.
A shareholder’s liability is generally limited to the amount they’ve paid, or agreed to pay, for their shares.
This means that if the company runs into financial trouble or faces legal action, creditors typically can’t come after shareholders’ personal assets like their home or savings.
That said, directors can face personal liability if they breach their duties under the Companies Act 1993, such as trading while the company is insolvent.
How Is a Limited Partnership Structured?
A limited partnership in New Zealand is formed and registered under the Limited Partnerships Act 2008.
Like a limited company, it creates a separate legal entity.
However, its internal structure is quite different.
General Partners and Limited Partners
Every limited partnership must have at least one general partner and at least one limited partner, and the same person can’t hold both roles at the same time.
General partners are responsible for the management of the limited partnership and can legally enter into contracts on its behalf.
They’re jointly and severally liable for the debts and liabilities of the partnership, though this liability only kicks in if the partnership itself can’t pay those debts.
Limited partners, by contrast, play a passive role.
They contribute capital to the partnership and receive distributions, but they must not take part in the management of the business.
If a limited partner does get involved in management, they risk losing their limited liability protection and could be treated as a general partner by third parties.
The Limited Partnerships Act 2008 includes a list of “safe harbour” activities that limited partners can carry out without being considered to have taken part in management.
These include things like voting on whether to admit new partners, approving new investments, and acting as a director of a company that serves as a general partner.
Liability in a Limited Partnership
The liability picture is split in a limited partnership.
General partners carry unlimited personal liability for the partnership’s debts (though only after the partnership itself fails to pay).
Limited partners, however, are only liable up to the value of their capital contribution, provided they haven’t been involved in management.
A common strategy to manage this risk is to appoint a limited liability company as the general partner.
This way, the general partner’s exposure is still capped through the company structure, and the individuals behind it aren’t personally on the hook.
How Are They Taxed Differently?
Tax treatment is one of the most significant differences between these two structures, and it’s often a deciding factor for business owners and investors.
Limited Company Taxation
A New Zealand limited company is taxed as a separate entity at a flat corporate rate of 28%.
When the company distributes profits to shareholders as dividends, it can attach imputation credits to those dividends. These credits represent the tax already paid at the company level and help prevent double taxation.
The shareholder then only needs to pay the difference between their personal marginal tax rate and the 28% already paid by the company.
For example, if a shareholder’s marginal rate is 33%, they’d only owe an extra 5% on fully imputed dividends.
Limited Partnership Taxation
Limited partnerships are treated as “fiscally transparent” for New Zealand income tax purposes – otherwise known as look-through taxation.
This means the limited partnership itself doesn’t pay income tax. Instead, the income (or losses) of the partnership flow through to each partner, who then pays tax at their own individual or corporate rate.
This is particularly attractive for investors who are taxed at rates lower than 28%, or for non-resident partners who may have different tax obligations in their home country.
It’s also useful for investors who want to offset partnership losses against their other income, something that isn’t possible when profits are trapped inside a company structure.
However, the extent to which a limited partner can claim losses is capped at their actual equity investment in the partnership.
Any losses that exceed this amount can be carried forward to future income years.
It’s worth noting that while limited partnerships are transparent for income tax, they’re not transparent for GST purposes.
The partnership itself is the entity registered for and paying GST.
What Are the Registration and Compliance Requirements?
Both structures must be registered with the New Zealand Companies Office, but the specific requirements and ongoing obligations differ.
For Limited Companies
To register a limited company, you need to reserve a company name which must end in “Limited” or “Tāpui (Limited)”, provide details of directors and shareholders, and nominate a registered office address in New Zealand.
The entire process can be completed online through the Companies Office website.
Once registered, a company must file an annual return with the Companies Office and keep its register of directors, shareholders, and other company details up to date.
Depending on the size and nature of the company, there may also be financial reporting obligations and auditing requirements.
For Limited Partnerships
Registering a limited partnership also takes place online through the Companies Office.
Before registration, the partners must have entered into a written partnership agreement that meets the minimum content requirements set out in the Limited Partnerships Act 2008.
This agreement must cover matters like restrictions on transfers of partnership interests, procedures for partners entering and exiting the partnership, meeting requirements, and entitlement to distributions.
The partnership agreement doesn’t need to be filed with the Companies Office, so it can be kept private between the partners.
On the public register, only details about the general partners (name, address, and date of birth if applicable) are disclosed.
Limited partners’ details are provided to the Registrar but are kept confidential and aren’t available for public searching.
Limited partnerships must also file annual returns and maintain records including the partnership agreement, minutes of meetings, and resolutions at the registered office in New Zealand.
Which Structure Is Right for Your Business?
The best structure for your business depends on your specific goals, the nature of your business, and your plans for the future.
When a Limited Company Makes More Sense
A limited company is generally the better fit for most small to medium-sized businesses in New Zealand.
It’s simpler to set up, well understood by banks and other institutions, and offers a clear framework for governance through the Companies Act 1993.
If you’re planning to grow your business, bring on new investors, or eventually sell, a company structure makes transferring ownership straightforward through share sales.
Companies also offer more flexibility in terms of who can be involved in both ownership and management, since shareholders can also be directors.
When a Limited Partnership Makes More Sense
Limited partnerships are most commonly used for investment vehicles, particularly in areas like commercial property syndication, private equity, and large-scale development projects.
The combination of limited liability for investors and tax transparency makes the structure very attractive for co-investment arrangements where multiple parties are pooling capital.
If your business involves outside investors who want liability protection without management involvement, a limited partnership may be the ideal structure.
The privacy benefits are also a consideration, since limited partner details aren’t publicly available on the register.
Key Differences at a Glance
A limited company is governed by the Companies Act 1993, while a limited partnership is governed by the Limited Partnerships Act 2008.
In a company, directors manage and shareholders own.
In a limited partnership, general partners manage and limited partners invest.
Both structures offer limited liability, but general partners in a limited partnership face unlimited personal liability unless a company is appointed as the general partner.
A company pays tax at 28% as a separate entity, while a limited partnership passes income and losses through to partners.
A company’s shareholder details are public, while a limited partnership keeps its limited partner details confidential.
Need Help Choosing the Right Business Structure?
Deciding between a limited company and a limited partnership comes down to your business goals, the level of investor involvement, and how you want profits and losses to be handled for tax purposes.
Both structures offer real advantages, and the right choice depends on your specific circumstances.
As a law firm helping New Zealanders with commercial and business law, Evolution Lawyers can guide you through the process of selecting and setting up the right structure for your needs.
Contact our team of limited partnership lawyers today to discuss your options and get your business set up on the right foundation.
Frequently Asked Questions
What’s the main difference between a limited company and a limited partnership in New Zealand?
The main difference is how they’re structured and taxed.
A limited company is managed by directors and owned by shareholders, with the company paying tax at 28%.
A limited partnership has general partners who manage the business (with unlimited liability) and limited partners who invest passively (with liability capped at their contribution).
The partnership itself doesn’t pay tax, as income passes through to the partners individually.
Can a company be a general partner of a limited partnership?
Yes, a limited liability company can serve as the general partner of a limited partnership in New Zealand.
This is a common arrangement that helps manage risk, because the general partner’s liability for partnership debts is then limited through the company structure rather than falling on an individual personally.
Do limited partners have any say in how the business is run?
Limited partners must not take part in the day-to-day management of the limited partnership.
If they do, they risk losing their limited liability protection.
However, the Limited Partnerships Act 2008 sets out “safe harbour” activities that won’t count as taking part in management, such as voting on admitting new partners or approving major investments.
Which structure is better for a small business in New Zealand?
For most small businesses, a limited company is the more practical choice.
It’s simpler to set up, more widely understood, and provides a clear governance framework under the Companies Act 1993.
Limited partnerships are typically better suited to investment vehicles and larger co-investment arrangements where tax transparency and investor privacy are important.
Are the details of limited partners kept private?
Yes, one notable feature of the limited partnership structure is that limited partner details are kept confidential by the Registrar.
Only general partner details appear on the public register.
Limited partner information is provided to the Registrar but isn’t available for public searching, which offers a level of privacy not available in a standard limited company where shareholder details are publicly accessible.