It is common practice, especially if a company is entering into a contract, for an individual, possibly a director or shareholder of the company, to provide a guarantee.  This guarantee may be called upon if the company cannot pay its debts.

It is important that a guarantee is properly drafted and executed.  This includes ensuring that the guarantor signs the guarantee.  If the guarantee is not signed, or if it is not properly drafted, the guarantee may be unenforceable.

These examples demonstrate that it is essential to ensure that guarantees are correctly completed and signed.  Often guarantees are not signed or filled out correctly because staff are not aware of the significance of this paperwork.  Businesses need to ensure that staff have appropriate training in the importance of guarantees and how to fill the forms out correctly.

We are able to assist you with guarantees and can ensure that they are correctly drafted and appropriate for your situation.  If you want help drafting or reviewing a guarantee, or if you would like advice on how to ensure your paperwork is completed properly, feel free to call us on 0800 733 424.  We are also happy to organise training for your team members.

Getting these right can be the difference between getting paid for the work you do and not. In a recent case a terms of trade allowed for all of the expected terms, including a personal guarantee of a company’s payment.  Unfortunately, the guarantee was unsigned and therefore not enforceable and the company was insolvent. In this case there was acceptance by the company of the contract but no written acceptance to be a guarantor.  It is vital to make sure that the contract is correctly completed before proceeding to do the work if you want to take the hassle out of getting your money out of the debtor’s bank and into yours where it belongs.

 We briefly cover each of the five elements below:

Offer

One party must make a clear offer to another party.  For example, if you offer to install a bath and shower for $2,000 there will be a series of communications between the parties which may result in an agreement.  These can be written or verbal or both.

Acceptance

Agreement is when one party accepts the offer.  For example, when the home owner agrees to the offer to install the bath and shower for $2,000.

The acceptance can be verbal or written but if the offer is made in writing and part of the offer requires acceptance to be in writing, then acceptance must be in writing.

Consideration

This is what each party agrees as their part of the bargain.  You offer to install the bath and shower.  The buyer agrees to pay you $2,000.

Intention to create legal relations

In order for there to be an enforceable contract there must be an intention between the parties to enter into a legally binding agreement.  Usually the existence of an agreement with sufficient consideration will be enough. 

In the bath/shower installation example, a clause which says that the contract is not binding unless signed by the parties means that until they both sign there is no intention to be bound.

Certainty

The terms of the contract must be certain.  Terms that must be certain include those of consideration, what the contract is for, and how the contract will be carried out and when.  For example: the bath/shower model, the price, and the details and date of installation.

The terms should be expressly agreed, but in certain circumstances terms will be implied.  For example: that the bath and shower would be in as new condition (unless 2^nd hand was specifically agreed).

The importance of a contract

It is important to ensure that anything intended to be an enforceable contract has all five of these elements.  Contracts can be verbal but if verbal you can end up with disputes as to the agreed terms.  Putting the terms in writing and getting written acceptance makes the terms easier to prove and enforcement much more likely.

Terms of trade will usually provide much more detail and protection for you when contracting to provide your plumbing services.

The Construction Contracts Act (“the CCA”)

The CCA applies to all construction work – which is defined to include plumbing.  It is not possible to contract out of the CCA.  If any contract attempts to contract out then that provision of the contract will not apply. 

There are different provisions for commercial and residential contracts but the CCA applies to all agreements made verbally, in writing or partly in writing and partly verbally.  This means that if there are any disputes as to what was agreed, to the quality of the work, or to the price, then the dispute resolution provisions in the CCA will become available to either party to settle the dispute.  This will be the case whether the agreement was made in writing or verbally.

How we can help

If you need help putting together your terms of trade, ensuring that they provide what you want them to, or if you have any other contractual issues then call us on 0800 733 444.

However, David and Po were unfamiliar with New Zealand culture and found it hard to find a job. Instead, they thought that it would be better to start their own business. David and Po bought an ironing franchise that had a good reputation in New Zealand’s Chinese community.

A franchise is a licence granted by a company to market its products or services in a specific location. Subway is an example of a franchise that has been hugely successful in New Zealand.

Becoming a franchisee is particularly beneficial for migrants because:

1. The Franchisor provides a certain level of support to the franchisee to get the business up and running, and to continue running well.
2. Operational systems for a franchise tend to be well established and easy to follow. This enables the franchisee to understand how the business operates under New Zealand conditions.
3. There is a greater willingness on behalf of banks to provide finance for the purchase of a franchise as the business model is usually sound.
4. It may be a good way to qualify for a residence visa under one of the Business Visa Categories.

However, owning a franchise is not an easy way of making money and getting a visa.

Franchisors put a lot of pressure on franchisees to be successful so you should want your business to succeed rather than buying just for the purposes of obtaining residency.

Visa applicants have to be aware that the immigration process is often long, and preparation is crucial. A buyer cannot expect a franchise to be held for them indefinitely while their immigration status is processed.

There are also a number of requirements set by Immigration New Zealand when applying for a residence visa. For example, to be considered for a Long Term Business Visa applicants must have:

1. Relevant business experience;
2. Sufficient funds to support your business plan;
3. A business plan that meets Immigration New Zealand requirements;
4. Sufficient funds for the accommodation of yourself and your family;
5. English language skills (primary applicants need IELTS level 4 or above);
6. Good health and character.

In addition, applicants usually need to be self-employed in the business for at least 2 years before being able to apply for a residence visa. Given these strict Immigration New Zealand requirements it is vital that migrants obtain sound advice from expert advisors that can help with both immigration and franchising. It would be a very difficult situation if you purchased a franchise and failed to obtain a suitable visa at the end of the two-year period, and were forced to sell the franchise.

We have experienced business lawyers and immigration lawyers at Rainey Collins. Call us on 0800 733 401 for a relaxed and confidential initial chat about your immigration or business questions and to see if buying a franchise is right for you.

Let’s take Sarah – she’s the Wellington Representative of a national organisation set up to assist small business owners around New Zealand. Sarah runs a small business in Wellington. At a meeting of the organisation, a proposal is tabled that will significantly benefit small businesses in Wellington. Does Sarah have a conflict of interest in this situation and is she able to participate in the discussion and vote on the matter?

First of all, it is necessary to consider what the organisation’s rules say.

Check to see how “conflict of interest” is defined. Often, the rules include a provision that a Representative will not have a conflict where that Representative’s interest is not different in kind from the interests of other members of that region. If Sarah’s organisation has a similar provision, she would not have a conflict of interest provided her interest is no different to other small business owners in Wellington. However, if there was no such provision in the rules, it is likely that she does have a conflict of interest.

It is best practice for the rules of an organisation to require Representatives to disclose their interest and the extent of the interest to the Board. It is also common to prohibit any Representative from participating in the discussion concerning, or voting on, a matter in which they are interested. Depending on how the rules are drafted a Representative may be:

1. Able to participate in the discussion about the matter in which they are interested and able to vote;
2. Able to participate in the discussion about the matter but unable to vote; or
3. Required to leave the meeting while the matter is discussed and unable to vote.

What’s best for your organisation will depend on its individual circumstances. Get advice from your lawyer if you’re not sure what conflict of interest provisions are best to include in the rules of your organisation.

If you’re uncertain if a conflict of interest has arisen – it’s best to take a conservative approach and err on the side of caution. In that situation, make sure the conflict (or possible conflict) is disclosed to the Board and follow the procedure set out in your rules.

Scott and Marie have been thinking about buying a business for a while.  The idea of being the boss, having control over their work, and the possibility of financial gain has finally prompted them to start seriously looking into what kind of business is right for them to buy.  Unfortunately, Scott and Marie have so many questions and don’t know where to start!

Before you rush into a major decision like buying a business, there are some things you need to know about.  At our FREE Rainey Collins seminar we will cover the following:

• What is ‘Due Diligence’ and what do you need to do?
• Do you own the business in your own name?  Should you set up a company?  Do you buy an existing company?
• What is a franchise and is it the right business model for you?
• The legal aspects of the Agreement to Buy and Sell a Business.
• How to deal with leasing issues.
• What to do about existing employees.
• Getting finance and what you need to think about.
• Protecting yourself and your family if entering into a business.
• Dealing with business partners.

There will also be plenty of time for you to ask our lawyers questions.

This seminar is a must for anyone who is thinking about buying a business.

Unfortunately this seminar scheduled for 16 November 2011 is now full … 

so we are also holding this seminar on 24 November 2011 at 5:30pm!

To register your attendance for the seminar on 24 November 2011, enter your details below and submit, or contact Kay Johnston on (04) 473 6850.

cforms contact form by delicious:days

A recent case highlighted in the New Zealand media clearly shows what happens when you get it wrong.  A couple had invested a substantial amount of time and money getting their New Zealand business up and running.  However, when the business later failed to meet the requirements for the couple to obtain residence, they were left with no real option but to leave New Zealand.  Their hopes were dashed, dreams ruined and they were left with a considerable financial loss.

The Business Entrepreneur Process

There are several steps to obtaining residence as a business entrepreneur in New Zealand. First, the businessperson must write a business plan which meets certain requirements, and apply for a ‘long-term business visa’.  Once this is granted the businessperson can set up their business in New Zealand.

After the business has successfully operated for two years the businessperson can then apply for New Zealand residence under the ‘business (entrepreneur) category.’  To succeed in an application for residence in this category certain requirements must also be met.  First, the business must be benefiting New Zealand, and second the businessperson must have been self-employed in the business in New Zealand for the two-year period.

If you have invested at least NZ$ 0.5 million in the business, and have created a minimum of three new full-time jobs for New Zealand citizens or residents, you may be eligible under the ‘business (entrepreneur plus) category’.  This is a faster track to residence, as you do not need to wait for two years before you are eligible for residence.

Complications

While that all sounds reasonably straightforward, there are some complications that can arise.  Two particular complications include:

1. Changes to your business plan

For example, what if along the way you decide to deviate from your business plan?  This may be necessary for a number of reasons such as the original plan being unrealistic or changes being needed to make the business more successful.

However, if you change your business plan without seeking the necessary approval from Immigration New Zealand, this could place you in breach of your long-term business visa. In order to change a business plan you must apply to a business immigration specialist for a variation of conditions. You then must meet certain criteria for the variation to be granted, including having a new business proposal, sufficient capital and an appropriate reason for abandoning/varying the initial proposal.

2.  “In New Zealand”

Also, operating a business ‘in New Zealand’ means just that. We are aware of another example where a business was set up, but the owner frequently travelled outside of New Zealand.  When the owner came to apply for residence Immigration New Zealand said the owner had not operated her business in New Zealand for two years, because she was out of the country too much, and not actively engaged in work on behalf of her New Zealand business for all of that time.  This requirement is particularly relevant if you see yourself spending periods outside New Zealand while you are establishing your business.

These examples show how important it is to get advice early, at the stage that you are drawing up your business plan and working out whether it is realistic.  They also show how important it is to get advice if your plans change along the way.

1. Know what you are buying

The value of a business often depends on the assets that are being purchased.  So, make sure you know what the assets of the business are and how much they are worth.  When you consider the assets remember to look at some of the less obvious assets like customer databases, operating manuals, trademarks, and designs.  Make sure that you are buying those successful systems and intellectual property of the business as well as other assets like any machinery, stock and office equipment.

2. “Due Diligence”

Of course, the seller (called the vendor) wants to make the business sound as good as possible, so it’s a good idea to make your own inquiries and dig deeper to satisfy yourself that what you are hoping to buy is up to the mark. For example, we recommend that you:

• Try and get access to the business’ key customers and suppliers to find out what their views are about the business, and their future plans. Check what the terms of existing contracts are and find out what contracts will be signed over to you and what contracts you might have to renegotiate.
• Complete a legal due diligence. Are the assets of the business legally owned by the vendors? Are there any pending legal disputes? Are the contracts in order? What liabilities could the business face in the future?
• Remember to work with your accountant too – they will be able to provide advice on the financial position of the business and its long term viability.

3. What about existing employees?

Employees are key to the success of a business.  You should consider whether you will take on all or some of the existing employees, and if so, on what terms.  Negotiating to talk to key employees about their future plans makes sense.  The Agreement for sale and purchase needs to set out whether you (the purchaser) are going to be responsible for outstanding leave entitlements of employees and if so, how that will be dealt with on settlement.

4. Make sure you know what is happening with the business premises

If the business premises are leased check the terms of the lease, including the rent, how long is left on the lease and whether there are any remaining rights of renewal.  The last thing you want is to purchase a business and then have to move premises a few months down the track or be hit with an unexpected rent increase!

5. Terms of the contract

Common terms of an Agreement for Sale and Purchase of a Business include:

• The total purchase price – this includes tangible and intangible assets and stock in trade.
• Deposit – There is also usually a provision for a deposit to be made, which is often a percentage of the total purchase price to be paid when the contract is signed.
• Vendor’s warranties – often the vendor will provide a warranty about the turnover of the business.  This is important because turnover is a big element in profit and purchasers often rely on how much profit the business makes when purchasing the business.  It is also usual for the vendor to warrant that until the purchaser takes possession of the business, the vendor will properly carry on and conserve the business and use all reasonable endeavours to maintain the turnover and preserve the goodwill of the business.  The vendor will be liable for indemnifying (or responsible for meeting the costs) the purchaser for any loss incurred by the purchaser as a result of breach of warranties.
• Vendor’s assistance – will the vendor provide assistance to the purchaser after settlement?  For example, do you want the vendor to take you through the key business systems, introduce you to the key clients, and/or provide some other training?  If so, how long do you want the vendor to assist and on what terms?
• Restraint of trade – will the vendor be prevented from carrying on another business in competition with the business you are buying?  It is also a good idea to restrict the vendor being able to solicit the customers and employees of the business you are buying for a reasonable period of time.
• Finance – do you need to make the contract conditional on receiving finance to complete the purchase?  If so, make sure you include a finance condition, otherwise you will have to front up with the money even if the bank turns down your finance application.  Remember – once you sign on the dotted line, you are bound by the terms of the contract, so make sure you get your lawyer to read the contract, and advise you fully on it, before you sign it.

There is much to think about when buying a business – the above tips combined with helpful expert advice will go a long way towards helping you buy wisely and minimise any nasty surprises.

The business was doing well in their area, which proved to them  that their business model was working.  They decided to invest in a website, have a more professional profile, specific email and contact addresses, to move the business to the next level.

They tried to purchase a domain name for their website.  It was then that they  discovered they had problem.  There was no relevant domain name available in the same or  similar name as their business and branding.  They were left with the decision to rebrand or to find another way to gain access to the domain name they wanted.

The Problem

Company names in New Zealand must be approved by the Registrar of Companies before a Company may be incorporated.  The Registrar checks that there are no other names that are close to the name being applied for and historically this has been sufficient to ensure that a new  Company’s name is sufficiently original.

In more recent times with the internet changing the way we all do business, there are a number of other factors to consider, for example:

• Is the Company name available?
• Is the domain name available?  If the domain name is not available are you able to purchase it from the owner or alternatively lease it from them?
• Are there any other businesses using similar domain names, but with perhaps a plural or alternative spelling?
• Is the name you have chosen actually both original and marketable?
• Is anyone already using that name on Twitter, Facebook or Youtube?

Whilst your company  name can differ to your trading name, it’s a good idea to fully search the internet to ensure that there isn’t already someone doing what you previously thought was original.  Because the internet is a “world wide web” of information, you really need to look much broader than your own neighbourhood because all of a sudden your internet neighbourhood might be all the English speaking world.

The Law

Whilst there is an element of legal uncertainty with domain names, they are recognised as a form of intellectual property right.  There is also a growing body of law in and around domain names.  Indeed the Courts in New Zealand have ordered holders of domain names to hand  over the domain name to the owner of the business who has the actual rights to, but not ownership of, the name.  Sometimes the Courts have ordered that domain names be  cancelled or have provided an injunction to stop them being used.

The law is becoming clear  that in a case of passing off (where one person uses another’s reputation for gain) the Courts will ensure the behaviour is stopped.  There are also both New Zealand and  international dispute resolution bodies that are resolving disputes over domain names.

The Tip

To be ahead of the game, a new business owner should undertake internet research as part  of their start-up due diligence.  This check will help avoid breaching this new and constantly developing area of the law.

Remember that the internet is constantly changing, one day something isn’t there, the next it is.  New businesses should obtain ownership of their desired  domain names as soon as they can to avoid the dilemma Sam and Michael found themselves in.

Rose and John both struggled to find new jobs and with only their savings to live on they could no longer meet their mortgage repayments.  Unfortunately, they were served with a Default Notice.

If you are served with a Default Notice under the Property Law Act, you will usually be given a period of not less than 20 working days after receiving it to remedy your defaults.  If you cannot do this, then, under the conditions of the mortgage, the Bank may sell your home.

Many people do not realise that if the proceeds from the sale of the house fall short of repaying the mortgage, then the Bank can still pursue you for the remaining sum.  This means that, unfortunately, after the loss of your house, your trials may not be over.

The bank sold Rose and John’s house at a mortgagee sale.  Their house sold for much less than expected and the proceeds from the sale didn’t cover all of their debt, and they were left owing the bank $10,000.

Both Rose and John assumed that because they had given up the security for their mortgage, their house, and let the bank sell it to repay their debt, their obligations as debtors had been fulfilled.  However, this was not the case.

Because they still owed $10,000 the bank was legally entitled to pursue them for the remainder of the money, and did so.  Banks include such terms and conditions in their mortgage agreements, and it is very important for potential and existing mortgagors to be aware of them.  The bank demanded they repay the outstanding monies, and Rose and John had no option but to comply.

Their unfortunate plight serves as a warning to all mortgagors – you may be able to run from a mortgage shortfall, but you can’t hide.
To avoid bankruptcy it is important that debtors take steps to come to a reasonable arrangement with the bank to pay the balance off.  If necessary seek help from a competent professional to negotiate with the bank.

For further information or advice on dealing with your creditors and protecting your assets call us on 0800 733 402.

1. Company Name

The first step to incorporate a company is to reserve a company name.  You can check whether the proposed name of your company is available on the Companies Office website.

It is also a good idea to check whether there is a trademark using the proposed name of your company (or words very similar).  We also recommend that you find out what domain names are available using the words of your company.  This will give you an idea of whether others are using similar names or whether you may be breaching intellectual property laws by using the proposed name of your company.

2. Directors

Each company must have at least one director. The Companies Act sets out who can be a director, including:

• Being over 18 years of age.
• Not having been convicted of a crime of dishonesty in the last five years.
• Not being an undischarged bankrupt.

Directors manage the company’s day-to-day business and owe duties to the company, to its shareholders, and to others dealing with the company.  There are harsh penalties for breaching director’s duties, so make sure you are fully aware of your duties as a director.

3. Shareholders

Again, each company must have at least one shareholder, who can be (but does not have to be) one of the directors.

Shareholders are the owners of a company.  Shareholders have voting rights and have the right to a share in any dividend.   Generally, they have no right to participate in the management of a company’s day-to-day business.

4. Shares

A company can have any number of shares.  When choosing the number of shares for you company, make sure it’s an easily divisible number.  Think about whether you will have more shareholders in the future and how many shares each shareholder will have.

In the future, you can create more shares if need be, but it’s simpler to get it right in the first place.

5. Constitution

A constitution governs how your company is run. It is not compulsory to have a constitution, and if you don’t, the terms of the Companies Act apply.

If there are some parts of the Companies Act that you don’t want to apply, or that you want to amend, then it’s a good idea to have a constitution.  For example, how voting is conducted at shareholders’ meetings and whether the chairperson has a casting vote.

You can adopt a constitution at the time of incorporation or at any time afterwards.

6. IRD and GST registration

At the time of incorporating your new company, you can choose to apply for an IRD and GST number.  This is a good idea if you will be trading immediately.

You should obtain accounting advice before establishing a company to ensure you are choosing the most appropriate structure for your business.

7. Share Register

All companies are required to keep a share register recording the details of current and past shareholders.  Therefore, you should make sure you have a share register as soon as you incorporate as a company.

8. Opening Minutes

After incorporation, the company should hold a meeting of the board of directors and take “opening minutes”.  Alternatively, the necessary resolutions could be passed by directors in writing, rather than at a meeting.  The main matters to attend to include:

• Resolving who shall act as chairperson of the board, auditor, lawyer, managing director and secretary (as applicable).
• Confirming that all matters in connection with the registration of the company had been attended to and the date of incorporation, and tabling a copy of the certificate of incorporation together with (if applicable) the constitution.
• Recording who has consented to act as directors and shareholders and resolving that the shares were issued for the agreed price and that the details have been recorded in the share register.
• Recording the registered office and address of the company.
• Resolving to establish a bank account, and who is authorised to sign cheques.
• Resolving (if applicable) to ratify any pre-incorporation contracts.

If you have any questions or want to discuss starting a company or business, give our Business Team a call for a confidential initial chat.