Story: Large companies

Page 1. What is a company?

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Companies are commercial organisations that generally try to make a profit. Owners are called shareholders. Companies are recognised as legal entities distinct from their owners. Public companies are those whose shares can be bought and sold by anyone and are required by law to publish their financial positions. Private companies do not have to publish financial information; their shares are held by fewer individuals and cannot be traded.

Large companies

Large companies require large amounts of capital. Statistics New Zealand defines large firms as those employing more than 50 full-time employees. The Financial Reporting Act 1993 defined a large company as one that satisfied at least two of these criteria:

  • $20 million in turnover per annum
  • $10 million in assets
  • 50 or more employees.

Company law and limited liability

New Zealand inherited British company law with minor adaptations. That law was changing at the time of European settlement. The most important development was limited liability. Shareholders undertook to take a fixed maximum share of the ownership of a company and they were not liable for the debts of the company beyond that maximum.

Limited liability enabled companies to draw on a wider array of potential investors and larger amounts of capital. Limited liability was adopted gradually. Shareholders seldom paid all of their investment immediately. The money they withheld, their ‘reserve liability’ gave them an incentive to monitor the behaviour of the company to ensure it was up to the mark.

No liability companies

As gold mining progressed from alluvial gold in the 1860s to underground mining and crushing ore from the 1890s, it became capital-intensive. The amount of gold in the ore – always low – could become so small as to make crushing unprofitable. A specific ‘no liability’ company evolved. Shareholders bought shares of a given value but only paid a fraction of that initially. As work proceeded and more capital was needed, further calls were made. Shareholders could make their own assessment of the value of investing further and decline liability for the additional call – at the cost of sacrificing their shares.

Family-owned businesses

The vast majority of 19th-century and early 20th-century New Zealand enterprises were either sole proprietors or partnerships. The risk with these operations was that people’s personal assets could be seized by creditors should they go bankrupt. A company structure offered protection against this, and facilitated raising greater amounts of capital.

The most common method to expand a business (apart from reinvesting profits) was to take in other parties. In exchange for their capital (money) investors received an interest in the company (shares). Publicly listed companies slowly became more common after the Joint Stock Companies Act 1860 was passed. This was especially true with gold mines – one third of the companies floated between 1860 and 1900 were gold-mining companies. However the capital raised was paltry. As a small underdeveloped country reliant on overseas capital, local capital was in short supply. But gaining access to capital was crucial for companies wanting to grow.

How to cite this page:

Gary Hawke, 'Large companies - What is a company?', Te Ara - the Encyclopedia of New Zealand, http://www.TeAra.govt.nz/en/large-companies/page-1 (accessed 15 October 2019)

Story by Gary Hawke, published 11 Mar 2010