COMPLIANCE REQUIREMENTS – LTCS AND COMPANIES

By Garreth Collard, Senior Property Accountant | October 7, 2023

Compliance requirements – LTCs and companies: What is expected? Here is the high-level overview:

30-Second Key Points Summary

If you own a rental property through an LTC or company, compliance involves much more than filing an annual tax return. Directors must meet their legal duties under the Companies Act(opens in new tab), maintain a share register, keep proper accounting records, ensure the company remains solvent, and hold annual shareholder meetings. Failure to meet these obligations can expose directors to personal liability and cause problems when refinancing, selling property, or dealing with Inland Revenue. This guide explains the key compliance requirements that every New Zealand property investor should understand.

Many property investors establish a Look-Through Company (LTC) or standard limited company to own rental property, protect assets, or structure ownership between family members. Unfortunately, many assume that once the company has been incorporated, the ongoing obligations are minimal.

In reality, every New Zealand company must comply with a range of legal and administrative requirements. Some obligations arise under the Companies Act 1993, while others relate to financial reporting, taxation, and corporate governance. The good news is that most compliance requirements are straightforward once you understand what is required and put the right systems in place.

This article explains the essential compliance requirements for LTCs and property investment companies in New Zealand and highlights common mistakes that property investors make.

Why Company Compliance Matters

Many investors focus on tax outcomes when choosing a company or LTC structure. However, the legal obligations continue regardless of whether the company makes a profit, owns one property, or has been largely inactive during the year.

Good compliance helps ensure:

Directors meet their legal obligations.
The company remains legally valid and properly administered.
Financial records are available for banks, accountants, and Inland Revenue.
Shareholder ownership is accurately documented.
Investors can refinance, sell, or transfer assets without unnecessary complications.

Poor record-keeping can create significant problems years later when a property is sold, financing is reviewed, or ownership disputes arise. The New Zealand Companies Office(opens in new tab) provides guidance on ongoing company obligations through its compliance resources (opens in new tab)

Understanding the Role of a Director

One of the biggest misconceptions among property investors is that being a company director is simply an administrative title. In reality, a director has significant legal responsibilities. Directors are responsible for managing the company’s affairs and must act in what they believe to be the best interests of the company. They must exercise reasonable care, diligence, and skill when making decisions. This responsibility applies equally whether the company owns a multi-million-dollar property portfolio or a single rental property.

Directors should ensure that:

Tax obligations are met.
Records are maintained properly.
Company assets are managed appropriately.
Financial commitments can be met when due.

The legal duties of directors are set out in the Companies Act 1993 and are explained further by the New Zealand legislation website

The Solvency Test Every Property Investor Should Understand

One of the most important concepts for company directors is the solvency test. Before certain company actions can occur, directors must be satisfied that the company remains solvent.

The test has two key components:

Balance Sheet Test

The value of company assets must exceed the value of company liabilities.

Cashflow Test

The company must be able to pay its debts as they fall due in the normal course of business. Although this may sound straightforward, it becomes extremely important when property investors are:

Paying dividends (both taxable and non-taxable).
Making shareholder distributions.
Repaying shareholder current accounts.
Transferring assets.
Restructuring ownership.

For example, a company that owns a rental property may appear wealthy because of capital growth. However, if cashflow is insufficient to meet mortgage repayments and other obligations, the company may fail part of the solvency assessment.

What Is Reckless Trading?

Property investors occasionally encounter periods of negative cashflow, rising interest rates, or unexpected repair costs. This does not automatically mean the company is in trouble. However, directors must avoid what is commonly referred to as reckless trading. Reckless trading occurs when a business continues operating in a manner likely to create a substantial risk of serious loss to creditors. In practical terms, directors should not knowingly allow a company to accumulate debts it has little realistic prospect of paying.

For property investors, warning signs may include:

Persistent mortgage arrears.
Significant unpaid tax liabilities.
Outstanding contractor invoices that cannot be funded.
Continued borrowing without a realistic repayment strategy.

Company Records You Must Keep

Every company is required to maintain specific records. These records form the foundation of good corporate governance and provide evidence that the company has met its obligations.

Required records generally include:

Company constitution (if applicable).
Shareholder resolutions.
Director resolutions.
Annual financial statements.
Accounting records.
The share register.

Many investors mistakenly assume their accountant keeps all records automatically. While accountants may assist, the legal responsibility ultimately remains with the company and its directors.

The Share Register Explained

The share register is one of the most overlooked compliance requirements. A company must maintain an accurate register recording:

The names of shareholders.
Their addresses.
The number of shares held.
Historical share transactions.
Share issuances.
Share transfers.
Share repurchases.

This becomes particularly important when rental properties are jointly owned through family investment structures. Years later, when a property is sold or ownership changes, a missing or incomplete share register can create unnecessary complications. Investors should treat the share register as a core corporate record rather than an optional administrative document.

Accounting Records: More Than Just Tax Compliance

Every company must keep accounting records that accurately explain its transactions and financial position. These records should enable a person reviewing the accounts to understand:

Income received.
Expenses incurred.
Assets owned.
Liabilities owed.
Shareholder transactions.

Examples include:

Bank statements.
Mortgage statements.
Tenancy income records.
Property expense invoices.
Loan agreements.
Settlement statements.

Proper accounting records are particularly important for property investors because rental activities often span many years. When Inland Revenue reviews a transaction, records from several years earlier may still be required. More information about record-keeping obligations can be found through Inland Revenue’s business record-keeping guidance

Do LTCs Need Annual Financial Statements?

Yes. Although many property investors choose LTCs because profits and losses flow through to shareholders for tax purposes, the company itself still requires proper accounting records and annual financial information. The fact that income is taxed in shareholders’ names does not remove the need for company administration.

Annual financial statements help:

Demonstrate solvency.
Track shareholder current accounts.
Support tax return preparation.
Provide information for lenders.
Support future asset transfers and restructuring.

But…

Do You Always Need Financial Statements?

One question we are frequently asked is whether a company must prepare annual financial statements if it has had no activity during the year. The answer depends on the circumstances. Many property investors and small business owners have companies that are effectively dormant. The company may have no assets, no income, no expenses, no loans, and no bank account activity. In these situations, directors sometimes instruct us to prepare and file a nil tax return but opt not to have formal financial statements prepared as a cost-saving measure.

This approach is often practical where the company is genuinely inactive. However, directors should understand that choosing not to prepare financial statements does not remove their obligations under the Companies Act.

“The board” – which might be just 1 or 2 persons in your typical LTC – remains responsible for ensuring that adequate accounting records are kept at all times. These records must accurately record the company’s transactions and allow its financial position to be determined with reasonable accuracy. Even if there were no transactions during the year, directors should retain evidence supporting that conclusion and maintain the company’s statutory records, including shareholder information and company resolutions where required.

In practice, a genuinely dormant company with no assets, liabilities, income, or expenditure may be able to satisfy its obligations with relatively simple records. Nevertheless, directors should be cautious about assuming a company is inactive. A single bank transaction, annual Companies Office fee, interest charge, shareholder advance, or asset ownership may mean that more comprehensive records are appropriate.

If there is any doubt, professional advice should be obtained before deciding not to prepare financial statements.

Annual Shareholder Meetings

Another compliance requirement that is often forgotten is the annual shareholder meeting. The Companies Act requires companies to hold annual meetings within prescribed timeframes. Many small family-owned property investment companies satisfy this requirement through written resolutions rather than formal boardroom meetings.

The important point is that shareholders formally approve matters such as:

Financial statements.
Director appointments.
Auditor decisions where relevant.
Company resolutions.

Maintaining documentation of these decisions can avoid disputes in the future.

Free Download

Here is a generic template that you can use for your annual meeting minutes >> (click here)

Common Compliance Mistakes Made by Property Investors

Over the years, we regularly see investors make similar mistakes.

These include:

Failing to Update Share Registers. Share ownership changes occur, but no formal register updates are completed.
Missing Annual Resolutions. Decisions are made verbally with no documentation retained.
Poor Record Storage. Important documents are scattered between email accounts, personal computers, and paper folders.
Confusing Personal and Company Expenses. Directors sometimes pay company costs privately without properly recording shareholder current account movements.
Forgetting Solvency Requirements. Distributions are made without considering whether the company remains solvent afterwards.

None of these issues are difficult to fix initially. However, they often become expensive problems when property ownership changes or Inland Revenue requests documentation.

Worked Example: One-Rental-Property LTC

Sarah and Michael own a rental property through an LTC.

During the year they:

Receive rental income.

Pay mortgage interest and property expenses.

Purchase a new heat pump.

Make additional shareholder advances.

To remain compliant, they should:

Maintain proper accounting records.

Retain invoices and supporting documentation.

Prepare annual financial statements.

Update shareholder records if ownership changes.

Complete annual resolutions.

Ensure the LTC continues to satisfy solvency requirements.

Even though the LTC only owns one property, the compliance obligations remain largely the same.

LTC and Company Compliance Checklist

Before each year-end, review the following:

✅ Financial statements prepared

✅ Accounting records up to date

✅ Bank accounts reconciled

✅ Share register reviewed

✅ Shareholder loans documented

✅ Director resolutions completed

✅ Annual meeting requirements satisfied

✅ Tax returns lodged

✅ Supporting documents retained

✅ Solvency considerations reviewed

Final Thoughts

An LTC or property investment company can be an effective ownership structure, but incorporation is only the beginning. Directors must meet ongoing obligations involving governance, record-keeping, solvency, and annual administration.

Fortunately, most compliance requirements are relatively straightforward when proper systems are in place. The key is addressing issues annually rather than trying to reconstruct years of missing documentation later.

For property investors, strong compliance is not simply about avoiding penalties. It helps protect the value of your investment, supports future financing, and provides confidence that your ownership structure will stand up to scrutiny when it matters most.

Need Help With Your LTC or Property Investment Company?

EpsomTax.com specialises in accounting and tax services for New Zealand property investors. If you’re unsure whether your LTC or company records are fully compliant, we can review your structure, prepare annual financial statements, and help ensure your ongoing obligations are met. Contact EpsomTax.com today for practical advice tailored to property investors.

References

Posted in FAQS and tagged companies, company, compliance, how to, howto, instructions, LTC, record-keeping, useful