A full guide to closing a business in New Zealand

It can be harder to close a business than to start one. There are a lot of legal problems, money problems, and emotional problems along the way. It’s important to close down your business the right way, whether it’s because it’s reached the end of its natural life, isn’t making enough money, or you’re just ready to move on to the next chapter. If you don’t handle a closure well, you could be personally liable, have debts that last for years, and get into legal trouble.

This guide goes into great detail about how to close a business in New Zealand. We’ll help you understand all the important legal and financial steps you need to take, from making the first decision to filing your last tax return. If you understand these steps, you’ll not only be following the law in New Zealand, but you’ll also be able to go through the process with confidence and clarity, which will protect your personal finances and professional reputation. You can responsibly close your business and get ready for future success by following a structured plan.

First Steps: Things to Think About Before Closing

It’s important to take stock of your situation before you even start the official process of shutting down. If you rush this step, it could cause big problems later on.

Look at your money situation

The first step is to carefully and honestly look at how well your business is doing financially. Are you solvent, which means you can pay your debts, or insolvent, which means you can’t pay your debts when they come due? This difference is very important because it tells you what to do next.

Closure of the solvent: You can go ahead with a voluntary closure or liquidation if your business has enough assets to pay off all of its debts. The directors and shareholders of the company are in charge of this process, which is easier.
Closure due to insolvency: If you owe more money than you own, you have to go into liquidation, receivership, or voluntary administration. In this case, an outside administrator, like a liquidator, is hired to run the company and deal with its debts. Directors who try to close a company that is bankrupt without following the right steps could face serious legal problems.

Look over important agreements

Check out the papers you used to start your business. What does your partnership agreement say about ending the business if you are in a partnership? Your company’s shareholder agreement or constitution will spell out how to shut down the business, including how to get shareholder approval. These documents are legally binding and dictate the initial steps you must take.

Get professional help

You shouldn’t go on this journey by yourself. One of the best things you can do is hire professionals early on.

Accountant: An accountant can help you get your final accounts ready, make sure your tax returns are correct, and make sure all of your financial reports are correct.
A commercial lawyer can help you understand your legal duties to your employees, creditors, and customers. They can also help you write the papers you need, like a shareholder resolution to close the company template, and make sure you follow the Companies Act 1993.

How to Close Your Business in New Zealand: A Step-by-Step Guide

You can start the official process once you know exactly what you need to do. Here is a list of the most important steps.

Step 1: Making the Choice

Write down the decision to close in an official way. It usually takes a special resolution passed by 75% of shareholders for a company to do this. If you’re a sole trader, you can make the decision yourself, but it’s a good idea to write down your reasons and the date you stopped working for your records. Have a last meeting with directors, partners, or other important people to make sure everyone agrees on the decision and the timeline.

Step 2: Letting Important People Know

It’s important to talk to each other. You need to tell everyone who will be affected by the closure in a timely and professional way.

Workers: You have a legal obligation to inform your staff. Give them the notice period that is required by their employment contracts.
Creditors: Let everyone you owe money to, like suppliers, landlords, and lenders, know. Talking openly can help make it easier to reach a final agreement.
Customers: Let your customers know when you’ll be closing, especially if you still have orders, subscriptions, or warranties to fill.
Inland Revenue (IRD): You need to tell the IRD that you are closing your business.

Step 3: Taking care of business assets

You need to sell all of your business’s assets in a planned way.

Make a list of your assets: Write down everything the company owns, including its office furniture and equipment, stock, and intellectual property.
Valuation: Get a professional to value your assets so you know you’re getting a fair price.
Selling Assets: You can sell things at auctions, in private sales, or to other businesses. You will need to keep detailed records of all your sales for your final accounts and tax returns. The IRD must get any GST that is charged on the sale of assets.
Taking care of inventory: To get rid of the last of your stock before the final closing date, sell it off, maybe at a discount.

Step 4: Paying off debts and obligations

Paying off your debts is very important.

Put your debts in order: First, creditors with a claim on a specific asset, like a bank with a mortgage, and employees who are owed money are usually paid. Any money left over goes to pay unsecured creditors.
Talk to your creditors: Talk to your creditors if you can’t pay all of your debts. Some people might be okay with a partial payment to close the account. Your accountant or a licensed insolvency practitioner can help you with these talks.

Step 5: Cancelling registrations and licenses

Once you cease trading, you must cancel all your business-related registrations.

Registering for GST: You need to cancel your registration with the IRD and file a final GST return.
Accounts for PAYE: You need to file your last employer monthly schedule and close your PAYE account after you have paid your employees their last wages and any redundancy pay. For this reason, the IRD gives out a business cessation form.
Companies Office and NZBN: You have to ask to have a company removed from the Companies Register. This can only happen after all debts have been paid. People are told that the company will be removed, and anyone who disagrees can object. You can ask to have your New Zealand Business Number (NZBN) turned off if you are a sole trader.
Don’t forget to close your BNZ business account or any other business bank accounts after all of your transactions are done.
Other Licenses: If you have any licenses or permits that are specific to your field, you should cancel them.

Step 6: Making the last financial decisions

For a smooth exit, the last administrative tasks are very important.

Make the Final Accounts: Your accountant will need to prepare a final set of financial statements showing the business’s position on the date of closure.
File Final Tax Returns: You need to send in a final income tax return to the IRD and pay any taxes that are still due, also known as “terminal” taxes.
Distribute Remaining Assets: If a company is still in business, it can give any money it has left over after paying off all of its debts and liabilities to its shareholders.

Advice for Sole Traders in Particular

The process is easier, but the rules are the same if you’re a NZ sole trader and want to close your business. You are responsible for all of your business’s debts. You still need to tell the IRD, sell assets, pay creditors, and file a final tax return, but you don’t have to talk to shareholders or the Companies Office. The most important thing is to pay off all of your business debts so that your personal assets are safe.

The Steps of Liquidation

People often use the word “liquidation” when talking about closing a business. So, how do you close a business in New Zealand?

Liquidation of a solvent: A business that can pay off its debts can choose to go through voluntary liquidation. Shareholders choose a liquidator who will officially end the company’s business, pay its debts, and give out any extra money.
If a company can’t pay its debts, shareholders, creditors, or the court can put it into liquidation. The liquidator is a licensed insolvency practitioner. Their main job is to the creditors. They will take over the company, sell its assets, and divide the money according to the law.

Things to Stay Away From

A lot of businesses make mistakes when they close that have long-term effects. Make sure you don’t do these:

Not respecting employee rights: Failing to provide proper notice or final pay can lead to personal grievance claims.
Not letting the IRD know: The IRD needs to know that you are no longer doing business. If you don’t do this, you could face fines and have to keep paying taxes. It is very important to send a letter to the Inland Revenue to close the business or fill out their online forms.
Not keeping records properly: Bad records of asset sales and debt settlements can cause big problems when you file your taxes.
Directors’ Responsibilities When a Company Goes Bankrupt: As a director, you have a legal duty not to trade carelessly or take on more debt if your company is bankrupt. If you don’t do these things, you could be personally liable.

Let Us Help You Get Through the Process

It takes a lot of work and careful planning to close a business. Every step, from the first evaluation to the last paperwork, must be done with care to make sure the closure goes smoothly and is legal. It can be hard to deal with the process, but you don’t have to do it all by yourself.

Business Kiwi helps business owners navigate the complicated process of shutting down their operations in New Zealand. Our team of skilled professionals can help you handle your responsibilities, protect your interests, and close your business with peace of mind.

If you’re thinking about closing your business and want to make sure it’s done right, call us today to set up a meeting. We’re here to help you get ready for your next project.

How to Close a Business in New Zealand