The Anatomy of Corporate Law in New Zealand

The edited collection, The Changing Landscape of Corporate Law in New Zealand (The Centre for Commercial and Corporate Law, Inc, 2017), draws together New Zealand and international contributors who place the New Zealand company in a context or landscape. The title of its introductory chapter ‘The Anatomy of New Zealand Corporate Law’ consciously draws on the book by leading international corporate law and economics scholars (Reinier Kraakman and others, The Anatomy of Corporate Law: A Comparative and Functional Approach (3^rd ed, OUP 2017)). In The Anatomy of Corporate Law, the authors examine the common structure of the law of business corporations, demonstrating that they have a fundamentally similar set of legal characteristics and that the same problems occur across all jurisdictions. Corporate law, they argue, is organised primarily to reduce agency problems brought about by conflicts between managers and shareholders, between shareholders, and between shareholders and the companies’ other constituencies. The five common legal characteristics identified by the authors are: legal personality; limited liability; transferable shares; centralised management under a board structure; and shared ownership by contributors of capital.

All jurisdictions with well-developed market economies have statutes that establish a basic corporate form with these characteristics. The authors of the Anatomy also consider that the relationships between participants in a corporation are contractual and, in that contractual context, question why we need corporate laws at all. Mandatory and default corporate law provisions are distinguished, with default rules considered to perform a ‘gap filling’ function brought about by incomplete contracting for long term relationships. Significantly, the Anatomy’s authors do acknowledge that it would be impossible to create a corporation as a separate legal entity by contract alone. Separate legal entity requires either a statutory enactment or an enabling statute.

It is true that when picked apart, a modern corporation may be seen as no more than a set of contracts or rules. But the central importance of the company to our lives means we instinctively search for something more to explain it.  As Lord Cooke put it in one of his Hamlyn lectures:

Logical analysis may justify a denial that there is something out there called the company of which one can meaningfully say that it can or cannot do something; but we have long been told what the life of the law is, and Lord Halsbury's simple words about a real thing have a ring of practical truth. To think of a company as a set of rules is helpful up to a point and does shed some light on the subject of company responsibility. Yet it also seems to miss something. (Lord Cooke Turning Points of the Common Law  (London, Sweet and Maxwell, 1997) at 26–27).

An accusation might be made that these questions about the essential nature of the corporation are arid. But until we understand the anatomy of the corporation, we will struggle to see where it sits in its various landscapes. For example, it remains contested whether a corporation is in its genesis essentially private, owing its existence to its incorporators joining together; or essentially public, owing its existence to the incorporation statute. The answer to that question will depend on whether the company is viewed primarily as a contractual association of shareholders, or as an entity separate from those shareholders created by the state through a statute.

The New Zealand Companies Act 1993 contains mandatory and default provisions. Many of the default provisions relate to the statutory constitution of the company that generally affect its internal management. In a broad sense, therefore, and assuming the conceptualisation of the corporation that sits behind the paradigm is accepted, New Zealand companies fit broadly within the Anatomy paradigm. But the only way New Zealand companies can achieve separate legal entity is through an enabling statute – by complying with the requirements for registration found in the Companies Act 1993. Section 15 of that Act states that a company is a separate legal entity from its shareholders. The significance attached to the fact that companies can only achieve incorporation and status as a legal person through a statute depends therefore on whether at a fundamental level one considers modern companies to be primarily statutory or primarily contractual.

Susan Watson is a Professor of Law at the University of Auckland.