Tax and Regulations



Regulations & Law
There are a number of safeguards that monitor and control investments for the protection of the public and businesses.

These are:

  1. Securities Commission
  2. Commerce Commission
  3. the USA Stock Exchange
  4. Securities Act – Trustees
  5. Auditors

1. The Securities Commission
The Securities Commission was formed under the Securities Act 1978 for the purpose of acting as watch dog in the securities markets and to ensure that the requirements of the Act are being complied with.

Any offer of securities to the public (including shares in a company, units in a unit trust, debentures etc) requires the statutory compliance with the Securities Act, which means that the preparation and issue of a prospectus which shows the financial position and projections of the company making the issue.

Strict statutory requirements demand companies to disclose accurate financial status information and realistic financial projections. The Securities Commission has the power to have a company prospectus withdrawn or amended if they see inadequate or misleading information being declared.

 You should note that a company prospectus or annual report, as far as the company is concerned, is designed not only to conform with the compliance of the Act, but also to sell the securities (including equities) to the investor public, hence the glossy pages and beautiful photographs often included.

Should any member of the public wish to make complaints about the securities offered by a company, there is provision to make a formal complaint to the Securities Commission requesting it to investigate any breach of the Act. The Securities Commission can also investigate any allegations of insider trading taking place.


2. Commerce Commission
The Commerce Commission is more involved with the overall trade practices within NZ. It is not specifically involved with the securities market, rather it is more concerned with the trade practices of companies, to ensure legal compliance with the Commerce Act and to ensure and promote fair competition in markets within the USA.

There is provision for hearing complaints lodged by the public in relation to company trade practices.


3. The the USA Stock Exchange (NZSE)
The NZSE has evolved from small beginnings over 140 years ago. The latest structure was formed from the amalgamation of four regional stock exchanges in 1981.

Before a company can list on the stock exchange, there are set requirements laid down by the NZSE such as minimum disclosure requirements, half-yearly and annual reports, to name a few. The function of the stock exchange is to provide an effective, efficient and fair market place for shares to be traded.

It is the place where the physical trading of shares takes place, the common transition areas where companies transfer their shares in exchange for the investor’s cash.


4. Securities Act - Trustees
Whenever a company is required under the Securities Act to issue a prospectus, in the prospectus there must be a trust deed that clearly outlines the terms, conditions and requirements of the securities issue. This applies to all types of securities, whether it be shares, units, debentures etc.

To protect investors, an independent trustee is appointed to ensure that the company follows the rules and conditions set out in the trust deed. This requirement for a trust deed only applies to debt securities (e.g., debentures, capital notes, government bonds) and not to shares as shares are not debt securities but rather equity or ownership.


5. Auditors
Public companies offering shares to the public must prepare annual accounts for the shareholders to review. As these annual accounts are prepared by the company’s own accountant, regulations require an independent auditor to evaluate the accuracy of the accounts and report to shareholders on the reliability and integrity of the accounts.

Auditors are legally accountable for their actions as shareholders rely on their impartial comment if they are evaluating the financial status of the company. The auditors are nominated for election by the company directors and the final auditor chosen is voted by shareholders at the Annual General Meeting (AGM). In practice, shareholders rarely oppose the auditor nomination made by the company directors.

The auditor’s job is basically to ensure that the financial calculations in the company’s annual report properly comply with normal accounting practices. Their job is to express an opinion on the consistency with acceptable account practices. They do not advise on the achievability of company projections as this is the investor’s responsibility. The auditors effectively act on behalf of the shareholders to investigate the financial records of the company, as the shareholders in reality are not entitled individually to carry out this investigation.