Business Succession and Exit Planning for NZ Company Owners
Starting a company without a succession plan is like building a house without foundations. This guide covers NZ-specific succession planning.
Most new company founders focus entirely on starting. Succession planning feels irrelevant when you are six months old. But founders who regret not having a plan face sudden buyout requests, co-founder conflicts, or exit opportunities with no legal structure in place.
What Is Business Succession Planning?
Succession planning addresses what happens when an owner leaves whether by choice (sale, retirement) or by necessity (death, incapacity, relationship breakdown). For a multi-director company, it also governs what happens when one co-founder wants out.
The Shareholder Agreement Is Your Foundation
Every company with more than one shareholder should have a shareholders agreement (separate from the constitution) that covers:
- Buy-sell (shotgun) clauses -- if a shareholder wants to exit, remaining owners have the right to buy their shares at a fair price.
- Drag-along and tag-along rights -- what happens if a majority wants to sell the whole company.
- Death and incapacity provisions -- does the deceased shareholder estate inherit shares? Are they forced to sell?
- Non-compete clauses -- prevents exiting founders from immediately competing.
Without these clauses, a co-founder dispute can freeze the business in legal limbo for years.
Business Valuation
A succession plan is incomplete without a valuation methodology agreed in advance. Common NZ approaches include: a multiple of EBITDA; an asset-based valuation; or a discounted cashflow model for high-growth businesses. Your shareholder agreement should specify the method or the process for engaging a neutral valuer.
Tax on Exit in NZ
New Zealand has no general capital gains tax, but there are important exceptions: property held on revenue account, shares held as part of a share-trading business, and foreign investment fund rules. A qualified accountant should review your exit structure before you sign anything.
Life Insurance as a Succession Tool
Life and key-person insurance policies are commonly used to fund a buy-sell agreement: if a shareholder dies, surviving owners receive insurance proceeds to buy out the deceased shareholder interest at a pre-agreed price.
When to Get Help
If you have not yet drafted a shareholders agreement, the best time is now -- ideally with a commercial lawyer specialising in SME transactions. FreshFirms connects new NZ companies with local accountants and lawyers who specialise in exactly this.