NZ Company Constitution vs Model Rules: What New Directors Need to Know
New NZ companies automatically get the Companies Act model rules. But is that enough? Here is when a custom constitution makes sense and what it costs to get wrong.
When you register a company with the New Zealand Companies Office, the Companies Act 1993 model rules apply automatically. These are sensible defaults that cover director duties, shareholder rights, meeting procedures, and share transfers. For many simple sole-director companies they work fine.
But if your company has multiple shareholders, outside investors, or a complex ownership structure, the model rules may not protect you well enough.
What the model rules cover
Under the Companies Act defaults, any shareholder can transfer their shares to anyone they like. Decisions generally require a simple majority of directors. There is no automatic right of first refusal if another shareholder wants to sell. For a two-person business, this can lead to disputes if one founder wants to exit or bring in a partner the other founder does not want.
What a constitution can do differently
A custom company constitution can:
- Require shareholder approval before shares are transferred to a third party (right of first refusal)
- Set higher voting thresholds for major decisions (e.g. 75% majority to issue new shares)
- Create different classes of shares with different voting or dividend rights
- Define exactly what happens if a shareholder dies, becomes incapacitated, or is in dispute
- Add drag-along and tag-along rights for investors
- Set rules around director appointment and removal
When you need a constitution
If any of the following apply, talk to a commercial lawyer before you start trading:
- Your company has two or more shareholders who are not in the same family
- You are raising money from angel investors or a venture fund
- You intend to issue share options or different share classes to employees
- One shareholder will be a silent investor while others run the business
- You are setting up a joint venture with another company
What it costs to get wrong
Without a constitution, a minority shareholder can potentially force a sale of shares to an unwanted buyer. Disputes over dividend policy, director pay, or company direction can become expensive court proceedings. Getting a well-drafted constitution when the company is formed is far cheaper than litigating a shareholder dispute later.
How much does a company constitution cost?
A standard constitution drafted by a commercial lawyer typically costs NZ$500 to NZ$2,500 depending on complexity. For investor rounds or joint ventures, expect to pay more. Many accounting firms can refer you to a trusted local lawyer for this work.
Find a local legal or accounting expert
If you have just incorporated a company in New Zealand and are unsure whether you need a constitution, connect with a local commercial lawyer or talk to an accountant who works with new NZ companies. FreshFirms matches new business owners with professionals in their region.