Shareholder Agreements for New NZ Companies: Why You Need One Before You Trade
Most new NZ companies with multiple shareholders never sign a shareholder agreement. When things go wrong, this is the most expensive mistake they could have made.
A shareholders agreement is a private contract between the shareholders of a company. Unlike the Companies Act model rules (which are public and fixed), a shareholders agreement is confidential, flexible, and enforceable. For any company with two or more shareholders, it is one of the most important documents you will ever sign.
Why the model rules are not enough
When you incorporate a company under the Companies Act 1993, the model rules govern the company by default. These cover basic matters like director meetings, voting, and share transfers. But they leave many critical questions unanswered:
- What happens if one founder wants to leave?
- Can a shareholder sell to anyone, or do others get first refusal?
- What if shareholders disagree on strategy and cannot resolve it?
- How are profits distributed?
- What if one founder stops contributing but keeps their shares?
Without a shareholders agreement, these disputes go to the courts under the model rules, which are blunt instruments designed for large companies, not small founding teams.
What a shareholders agreement should cover
- Vesting schedules: Shares earned over time (e.g. 25% per year over 4 years) prevent a co-founder who leaves in year one from keeping their full shareholding.
- Right of first refusal: Before selling to a third party, existing shareholders get the chance to buy at the same price.
- Drag-along rights: If the majority wants to sell the company, minority shareholders can be required to sell their shares too. Protects acquirers from holdouts.
- Tag-along rights: If a majority shareholder sells, minority shareholders can join the sale on the same terms. Protects minorities.
- Deadlock provisions: What happens when 50/50 shareholders cannot agree on a major decision? This is one of the most costly omissions in small NZ companies.
- Director appointment and removal: Which shareholders can appoint directors, and under what conditions can they be removed?
- Confidentiality and non-compete: Protects the business if a founder leaves and starts a competing company.
When should you sign one?
Before you trade. Before you take investment. Before you hire staff. Certainly before your first client. Once the business has value, disagreements about the shareholder agreement terms become contentious because each shareholder negotiates from a position of wanting more.
Cost
A standard shareholders agreement for a two to four person founding team typically costs NZ$1,500 to NZ$4,000 drafted by a commercial lawyer. Complex investor rounds or joint ventures cost more. This is among the best value legal spend a new company can make.
Get connected with a local commercial lawyer
Connect with a commercial lawyer in your region through FreshFirms. We match new NZ business founders with local professionals who specialise in company setup and shareholder agreements. Free service, no obligation.