NZ Shareholders Agreements: Why Every Multi-Owner Company Needs One
Starting a NZ company with a business partner? The Companies Act default rules will not protect you if things go wrong. Here is what a shareholders agreement covers and why every multi-owner company needs one.
What Is a Shareholders Agreement?
A shareholders agreement is a private contract between the shareholders of a company that governs how the company is run and what happens in key situations such as a shareholder dispute, a shareholder wanting to exit, the death or incapacity of a shareholder, or a new investor coming in.
Unlike the company's constitution, a shareholders agreement is not registered with the Companies Register and is not publicly visible. It is a confidential agreement between the owners of the business.
Why the Companies Act Defaults Are Not Enough
When you incorporate a company in New Zealand under the Companies Act 1993, a standard set of default rules applies. These rules are designed to be broadly fair, but they are not tailored to your business or your specific ownership structure.
Without a shareholders agreement, you are relying on these generic defaults if something goes wrong. Common problems that arise without a shareholders agreement include:
- A shareholder who wants to leave but cannot force the other shareholders to buy them out (or vice versa)
- A deceased shareholder's estate inheriting their shares, bringing an unknown person into the company
- A shareholder transferring their shares to a third party without the other shareholders having a right to buy them first
- No agreed process for resolving a deadlock when shareholders cannot agree on a major decision
- No agreed valuation method for shares if one shareholder wants to exit
What a Shareholders Agreement Covers
Share Transfer Restrictions
A right of first refusal clause gives existing shareholders the right to buy a departing shareholder's shares before they are offered to an outside buyer. This prevents unknown third parties from joining the company without the other shareholders' consent.
Exit and Buy-Sell Provisions
A buy-sell clause (sometimes called a shotgun clause) provides a mechanism for one shareholder to buy out another at a fair price, reducing the need for costly and divisive litigation in a dispute.
Valuation Methodology
The agreement specifies how shares are to be valued when a shareholder exits: by an independent accountant, by a formula, or by a fixed price agreed at the outset. This removes a major source of dispute.
Key Person and Death/Incapacity
If a shareholder dies or becomes incapacitated, the agreement can specify what happens to their shares and whether the remaining shareholders have the right or obligation to buy them. This is closely connected to key person life insurance.
Non-Compete and Confidentiality
A shareholders agreement typically includes restraint of trade and non-solicitation clauses that prevent a departing shareholder from immediately competing with the business or poaching its clients.
Decision-Making and Deadlock
For 50/50 companies, a deadlock clause provides a mechanism for resolving situations where shareholders cannot agree. Without one, a 50/50 deadlock may be unresolvable without going to court.
When to Get a Shareholders Agreement
The best time to negotiate and sign a shareholders agreement is before the company starts trading, while the relationship between the founders is positive and the stakes are low. Once the company has value, or once a dispute has begun, it becomes much harder to agree on terms.
Getting a Shareholders Agreement Drafted
A shareholders agreement should be drafted by a commercial solicitor who understands NZ company law. The cost varies depending on complexity, but a basic agreement for a small company typically costs NZ$1,500 to NZ$5,000.
If you are looking for a commercial lawyer in your region to draft a shareholders agreement, FreshFirms Connect can match you with a local solicitor who works with new businesses.
For Lawyers: How to Win New Company Clients
Commercial lawyers and solicitors who reach out to newly-registered NZ companies with multiple shareholders have a high-conversion opportunity. The need for a shareholders agreement is genuine and urgent, and most new business owners do not know they need one until a lawyer explains it.
FreshFirms provides commercial lawyers with a daily feed of new companies in their region. Multi-director companies are clearly visible in the data, making it easy to target the most relevant prospects. The platform auto-sends personalised intro emails on your behalf, so new business owners hear from your firm before any competitor does.