Operating Agreement / Shareholders Agreement (New Zealand)

An Operating Agreement / Shareholders Agreement in New Zealand is a private contract between the shareholders of a company incorporated under the Companies Act 1993 that sets out how the company is governed, how decisions are made, and the rights and obligations of each shareholder. New Zealand does not have a separate legal structure called an 'LLC' as exists in the United States — instead, the equivalent governance document for a New Zealand limited company is the shareholders agreement (sometimes called an operating agreement for familiarity).

Under the Companies Act 1993, a New Zealand company may operate under the default rules of the Act alone, or it may have a constitution filed with the Companies Office under section 28. A shareholders agreement supplements both the Act and any constitution by addressing matters the parties wish to govern privately and in more detail than the public constitution allows.

The agreement is a binding contract governed by the Contract and Commercial Law Act 2017 and New Zealand general contract law. Unlike the constitution, a shareholders agreement is not filed with the Companies Office and is not accessible by the public — it remains confidential between the signing parties.

Key matters addressed in a New Zealand shareholders agreement include: the shareholding and capital structure of the company; director appointment rights and board governance; decision-making thresholds (ordinary resolutions versus unanimous consent); dividend policy and retained earnings; share transfer restrictions, pre-emptive rights, tag-along and drag-along rights; buy-sell (shotgun) clauses; what happens on death, incapacity, or insolvency of a shareholder; confidentiality and non-competition obligations; intellectual property ownership; and dispute resolution mechanisms (negotiation, AMINZ mediation, arbitration, or High Court of New Zealand proceedings).

The forms-legal.com Operating Agreement / Shareholders Agreement (New Zealand) template is designed for companies incorporated under the Companies Act 1993 and covers all standard governance provisions expected by New Zealand commercial practitioners.

Section 10 of the Companies Act 1993 sets out the requirements for incorporation of a New Zealand company by registration with the Companies Office. Section 28 governs the filing of a company constitution. Section 87 requires every company to maintain a share register recording shareholder details and the shares held by each. Section 107 of the Companies Act 1993 requires that certain major transactions — where the value exceeds half the company's assets — be approved by an ordinary resolution of shareholders. Section 129 requires directors to act in the best interests of the company. Section 140 requires directors to disclose conflicts of interest. These provisions form the statutory backdrop against which a shareholders agreement operates, supplementing the default rules of the Companies Act 1993 with tailored commercial arrangements that better reflect the parties' intentions and the specific governance needs of the business.

An Operating Agreement / Shareholders Agreement is needed for any New Zealand company with two or more shareholders who want clear contractual rules governing their relationship, the company's management, and what happens in foreseeable future scenarios. The following situations make a shareholders agreement particularly important.

Forming a new company: When two or more people incorporate a company together through the Companies Office, they should prepare a shareholders agreement before or at the time of incorporation. Without one, their rights and obligations are governed solely by the Companies Act 1993 default rules — which may not reflect their actual intentions.

Investing in an existing company: When a new investor acquires shares in an existing company, both the new investor and the existing shareholders need a shareholders agreement to document the investor's rights, any board representation, anti-dilution protections, and exit provisions.

Start-up and venture capital: New Zealand start-ups seeking seed funding or venture capital investment from early-stage investors will typically be required by investors to execute a shareholders agreement (and possibly a term sheet or investment agreement) setting out the investor's preferred rights under the Companies Act 1993.

Family company governance: Family businesses commonly use shareholders agreements to govern succession, prevent shares from passing to outsiders on death, and manage disputes between family members.

Joint ventures: Where two or more businesses incorporate a joint venture company to conduct a project or business in New Zealand, a shareholders agreement defines the roles, contributions, and exit arrangements of each party.

Restructuring: When an existing company restructures its shareholding — for example, issuing new shares to employees under an employee share scheme, or buying out a departing shareholder — the shareholders agreement should be updated or a new agreement prepared.

Without a shareholders agreement, disputes between shareholders may require expensive High Court of New Zealand proceedings under section 174 of the Companies Act 1993.

Section 28 of the Companies Act 1993 allows companies to file a constitution, but a constitution alone does not address all matters shareholders need to govern privately — it is a public document accessible via the Companies Office. Section 87 requires a share register, but does not specify share transfer restrictions — these must be set out in the constitution or shareholders agreement. Section 107 requires an ordinary resolution for major transactions, but shareholders may agree in the shareholders agreement to require unanimous consent for certain decisions. Section 174 of the Companies Act 1993 gives the High Court of New Zealand jurisdiction to intervene where a company's affairs are conducted in a manner that is oppressive, unfairly discriminatory, or unfairly prejudicial to a shareholder — a well-drafted shareholders agreement reduces this risk by clearly recording the agreed governance rules. Section 119 of the Companies Act 1993 governs shareholder rights to call special general meetings.

An Operating Agreement / Shareholders Agreement for a New Zealand company should include the following key elements to adequately govern the relationship between shareholders and the management of the company under the Companies Act 1993.

Party details and shareholding: The full legal names, addresses, and shareholding percentage of each shareholder, together with the company name and Companies Office registration number. The share register maintained under section 87 of the Companies Act 1993 should reflect the shareholding recorded in the agreement.

Purpose and business: A description of the company's principal business activities and any agreed restrictions on the scope of business.

Director appointment rights: Which shareholders have the right to appoint or remove directors, and the minimum and maximum number of directors. The Companies Act 1993 requires at least one director ordinarily resident in New Zealand.

Board governance: Quorum requirements for board meetings, voting thresholds for ordinary and unanimous board decisions, and any reserved matters requiring shareholder approval.

Shareholder decision-making: Matters requiring ordinary shareholder resolution (simple majority) versus those requiring special resolution (75% majority) or unanimous consent — for example, issuing new shares, amending the constitution, entering major contracts, or selling the business.

Dividend policy: Whether and when dividends are to be declared, the basis for calculating distributions, and any restrictions on dividends where the company does not satisfy the solvency test under section 52 of the Companies Act 1993.

Share transfer restrictions: Pre-emptive rights (right of first refusal), tag-along rights, drag-along rights, lock-up periods, and any restrictions on transferring shares to competitors or non-approved parties.

Buy-sell provisions: A shotgun (buy-sell) clause for deadlock situations, and provisions for compulsory purchase of shares on death, incapacity, insolvency, or breach of the agreement.

Confidentiality and IP: Obligations to keep business information confidential and to assign intellectual property created in the course of the company's business to the company.

Dispute resolution: A tiered dispute resolution mechanism — negotiation, AMINZ mediation, and then arbitration or High Court of New Zealand proceedings under section 174 of the Companies Act 1993.

The forms-legal.com Operating Agreement / Shareholders Agreement (New Zealand) template includes all of these elements and is suitable for companies incorporated under the Companies Act 1993.

Statutory compliance: Section 10 of the Companies Act 1993 governs incorporation requirements. Section 28 governs the company constitution. Section 87 requires a share register. Section 107 sets major transaction thresholds. Section 129 requires directors to act in the company's best interests. Section 140 requires disclosure of conflicts of interest. All share transfers must be recorded in the share register under Section 87 of the Companies Act 1993, and any restrictions must be noted.

Dispute resolution: The shareholders agreement should specify that disputes are first referred to good-faith negotiation, then to mediation through AMINZ (Arbitrators' and Mediators' Institute of New Zealand), and then to arbitration or the High Court of New Zealand under Section 174 of the Companies Act 1993. A deadlock provision — for example, a shotgun (buy-sell) clause — is essential where the company has two equal 50/50 shareholders. The forms-legal.com Operating Agreement / Shareholders Agreement (New Zealand) template includes all of these elements and is suitable for companies incorporated under the Companies Act 1993.

New Zealand Shareholders Agreements for companies incorporated under the Companies Act 1993 operate within a statutory governance framework that sets both the baseline rules and the outer limits of private shareholder arrangements. Understanding the mandatory provisions of the Companies Act 1993 and the Limited Partnerships Act 2008 is essential before drafting a shareholders agreement that will supplement — rather than conflict with — that framework.

Section 174 of the Companies Act 1993 is the cornerstone provision for shareholder protection in New Zealand. It confers on the High Court of New Zealand jurisdiction to grant relief where the affairs of a company have been conducted in a manner that is oppressive, unfairly discriminatory, or unfairly prejudicial to a shareholder. The High Court may make a broad range of orders under section 174, including requiring the company or other shareholders to purchase the applicant's shares at fair value, restraining conduct, appointing a receiver, or winding up the company. A well-drafted shareholders agreement reduces the risk of section 174 proceedings by providing clear and agreed governance rules, deadlock resolution mechanisms, and share valuation methodologies — the gaps that most frequently give rise to shareholder disputes.

Section 107 of the Companies Act 1993 requires major transactions — transactions where the value of consideration exceeds half the value of the company's assets — to be approved by an ordinary resolution of shareholders. The shareholders agreement may supplement this threshold by requiring a higher approval level (e.g., unanimous consent) for significant decisions that fall below the section 107 threshold. Sections 129 and 140 impose mandatory director duties: section 129 requires directors to act in good faith and in what they believe to be the best interests of the company, and section 140 requires directors to disclose conflicts of interest to the board before the matter is voted on. These duties cannot be contracted out of and apply regardless of what the shareholders agreement says.

The Limited Partnerships Act 2008 governs limited partnerships registered with the Companies Office — a separate structure available in New Zealand where at least one general partner has unlimited liability and limited partners' liability is capped at their registered capital contribution. A shareholders agreement is not appropriate for a limited partnership; the governance document for a limited partnership is a limited partnership agreement governed by the Limited Partnerships Act 2008. The distinction matters because parties sometimes structure a joint venture as a limited partnership without recognising that the governance documents and liability positions differ fundamentally from those applicable to a Companies Act 1993 company.

New Zealand shareholders agreements for companies incorporated under the Companies Act 1993 are frequently drafted with gaps that create expensive disputes or leave shareholders without adequate protection. The following mistakes are the most common in New Zealand company governance practice.

1. Not specifying decision-making thresholds for key matters. A shareholders agreement that is silent on whether a particular decision requires a simple majority, a 75% special resolution, or unanimous consent creates uncertainty that leads to deadlock and, ultimately, section 174 Companies Act 1993 oppression proceedings in the High Court of New Zealand. The correct approach is to list specific categories of decision — major capital expenditure, issuing new shares, incurring debt above a threshold, appointing or removing the CEO — and specify the required approval level for each.

2. Omitting a deadlock resolution mechanism for 50/50 companies. A company with two equal shareholders has no majority for any contested decision once the parties disagree. Without a shotgun (buy-sell) clause, a valuer appointment mechanism, or a path to arbitration, the only remedies are an expensive section 174 Companies Act 1993 application to the High Court of New Zealand or winding up the company under Part 16 of the Act. A buy-sell clause — where one party names a price and the other elects to buy or sell at that price — provides an effective self-executing deadlock mechanism.

3. Not including pre-emptive rights (right of first refusal) on share transfers. Without pre-emptive rights, a shareholder may transfer their shares to an outsider — including a competitor — without offering the existing shareholders the opportunity to purchase first. Under the Companies Act 1993, shares are freely transferable unless the constitution or a shareholders agreement restricts transfers. Pre-emptive rights must be expressly included to prevent unwanted new shareholders.

4. Failing to address what happens when a shareholder dies or becomes incapacitated. Under sections 84 and 85 of the Companies Act 1993, shares transmit to a deceased shareholder's estate and may then be transferred to beneficiaries. Without a mandatory offer obligation or a forced buyout mechanism funded by key person life insurance, the deceased shareholder's heirs may become unwanted shareholders. The shareholders agreement should require the personal representative to offer the shares to remaining shareholders before any transfer to a beneficiary.

5. Confusing the shareholders agreement with the company constitution. The constitution is a public document filed with the Companies Office under section 28 of the Companies Act 1993 that governs the company's fundamental structure. The shareholders agreement is a private contract that supplements the constitution. A shareholders agreement that purports to amend matters that must be in the constitution — such as the rights attached to different classes of shares — will be ineffective unless the constitution is also amended.

6. Not including a confidentiality clause. A shareholders agreement frequently contains commercially sensitive information about the company's business plans, financial projections, and intellectual property strategy. Without a confidentiality clause, there is no express contractual restriction on a shareholder disclosing this information to third parties — including competitors. The equitable duty of confidence may provide some protection, but a written contractual obligation is significantly more certain.

7. Neglecting director appointment and removal provisions. Many New Zealand shareholders agreements address shareholding but omit clear provisions about who has the right to appoint and remove directors, what notice is required, and what happens if a shareholder's shareholding falls below a threshold. Under the Companies Act 1993, shareholders with sufficient votes at a general meeting can remove directors — but the threshold and process should be expressly addressed in the shareholders agreement to match the parties' intentions.

8. Not specifying a share valuation methodology for buyout events. A shareholders agreement that triggers a buyout on death, bankruptcy, or breach — but does not specify how shares are to be valued — creates inevitable disputes about price. Common methodologies include agreed book value, earnings multiple, or an independent expert determination. The shares of a private New Zealand company have no market price, and the parties must agree in advance on the basis for valuation to avoid costly litigation.

9. Overlooking the Companies Act 1993 solvency test for dividends. Under section 52 of the Companies Act 1993, a company must satisfy a two-part solvency test before declaring a dividend: it must be able to pay its debts as they fall due after the distribution, and its assets must exceed its liabilities after the distribution. A dividend policy in the shareholders agreement that requires distributions without reference to the solvency test may require directors to breach their statutory duties under sections 129 and 131 of the Companies Act 1993. The dividend clause must be drafted subject to the section 52 solvency test.

10. Failing to update the shareholders agreement after key events. A shareholders agreement prepared at incorporation may be inadequate years later when the company has grown, issued new shares, changed directors, or entered new markets. Events such as a new investor round, an employee share scheme, or the departure of a founding shareholder all require the shareholders agreement to be reviewed and updated. An outdated agreement creates gaps — and gaps create section 174 Companies Act 1993 disputes.