Shareholders' Agreement — Shareholder (New Zealand)

A New Zealand company's constitution (adopted under the Companies Act 1993) is a public document that governs the company's internal affairs and binds all shareholders. A shareholders' agreement is a private contract between the shareholders that supplements the constitution and creates additional contractual rights and obligations between the parties. The constitution sets the governance framework, while the shareholders' agreement deals with the commercial and personal arrangements between shareholders. Common provisions included in a shareholders' agreement but not the constitution include: exit mechanisms such as drag-along and tag-along rights; pre-emptive rights on the transfer of shares to third parties; deadlock resolution procedures (e.g., Russian roulette or shotgun clauses); dividend policy and retained earnings targets; key-person clauses; and non-compete and non-solicitation obligations. Because the shareholders' agreement is a private document, it is not filed with the Companies Office and its contents are not publicly accessible, which makes it the preferred vehicle for sensitive commercial arrangements between shareholders.

Pre-emptive rights (also known as rights of first refusal) give existing shareholders the right to acquire shares being sold by another shareholder before those shares are offered to a third party. Pre-emptive rights are a common provision in shareholders' agreements for privately held New Zealand companies. Without pre-emptive rights, a shareholder could sell their shares to any buyer — including a competitor — without first offering the shares to the existing shareholders. A pre-emptive rights clause requires the selling shareholder to give written notice of the proposed sale price and terms to all other shareholders, who then have a specified period (typically 20 to 30 working days) to elect to purchase those shares at the offered price. If the existing shareholders do not exercise their rights within the election period, the selling shareholder may proceed to sell to the third party on terms no more favourable than those offered to the existing shareholders. Pre-emptive rights may also be included in the company's constitution as a restriction on the transfer of shares.

Drag-along rights allow a majority shareholder (or a specified majority of shareholders) who has agreed to sell their shares to a third-party buyer to require the remaining minority shareholders to also sell their shares to the same buyer on the same terms. Drag-along rights are designed to helps a clean exit — a buyer acquiring 100% of the shares of a company will typically pay a higher price than a buyer acquiring a partial interest, as a partial interest may involve governance complications with the remaining shareholders. Tag-along rights are the mirror image — they allow a minority shareholder to require that, if a majority shareholder agrees to sell their shares to a third party, the minority shareholder can sell their shares to the same buyer on the same terms. Tag-along rights protect minority shareholders from being left behind when the majority exits. Both drag-along and tag-along provisions are typically included in the shareholders' agreement rather than the constitution and require careful drafting to ensure they interact correctly with pre-emptive rights and other transfer restrictions.

A deadlock in a New Zealand company occurs when shareholders are unable to agree on a fundamental business decision — typically because the company is a 50:50 joint venture or because the constitution requires a supermajority that cannot be achieved. Shareholders' agreements typically include a deadlock resolution mechanism such as: a 'Russian roulette' clause, where one shareholder serves a notice offering to buy the other's shares at a specified price, and the other shareholder must either accept the offer or buy the first shareholder's shares at that same price; a 'shotgun' clause (similar concept); a casting vote given to one director on specified matters; referral to a neutral expert for a binding decision; or compulsory sale provisions. The New Zealand courts may also intervene in cases of serious deadlock that amounts to oppressive conduct under section 174 of the Companies Act 1993, which allows a shareholder to apply to the High Court for relief where the company's affairs are being conducted in a manner that is oppressive, unfairly discriminatory, or unfairly prejudicial to their interests.

A Shareholders' Agreement (New Zealand) does not legally require a lawyer in New Zealand, and individuals and businesses may draft and execute the document independently. The Companies Act 1993 does not mandate legal representation for the creation or signing of this type of document. However, seeking independent legal advice from a qualified New Zealand lawyer is recommended for transactions involving substantial financial value, complex regulatory requirements, or cross-border elements where multiple legal jurisdictions may apply. A lawyer can verify that the document complies with all applicable statutory requirements, identify potential risks specific to the transaction, and confirm that the terms adequately protect the interests of all parties involved. The High Court of New Zealand has jurisdiction over disputes arising from this type of document, and Companies Office may impose additional compliance obligations depending on the nature of the underlying transaction. Professional legal review is particularly advisable where the document will be submitted to government agencies or used as evidence in legal proceedings.