Shareholders' Agreement — Shareholders (New Zealand)

A Shareholders' Agreement in New Zealand governs the relationship between the owners of a business, including capital, management, profit share, and exit, alongside the requirements of the Companies Act 1993.

The agreement sets out the rules for appointing directors to the board, how board meetings are to be conducted, and what decisions require shareholder approval beyond the statutory majority thresholds in the Companies Act 1993. It also regulates what happens when a shareholder wants to sell their shares, typically through pre-emption rights that give remaining shareholders the right of first refusal before shares can be offered to an outsider.

For New Zealand companies, a shareholders' agreement typically covers dividend policy (noting the solvency test requirement in section 52 of the Companies Act 1993), confidentiality obligations, restraints on competition, and mechanisms for resolving deadlocks and disputes between shareholders. It is an essential document for any private company (Ltd) in New Zealand with two or more shareholders.

A critical distinction exists between a shareholders' agreement and a company constitution under New Zealand law. A constitution is a public document filed with the Companies Office and binds the company and its shareholders under section 32 of the Companies Act 1993. A shareholders' agreement, by contrast, is a private contractual arrangement enforceable under the Contract and Commercial Law Act 2017 (CCLA). The two documents complement each other: the constitution establishes the formal governance framework while the shareholders' agreement addresses practical commercial arrangements that the parties wish to keep confidential.

New Zealand courts, including the High Court, regularly interpret shareholders' agreements in disputes involving oppressive conduct under sections 174 to 177 of the Companies Act 1993. A well-drafted agreement includes a tiered dispute resolution clause — commencing with good-faith negotiation, followed by formal mediation, then arbitration under the Arbitration Act 1996 — to resolve deadlocks and disagreements without resort to litigation. For New Zealand startup companies, investors routinely require a shareholders' agreement as a condition of funding, as it provides certainty around governance rights, information obligations, and exit mechanisms such as drag-along and tag-along provisions.

Under section 174 of the Companies Act 1993, a shareholder who considers that the company's affairs have been conducted in a manner that is oppressive, unfairly discriminatory, or unfairly prejudicial may apply to the High Court of New Zealand for relief. A well-drafted shareholders' agreement reduces the likelihood of such claims by ensuring all parties understand their rights and obligations from the outset. The Arbitration Act 1996 provides a private alternative to court proceedings for resolving shareholder disputes, and New Zealand courts regularly enforce arbitration clauses in shareholders' agreements. For companies with overseas shareholders or cross-border operations, the Foreign Investment Act 2005 and the Overseas Investment Office (OIO) may impose additional approval requirements before shares can be transferred to foreign investors.

A Shareholders' Agreement is needed whenever two or more people form or invest in a New Zealand limited company (Ltd) and wish to regulate their commercial relationship. It is particularly important in the following situations:

**Starting a new business together**: When founding shareholders establish a company under the Companies Act 1993, a shareholders' agreement should be signed at or before the time of incorporation to set the ground rules from the outset.

**Bringing in new investors**: When a company raises capital from external investors, a shareholders' agreement (often combined with investment terms) defines the rights of new investors, including information rights, board representation, and anti-dilution protections.

**Joint ventures**: Where two existing businesses form a joint venture company in New Zealand, a shareholders' agreement governs how each party's interests are protected and how the joint venture company is managed.

**Family businesses**: When family members co-own a company, a shareholders' agreement prevents disputes by documenting agreed succession arrangements and what happens if a shareholder dies, becomes incapacitated, or wishes to exit.

**Employee share schemes**: Where key employees receive shares in the company as part of their remuneration, a shareholders' agreement governs their rights, vesting conditions, and leaver provisions.

Without a shareholders' agreement, the default rules in the Companies Act 1993 and the company's constitution (if any) will govern the relationship, which may not reflect the parties' commercial intentions. The Companies Office does not require a shareholders' agreement to be filed, meaning the document remains confidential and the parties retain flexibility to structure their commercial arrangements as they see fit, within the limits imposed by the Companies Act 1993 and the Contract and Commercial Law Act 2017.

For New Zealand companies with overseas investors, the Overseas Investment Act 2005 and Overseas Investment Office (OIO) may impose consent requirements before shares can be issued or transferred to foreign persons. A shareholders' agreement should address these obligations and include representations from foreign shareholders about their compliance with applicable overseas investment rules. The Financial Markets Conduct Act 2013 may also impose disclosure obligations on larger companies or where shares are offered to the public, making a shareholders' agreement that restricts share transfers to private parties particularly important for maintaining a company's unlisted status.

A thorough New Zealand Shareholders' Agreement should include the following key elements:

**Company Details**: Full registered name, Companies Office registration number, NZBN (13-digit New Zealand Business Number), and registered office address.

**Shareholder Schedule**: Names, addresses, and shareholdings of each shareholder party to the agreement, expressed in both number of shares and percentage of total shares on issue.

**Board Composition and Governance**: Rules on the number of directors, each shareholder's right to appoint directors, chairperson appointment, board meeting frequency, quorum requirements, and director duties under sections 131 to 149 of the Companies Act 1993. The agreement should specify reserved matters that require a higher threshold than the statutory majority — for example, unanimous shareholder consent for major asset sales or changes to the company's core business.

**Share Transfer Restrictions**: Pre-emption rights giving existing shareholders first right of refusal when shares are offered for sale, the timeframe for acceptance (typically 20 to 30 business days), and the valuation methodology (agreed price, independent expert, or formula-based). Also drag-along rights allowing majority shareholders to require minority shareholders to sell in a trade sale, and tag-along rights protecting minority shareholders' right to join a sale at the same price and terms.

**Deadlock Resolution**: Where the board or shareholders are deadlocked on a critical decision, the agreement should include a mechanism — such as a casting vote, a shotgun/buy-sell clause, or compulsory independent mediation — to break the deadlock without resorting to the High Court.

**Dividend Policy**: Whether dividends are at the board's discretion or subject to a minimum payout ratio, noting that all distributions must satisfy the solvency test under section 52 of the Companies Act 1993 before payment.

**Leaver Provisions**: What happens to a shareholder's shares if they cease to be an employee or director of the company — distinguishing between good leavers (death, disability, retirement) and bad leavers (resignation, dismissal for cause), with different share valuation treatments for each.

**Confidentiality**: Obligations on each shareholder not to disclose confidential company information, including financial performance, customer details, and proprietary processes, both during and after their involvement in the company.

**Non-Compete and Non-Solicitation**: Restraints preventing shareholders from competing with the company's business or soliciting its employees or customers during their shareholding and for a defined period after exit, within limits permitted by New Zealand restraint of trade law.

**Dispute Resolution**: A tiered mechanism starting with good-faith negotiation, then formal mediation, then arbitration under the Arbitration Act 1996, or referral to the High Court of New Zealand under Part 9 of the Companies Act 1993 for oppressive conduct relief.

**Governing Law**: Confirmation that New Zealand law and the Companies Act 1993 govern the agreement.

**Intellectual Property**: Where the company's value lies in intellectual property, the agreement should include provisions requiring each shareholder who is also an employee or director to assign IP created in connection with the business to the company under the Copyright Act 1994 and any applicable IP assignment deed.

**Tax and Solvency**: Dividend provisions must confirm compliance with the solvency test under section 52 of the Companies Act 1993 before any distribution. The agreement should also address the tax treatment of shareholder salaries, loans, and distributions under the Income Tax Act 2007 to avoid Inland Revenue (IRD) disputes.

**Governing Law**: New Zealand law under the Companies Act 1993, Contract and Commercial Law Act 2017, and Arbitration Act 1996. The forms-legal.com Shareholders' Agreement (New Zealand) provides a ready-to-use template that meets New Zealand legal requirements.