New Zealand Legal Documents


Share option agreements

This range of New Zealand share option agreements allow the granting of shares to employees or others.

6

How to buy and sell shares in a private company

Introduction

The method of buying and selling shares in a company will depend on a number of factors. In particular it depends on whether the company is a publicly listed company.

If the company is publicly listed, its shares will be listed on the stock exchange and different rules apply to the sale and purchase of the shares. If the company is a private company, the rules about buying and selling shares are set out in the company's constitution and in the COMPANIES ACT 1993.

Protection of existing shareholders through "pre-emption" rights

It is quite usual for a company's constitution to contain "pre-emption" rights for existing shareholders, requiring existing shares to first be offered to the existing shareholders before they can be offered to non-shareholders. The purpose is to maintain the ranking of existing shareholders so that their voting and distribution rights are not diminished.

The COMPANIES ACT 1993 also provides for existing shareholders to have pre-emptive rights over the issuing of new shares by the company. The Act states that any new shares must first be offered to existing shareholders on a proportional basis so that the shareholders' existing voting and distribution rights are maintained. The offer to the existing shareholders must remain open for a reasonable time.

However, it is open for the company's constitution to negate, limit or modify this statutory pre-emptive right over new shares.

Company may buy its own shares in certain circumstances

A company is permitted to buy its own shares if certain requirements are met. Aside from some special situations (such as where dissenting shareholders exercise "minority buy-out" rights), the COMPANIES ACT 1993 gives company boards a general power to make offers to existing shareholders to buy their shares, provided the following requirements are met.

The board of directors cannot make an offer to buy shares unless this is permitted by the company's constitution. If so, the board may make an offer to all shareholders to buy a proportion of their shares, in such a way that the acquisition would maintain each shareholder's relative voting and distribution rights. Alternatively, the board may make a special offer to one or more shareholders to acquire their shares, provided all shareholders have consented to this or the offer is permitted under the constitution.

The board may not offer to buy shares unless it has passed a resolution stating:

  • that acquiring the shares is in the company's best interests
  • that the terms of the offer and the consideration for the shares are fair and reasonable to the company
  • that the board is not aware of any relevant information that has been withheld from shareholders

Registration of share transfer in the share register

When a valid transfer of shares has taken place, the company is obliged to register the transfer in its share register. The entry of the buyer's name is evidence of that person's legal title. For information on the share register, see related article How to maintain a company share register.

Cautionary notes
  • It is critical that any sale meets the requirements of both the company's constitution and the COMPANIES ACT 1993. To ensure that this is done, it is strongly recommended that you seek legal advice from a company law specialist.
  • Your legal adviser will also advise you as to the terms of the agreement for the sale and purchase of the shares. If you are buying shares, your lawyer will advise you as to:
    • ensuring before the sale that the shares are not mortgaged and that they are fully paid for, and
    • what rights and obligations are attached to the ownership of the shares
  • The price at which the shares will be sold is obviously an important consideration, and you should obtain advice from a lawyer and accountant on this issue. They can assist you in ensuring that the correct procedure is followed for determining the price and that the price is appropriate.

How to issue shares in a company

Introduction

As with most aspects of managing a company, a company's power to issue shares is subject to the COMPANIES ACT 1993 and to the contents of the company's constitution (if there is one). Subject to any restrictions in the Act or the constitution, the company's board of directors may issue shares, at any time, to any person and in any number, as the board chooses. Issuing shares is therefore entirely at the board of directors' discretion.

Shares must be issued after a company is first registered

After a company has been registered, it must issue to the person or people named as shareholders in the application for registration the number of shares specified in the application to be issued to that person or those people.

Notice of share issue must be lodged with the Registrar of Companies

If a company issues shares, it must deliver to the Registrar of Companies a notice in a prescribed form within 10 working days after the shares were issued.

If the company fails to lodge the notice as required, every director of the company will be deemed to have committed an offence and be liable to a penalty.

Shareholder approval can overcome restrictions in the constitution

If a company is unable to issue shares because of restrictions in its constitution, the board of directors may issue the shares if it obtains approval from the shareholders in the same way as would be necessary to alter the constitution to allow the share issue. This is done by a special resolution of shareholders, which usually requires a 75 percent majority.

Existing shareholders have pre-emptive rights over new shares

The company must give existing shareholders the option to buy any newly issued shares. This is called their "pre-emptive right".

If the shareholder declines to buy the newly issued shares then the shares are offered to outside buyers. If the shares are issued to outsiders on more favourable conditions than apply to existing shareholders, then the shares must first be offered back to the shareholders on those more favourable conditions.

There may also be provisions in the constitution, or in any agreement that may be in place, giving non-shareholders a pre-emptive right.

How are shares paid for?

By law a shareholder is not required to provide anything of value in exchange (consideration) for the issue of new shares, unless this is expressly required in the constitution. However, if consideration is required, it may take any form, including cash, promissory notes, contracts for future services, real or personal property or other securities.

Before shares are issued a company's board must decide what consideration, if any, will be required for the issue of the shares and the terms on which they will be issued. The board must be satisfied that the conditions are fair and reasonable to all existing shareholders.

At what point are shares deemed to be issued?

Shares are deemed to have been "issued" when the shareholder is registered on the company's share register (see How to maintain a company share register).

Issue of shares is void if it increases any person's liability to the company

If the issue of shares would result in increasing the liability of a person to the company or in imposing a new liability on a person to the company, the issue will be void if it is done without that person's written consent.

Cautionary notes
  • The law dealing with shares and securities is detailed and complicated. Often large amounts of money are involved and many people may be affected by decisions taken. It is strongly recommended that you seek the services of a lawyer who is experienced in securities law before undertaking to issue shares in a company.

NZ$35.00

Use this agreement to grant a share option to an employee based on his success or achievement. He may be employed in any capacity. Suitable for any business. The conditions to trigger option to be entered by you. New Zealand focused.

Document Delivery Format:Delivery format: Download MS Word file
Document Source:Complies with current New Zealand law
Document User Guide Available:Comprehensive document Guide Notes
Document Assembly Method:User fills in template blanks
Document Preview/Sample Available:No document preview
Help Support Email/Telephone:Limited - not legal advice
Country:New Zealand jurisdiction
State:n/a
MainSiteUrl:www.NetLawman.co.nz
NZ$35.00

Use this agreement to grant a share option to an employee based on an increased valuation of the shares. He may be employed in any capacity. Suitable for any business. The conditions to trigger option to be entered by you. New Zealand focused.

Document Delivery Format:Delivery format: Download MS Word file
Document Source:Complies with current New Zealand law
Document User Guide Available:Comprehensive document Guide Notes
Document Assembly Method:User fills in template blanks
Document Preview/Sample Available:No document preview
Help Support Email/Telephone:Limited - not legal advice
Country:New Zealand jurisdiction
State:n/a
MainSiteUrl:www.NetLawman.co.nz
NZ$35.00

Use this agreement to grant a share option to a third party who is not an employee (or not yet, at least). It is based on his results or achievement. Conditions to trigger the option are to be entered by you. New Zealand focused.

Document Delivery Format:Delivery format: Download MS Word file
Document Source:Complies with current New Zealand law
Document User Guide Available:Comprehensive document Guide Notes
Document Assembly Method:User fills in template blanks
Document Preview/Sample Available:No document preview
Help Support Email/Telephone:Limited - not legal advice
Country:New Zealand jurisdiction
State:n/a
MainSiteUrl:www.NetLawman.co.nz
NZ$35.00

This agreement covers a situation where the optioner is not an employee. The agreement is for the option to crystalise when the company share valuation reaches a certain level. New Zealand focused.

Document Delivery Format:Delivery format: Download MS Word file
Document Source:Complies with current New Zealand law
Document User Guide Available:Comprehensive document Guide Notes
Document Assembly Method:User fills in template blanks
Document Preview/Sample Available:No document preview
Help Support Email/Telephone:Limited - not legal advice
Country:New Zealand jurisdiction
State:n/a
MainSiteUrl:www.NetLawman.co.nz

New Zealand
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New Zealand
Fast & cost effective answers to your unique legal questions
Ask a Lawyer now




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