This range of New Zealand shareholder agreements are designed to set out the rights of all shareholders, both majority and minority owners and to protect their interests and investment.
A comprehensive shareholders agreement for a new New Zealand company. Use this agreement to protect the rights of each shareholder against each other and also for setting down the strategic management of the company.
A comprehensive shareholders agreement for an existing New Zealand company Use this agreement to protect the rights of each shareholder against each other and also for setting down the strategic management of the company.
If you are intending to buy or establish a business (see related articles How to buy a business ), you will need to consider how you should structure it. There are a number of options to consider, and these are listed below.
Operating as a sole trader is the simplest form of operation and suits many small businesses. The individual personally owns all assets and receives all profits, but also personally bears all responsibilities and all liability for losses.
Under the partnership option, two or more parties carry on business with a common purpose. (The term "firm" is used to refer collectively to the individuals who make up the partnership.)
This form of operation has many of the advantages of a sole trader, but the assets and responsibilities are shared by the partnership. Unlike a company, a partnership is not a separate legal entity. It is, however, required to file tax returns. (See How to enter into a business partnership agreement ).
As well as ordinary partnerships, there are also "special partnerships", which allow a person to be a partner on the terms that his or her liability to the firm's creditors will be limited, like that of a shareholder in a limited-liability company (see below). Unlike the ordinary partnership, a special partnership must be registered with the High Court.
Unlike a partnership, a limited-liability company is a separate legal entity. Among other things, this means that the company can sue and be sued in the name of the company as if it were a natural person.
In general, if the company is liquidated (wound up) the liability of a shareholder of a limited-liability company is limited to any amounts that are unpaid on the shareholder's shares. In practice this transfers the risk of business failure from the shareholders to the business's creditors.
To be registered as a company, a company must have at least one share, one shareholder and one director. You must first reserve a name for the company with the Companies Office, and then apply for the company to be registered and incorporated under the COMPANIES ACT 1993 (see How to form a company ). It is, however, possible to buy an "off-the-shelf" company that has already been registered, and then apply to change the company's name.
Another possible business structure, although not popular in New Zealand, is that of a trading trust. Here, those who own the business are separate from those who receive the benefit of the income from the business (see How to set up a trust).
How to: The rights, powers and liabilities of shareholders
You are a "shareholder" if your name is entered on a company's share register (see How to maintain a company share register) as being the holder at that time of one or more shares in the company, or if you are entitled to be on the register and are waiting to be included on it.
Your rights as a shareholder are set out in the COMPANIES ACT 1993 and in the company's constitution. (For information on the importance of the constitution and how a company is formed, see How to form a company.)
While the day-to-day management of the company is the responsibility of the company's board of directors, the shareholders may exert a significant indirect influence by exercising the rights and powers available to them. These include:
Certain decisions about the running of the company cannot be made without shareholders participating. These include:
Irrespective of what is in the company constitution, the chairperson of a shareholders' meeting must allow a reasonable opportunity for the shareholders at the meeting to question, discuss, or comment on the management of the company.
In addition, shareholders are entitled to pass a resolution relating to the management of the company. However, the resolution will not be binding on the board of directors, unless the company constitution (if there is one) provides otherwise.
The powers reserved for shareholders may only be exercised at a meeting of shareholders or by a resolution passed instead of a meeting.
Shareholder powers may generally be exercised by ordinary resolution, which means a resolution passed by a simple majority. However, in certain cases shareholder powers must be exercised by "special resolution", that is, a resolution requiring a 75 percent majority. This applies where the shareholders wish to exercise their powers to:
In addition, there are certain types of actions that shareholders may take if all entitled shareholders agree unanimously. These actions include:
There are a number of ways in which shareholders can take court action against the company to enforce their rights, including:
As a shareholder you are not liable for the company's obligations merely by reason of being a shareholder, unless the company's constitution provides that shareholder liability is unlimited. If the constitution does not provide this, then your liability as a shareholder is limited to:
Former shareholders may be liable to the company for amounts outstanding in respect of any shares or for any liability provided for in either the Act or the constitution.
A dividend is where a company's money or property (other its own shares) are transferred, directly or indirectly, to a shareholder of the company or for the shareholder's benefit. (This does not include, however, where a company buys its own shares from a shareholder, nor where the company gives financial assistance to a shareholder for the purpose of buying the company's shares).
The payment of dividends is governed by the COMPANIES ACT 1993 and by the company's constitution, if it has one. See How to draft a company constitution and How to: The rights, powers and liabilities of shareholders ).
Unless the constitution says otherwise, the company's board of directors may authorise the payment of a dividend without needing a decision of the shareholders. However, the company must satisfy the "solvency test" (see below).
The directors may not authorise dividends to be paid to some but not all of the shareholders in a particular class, nor may they pay some shareholders in a class a greater value of dividend than is paid to other shareholders in the same class (unless payment is made in proportion to the amounts paid on shares).
Before the board of a company may authorise the distribution of company funds as dividends, the directors must be satisfied that, immediately after the dividend is paid, the company will satisfy the solvency test. This test has two limbs:
If after a dividend has been paid the company fails to satisfy the solvency test, the company may recover the dividend from each shareholder, unless:
As a shareholder you are entitled to waive your allocated dividend, provided you give written notice to the company.
A company may choose to issue shareholders other shares as a whole or partial replacement for a proposed dividend, provided certain conditions are satisfied.
In addition, a company may choose to offer discounts to shareholders on some or all of the goods or services the company provides. The board of directors must resolve that the offer is fair and reasonable to the company and to all shareholders, and that the offer is available to all shareholders of the same class on the same terms.
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.
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.
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.
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.
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.
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.
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).
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.
"Insider trading" refers to a situation where a person is considered to have "inside information" about an issuer of public shares or other securities, and acts on that information to his or her advantage. Under the SECURITIES ACT 1978, you are prohibited from gaining an advantage through having this information.
"Inside information" means information about a public issuer that is not publicly available, and that would, or would be likely to, materially affect the price of the public issuer's securities if the information were publicly available.
Securities include shares, debentures, investment-linked life insurance policies, and interests in unit trusts, group-investment funds and superannuation schemes.
If a person has inside information about a public issuer of securities, and buys or sells securities of the public issuer, this person (the "insider") is liable to the following people:
The maximum combined amount for which an insider can be liable to the buyer or seller and the public issuer (not including any penalty) cannot be more than the greater of the separate amounts for which the insider is liable.
Similarly, the amount of any penalty ordered by the court must not be more than whichever is the greater of the following two amounts:
Any money recovered by a public issuer from an inside trader must be held on trust until it is distributed in accordance with the court's directions.
There are several exceptions to the rules against insider trading:
An insider will also be liable to those incurring losses and to the public issuer if he or she:
The limitations on the insider's liability and on any penalty ordered by the court are the same as in the case of inside trading (see above).
If shareholders of a public issuer believe that the public issuer has, or may have, a cause of action against an insider for insider trading, they may require the public issuer to obtain legal advice on this, provided the shareholders have the approval of the Securities Commission.
With the court's permission any shareholder may exercise the public issuer's right of action against an inside trader.
The COMPANIES ACT 1993 requires all companies to maintain a share register, and sets out some requirements for the way in which this must be done (see below).
The share register is of particular importance as it is deemed to be evidence of the named shareholder's legal title to the shares, subject to any evidence to the contrary. The company treats the person named in the share register as the registered holder of the relevant shares, and the only person entitled to exercise the voting rights that attach to the shares, to receive notices, to receive distributions in respect of the shares, and to exercise any other rights and powers that attach to the shares.
The share register must:
The register must also include the following information for each class of share:
If the constitution expressly permits it, the share register may be divided into two or more registers kept in different places, so long as the company's principal register is kept in New Zealand. (In this context, the "principal register" means the register described as the principal register in the most recent notice sent to the Registrar.)
The Registrar of Companies must be notified of the division of the register within 10 working days. Further, if the register has been divided a copy of every register must be kept at the same place as the principal register.
An agent of the company may maintain the share register on the company's behalf.
No notice of a trust (whether express, implied or constructive) may be entered on the share register.
Yes. A company commits an offence if it fails to maintain a share register as required by the Act, and it will be liable to a fine of up to $10,000. Every director will also be liable for a fine up to the same maximum amount.
Each director must take reasonable steps to ensure that the register is properly kept and that share transfers are recorded promptly. It is an offence for a director to fail to comply with these duties, punishable by a fine of up to $10,000.
If the name of a person is wrongly entered in or omitted from the share register, the person aggrieved or a shareholder may apply to the court for it to order that the register be rectified, or that compensation be paid for any loss caused, or both.
A comprehensive shareholders agreement for an existing New Zealand company that also has debt financing from a big lender such as a business angel or venture capitalist.
This shareholder agreement has been drawn to include the provisions that a large professional or institutional investor such as a business angel, venture capital or private equity investor would require to protect their New Zealand investment.
This shareholders agreement regulates a single venture or project that will be structured through a New Zealand company.
Extensive warranties protect the lender of a loan. This document includes 50+ warranties, only some of which may be relevant to your situation.
A comprehensive shareholders agreement for a new New Zealand company that has also been financed with debt from a big lender as well as equity.
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