What to Include in a New Zealand Investment Agreement

When a business is raising money, the excitement can push legal detail to the side. That is usually when founders get caught. Common mistakes include relying on a handshake or short email summary, giving away more control than expected, and leaving key points like valuation, voting rights or future funding protections too vague. Another frequent problem is signing investor terms that do not match the company’s constitution or existing shareholder arrangements.

Creating an investment agreement is about recording exactly what the investor is putting in, what they are getting back, and how the relationship works once the money lands. For New Zealand businesses, the details matter because the agreement affects ownership, decision-making, dilution, information rights and exit options. If you are preparing to raise capital, negotiating with an angel investor, or formalising an investment from a strategic partner, this guide explains what the agreement should cover, what legal issues to check before you sign, and the mistakes that most often create expensive disputes later.

Overview

An investment agreement sets the commercial rules for money coming into a business. It usually works alongside other documents, such as a term sheet, a constitution, a shareholders agreement and board or shareholder resolutions.

For New Zealand businesses, the right document should clearly state who is investing, what securities are being issued or transferred, what rights attach to them, and what happens if the business raises more capital, misses milestones or is sold.

• The investment amount, timing of payment and any conditions that must be met before funds are released.
• Whether the investor receives ordinary shares, preference shares, convertible notes, SAFEs or another instrument.
• Valuation, ownership percentages and how future dilution will work.
• Voting rights, board appointment rights and reserved matters requiring investor consent.
• Founder obligations, restraints, vesting or milestone requirements where relevant.
• Warranties, disclosure obligations and what happens if information given to the investor is inaccurate.
• Confidentiality, intellectual property ownership and information access rights.
• Exit rules, transfer restrictions, drag-along and tag-along rights, and dispute resolution steps.

What Creating an Investment Agreement Means For New Zealand Businesses

Creating an investment agreement means turning a commercial deal into enforceable legal terms before money changes hands. The main purpose is to remove uncertainty so the business and investor know exactly where they stand.

In practice, an investment agreement is rarely a one-page promise to invest. It usually sits within a wider capital raising process. A founder might first discuss valuation and key terms with an investor, capture those headline points in a founders term sheet, then move to formal transaction documents that deal with the mechanics and protections in more detail.

What the agreement usually does

For a New Zealand company, the agreement commonly records the issue or subscription of shares, or another form of investment instrument, and the conditions around that investment. It often answers questions such as:

• How much is the investor paying?
• What exactly are they receiving in return?
• When does the company have to issue the securities?
• What information has the company given about the business?
• Can the investor appoint a director or observer?
• Can founders sell shares freely later?
• What happens if another funding round occurs at a lower valuation?
• What happens if the business is sold or wound up?

Different investment structures change the document

Not every investment round uses the same structure. Some early stage companies issue ordinary shares. Others use preference shares with priority rights. Some use a convertible instrument, where the investor’s money converts into shares later if trigger events occur. The legal drafting changes depending on the structure.

This is where founders often get caught. A document borrowed from another deal can look familiar but still be wrong for your capital structure, constitution or growth plans. Before you rely on a precedent, check whether it matches:

• Your current share classes and cap table.
• Any existing shareholders agreement.
• Your constitution and any pre-emptive rights.
• The commercial expectations you have actually discussed with the investor.
• The rights being offered to existing investors, if any.

New Zealand company law context

New Zealand investment deals usually sit against the framework of the Companies Act 1993, the company’s constitution, and any existing shareholder documents. Share issues, director approvals, shareholder approvals and record-keeping all need to line up. If the legal steps are not handled properly, the paperwork may not reflect what the parties thought they agreed.

There can also be securities law issues depending on who the investor is and how the offer is made. Private capital raises often rely on exclusions or exemptions, but that does not mean disclosure can be casual. Statements made to investors still need to be accurate and not misleading. If you are preparing an offer document, pitch deck or financial model, be careful before you rely on forecasts or broad promises about future performance.

Why the agreement matters after the deal closes

The investment agreement is not just about signing day. It governs the relationship after funds are received. If the company needs more capital, wants to hire senior staff, plans to sell assets, or is considering an acquisition offer, the investor’s rights may affect what can happen next.

Founders often focus on the valuation and investment amount. Those matter, but control rights can matter just as much. A small investor stake can still come with vetoes over future decisions, access to detailed financial information, or rights that make later fundraising harder. That is why creating an investment agreement needs the same care as any major commercial contract.

Legal Issues To Check Before You Sign

Before you sign a contract for investment, make sure the legal mechanics match the commercial deal. The biggest risk is signing a document that looks settled but clashes with your existing company records, overpromises on disclosure, or gives the investor rights that create problems in the next funding round.

1. The investment structure

Start with the instrument being used. Ordinary shares, preference shares, convertible notes and SAFEs each carry different consequences. The agreement should clearly say:

• what the investor is subscribing for or acquiring
• how the price is calculated
• when securities are issued
• whether conversion happens automatically or at election
• what rights attach before and after conversion, if relevant

If the structure is debt-like or convertible, check maturity dates, interest, discount rates, valuation caps and trigger events. If the business later raises more money on different terms, the wording needs to deal with that scenario properly.

2. Company authority and approvals

The company needs the right approvals before issuing shares or entering the agreement. Directors may need to pass resolutions. Shareholder approval may also be required under the constitution or an existing shareholders agreement. The Companies Office records should eventually reflect the updated position where required.

Before you sign, confirm:

• the board has authority to approve the transaction
• existing shareholders do not have pre-emptive rights that need to be followed or waived
• the constitution allows the proposed rights and share class terms
• all consents needed under existing contracts or financing arrangements have been considered

3. Valuation and dilution

The agreement should not leave valuation to assumption. It should spell out the pre-money or post-money basis used, the price per share, and the resulting ownership. This matters because even a small drafting issue can change the cap table more than expected.

Anti-dilution rights also need careful review. Some clauses adjust an investor’s economic position if future shares are issued at a lower price. These provisions can become very expensive for founders and can complicate future fundraising if they are too aggressive.

4. Investor control rights

Control does not only come from majority ownership. It can come from consent rights. Investment agreements often include reserved matters, meaning the company cannot take certain actions without investor approval.

Examples may include:

• issuing new shares
• borrowing above a threshold
• changing the business plan materially
• selling major assets
• amending the constitution
• declaring dividends
• appointing or removing senior executives

Some investor oversight is normal. The question is whether the rights are proportionate. Before you sign, think about what approvals the business will realistically need to move quickly in the next 12 to 24 months.

5. Warranties and disclosure

Most investment agreements require the company and sometimes founders to give warranties. These are statements about the business, such as ownership of assets, compliance with laws, accuracy of accounts, tax status, IP ownership, contracts, disputes and employment matters.

You should not treat warranties as standard boilerplate. If a warranty is untrue, the investor may have a claim. This is especially sensitive where founders give personal warranties or where the agreement says the investor relied on information provided during due diligence.

A disclosure process can reduce risk. That usually means identifying exceptions against the warranties and recording them clearly. For example:

• a contractor has not signed an IP assignment
• a customer contract is about to expire
• there is a known software licensing issue
• financial forecasts are based on assumptions that may change

6. Founder commitments

Investors often want commitments from founders beyond the investment terms themselves. These may include minimum time commitments, vesting of founder shares, non-compete or non-solicit obligations, and restrictions on transferring shares.

These clauses affect control and future value. A vesting schedule, for example, may mean some founder equity can be repurchased if a founder leaves early. That may be commercially acceptable, but it should be discussed openly and documented precisely.

7. Intellectual property and confidential information

If the value of the business sits in software, branding, product design, data or other intangible assets, ownership needs to be clear before the investor commits. Investors usually expect the company, not individual founders or contractors, to own the core IP.

Before you sign, check:

• employee and contractor agreements assign relevant IP to the company
• open source software use has been reviewed where relevant
• brand ownership is clear and any trade mark strategy is being handled appropriately
• confidentiality obligations are clear on both sides, often supported by a non-disclosure agreement

8. Exit and transfer provisions

An investment agreement should deal with what happens if shares are sold, the company is sold, or one party wants out. Transfer restrictions are common, especially for closely held companies.

Key clauses often include:

• pre-emptive rights on share transfers
• tag-along rights for minority holders
• drag-along rights to support a sale of the company
• liquidation preference rights, if preference shares are issued
• buy-back or compulsory transfer mechanisms in limited circumstances

9. Information rights and reporting

Investors often want regular financial and operational reporting. The agreement should make the reporting obligations realistic for the size of the business. A startup should not agree to listed-company style reporting if it does not have the systems or staff to produce it.

10. Dispute resolution and governing law

If things go wrong, the agreement should say how disputes are handled. New Zealand law and a sensible process for negotiation, mediation or court proceedings should be considered carefully. A clause that seemed minor on signing day can matter a lot if the relationship later becomes strained.

Common Mistakes With Creating an Investment Agreement

Most investment agreement problems start well before the dispute. They start when founders assume the legal document will simply reflect the commercial conversation, without pressure-testing the detail.

Relying on verbal promises

If a point matters, it needs to be in the signed documents. Founders sometimes proceed on the basis that the investor said they would be passive, would not block future hires, or would support the next round. If the agreement gives formal veto rights or stays silent on the issue, the written terms usually matter most.

Copying another company’s document

A borrowed template can create more problems than it solves. It may refer to share classes your company does not have, use overseas legal concepts, or give rights that conflict with New Zealand company law documents. A capital raising document needs to fit the actual transaction, not someone else’s deal.

Focusing only on valuation

Valuation gets attention because it is easy to compare. Control terms, investor vetoes, liquidation preferences and anti-dilution rights often have a bigger impact over time. A higher valuation is not necessarily the better deal if the investor receives rights that constrain the business later.

Missing inconsistencies across documents

The term sheet, investment agreement, constitution, cap table and shareholders agreement all need to align. This is where founders often get caught before they sign. One document may say the investor gets a board seat, while another allows only observer rights. One may describe a share issue, while another assumes a transfer from an existing shareholder.

Check the full document set together, not one by one.

Giving warranties too broadly

Broad warranties can expose the company and founders to claims if there is a problem the investor later says should have been disclosed. Founders sometimes sign without running an internal check on customer contracts, IP ownership, privacy notice and data protection practices, employment arrangements or compliance issues.

That is risky, especially if the business has moved quickly and paperwork has not kept up. Before you rely on a verbal promise that “we can tidy that up later”, check whether the agreement requires the issue to be fixed before completion or disclosed formally.

Not dealing with founder departures

Investment documents often assume founders will stay and build the company. If one founder leaves, the impact on equity and control can be significant. Without clear vesting or transfer rules, disputes can arise over whether a departing founder keeps all their shares while no longer contributing.

Accepting unrealistic reporting obligations

Some agreements require monthly reporting packs, budgets, audited statements or immediate notice of a wide range of events. That may be manageable for an established SME, but not for a lean startup. Reporting obligations should match the business’s real capacity.

Ignoring future fundraising consequences

The main risk is not always in the current round. It is what the current document does to the next one. Investors in later rounds may object to unusual preference rights, heavy vetoes or unclear conversion mechanics. A document that gets today’s deal done can still create friction with tomorrow’s investors.

Not checking personal exposure

Founders sometimes assume all obligations sit with the company. That is not always true. Some investment agreements include founder warranties, restrictive covenants, confidentiality obligations or deed-style commitments signed personally. Before you sign, be clear about which obligations are yours and which are the company’s.

Treating completion as an admin step

Even a well-drafted agreement can go wrong if completion mechanics are sloppy. Funds transfer timing, issue of shares, board approvals, updated registers and signed ancillary documents all need to happen in the right sequence. This is especially important where completion is conditional on deliverables such as executed employment agreements, IP assignments or waivers from existing shareholders.

FAQs

Do I need both an investment agreement and a shareholders agreement?

Often, yes. The investment agreement usually deals with the transaction itself, while a shareholders agreement governs the ongoing relationship between shareholders. In some deals, the rights are combined or existing shareholder documents are updated instead.

Can I use a simple template for an early stage investment round?

A simple template may help identify issues, but it should not be treated as a finished document. Even early stage deals can create long-term problems if valuation, control rights, conversion terms or founder obligations are not drafted properly for your company.

Are founders personally liable under an investment agreement?

Sometimes. It depends on who signs and what obligations are included. Founders may be personally bound by warranties, confidentiality duties, restraints or specific undertakings, even if the company is the main party to the deal.

What if the investor wants a board seat?

A board seat can be workable, but the rights and expectations should be clear. Check appointment mechanics, voting rights, observer rights as an alternative, and how that interacts with existing governance arrangements.

When should legal review happen?

Legal review is most useful before you sign heads of terms that lock in key commercial assumptions, and definitely before you accept the provider's standard terms or the investor’s first full draft. Early contract review helps spot issues while there is still room to negotiate.

Key Takeaways

• Creating an investment agreement means documenting the investment clearly, including the amount invested, the securities issued, control rights and future funding consequences.
• For New Zealand businesses, the agreement should align with the Companies Act 1993, the company’s constitution, existing shareholder arrangements and any required approvals.
• Founders should review valuation, dilution, investor veto rights, warranties, founder commitments, IP ownership, transfer rules and reporting obligations before they sign.
• Common mistakes include relying on verbal promises, copying unsuitable templates, focusing only on valuation, and missing inconsistencies across transaction documents.
• The best time to sort out these issues is before you sign, not after funds are committed and expectations have diverged.

If you want help with investment terms, shareholder rights, founder warranties, and transaction documents, you can reach us on 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.