Director Vs Shareholder: Managing Overlapping Powers In NZ Companies

If you run (or are about to start) a company in New Zealand, it’s pretty common to wear more than one hat. You might be a director and a shareholder. Your co-founder might be both too. Or you might bring in investors who are shareholders but aren’t involved in the day-to-day.

This is where the classic “director vs shareholder” question comes up.

Both roles have real power in a company, but they’re not the same power. If you mix them up (or assume you can “just decide” because you own the shares), you can accidentally make decisions that aren’t valid, create disputes with co-founders or investors, or even expose yourself to personal risk.

Let’s walk through how directors and shareholders differ in NZ companies, where their powers overlap, and how to set up clear rules so you can run your business with confidence.

What’s The Difference Between A Director And A Shareholder?

At a high level:

• A shareholder is an owner of the company (they hold shares in it).
• A director is appointed to manage (or oversee the management of) the company.

In many small businesses, the same person is both a director and shareholder, which can make it feel like there’s no difference. But legally, the difference matters a lot.

Shareholders: Ownership And Big-Picture Control

Shareholders invest money (or value) in exchange for shares. Their power is usually exercised through:

• voting at shareholder meetings (or signing written resolutions);
• appointing and removing directors (depending on the constitution/shareholders agreement);
• approving major company changes (like amending the constitution); and
• receiving dividends (if declared) and value on exit (e.g. selling the company).

Shareholders typically don’t run the day-to-day operations just because they own shares.

Directors: Management And Decision-Making

Directors are responsible for managing the company or supervising its management. In practical terms, that’s things like:

• signing contracts with customers and suppliers;
• hiring staff;
• approving budgets and financial decisions;
• deciding strategy and taking commercial risks; and
• making sure the company meets its legal obligations.

Directors also owe duties to the company under the Companies Act 1993, which is a big reason you should be clear about when you’re acting as a director versus when you’re acting as a shareholder.

Who Has The Power To Do What In A NZ Company?

If you’re trying to get clear on “director vs shareholder” powers, a good rule of thumb is:

• Directors make most operational decisions.
• Shareholders make certain reserved decisions (often the “big” structural ones).

But the exact split depends on:

• the Companies Act 1993;
• your company’s constitution (if you have one); and
• any shareholders agreement you’ve signed.

If you’ve adopted a Company Constitution, it often sets out how decisions are made (including voting thresholds and director appointment/removal rules). A Shareholders Agreement commonly goes further and sets “reserved matters” that require shareholder approval.

Director Powers (Common Examples)

Directors generally have the authority to manage the company’s business and affairs, including decisions like:

• entering into contracts (supply agreements, customer terms, leases – depending on delegated authority);
• approving spending and operational budgets;
• appointing staff and setting employment conditions; and
• deciding how the company will comply with laws (privacy, consumer law, employment law, health and safety, etc.).

In a small business, you’ll often formalise this authority in board resolutions and internal delegations (even if the “board” is just you and your co-founder).

Shareholder Powers (Common Examples)

Shareholders usually vote on matters such as:

• appointing or removing directors;
• approving major transactions where the Companies Act 1993 (or your constitution/shareholders agreement) requires shareholder approval;
• approving changes to the constitution; and
• winding up the company.

Depending on your setup, shareholders may also have pre-emptive rights (rights of first refusal) if someone wants to sell shares, and veto rights over certain decisions.

When You’re Both A Director And A Shareholder: Where Things Get Messy

Most “director vs shareholder” problems in small businesses happen because people assume:

• “I own 50% so I can make the call”, or
• “We agreed over coffee so it’s fine”, or
• “I’m the director so I don’t need shareholder approval”.

These assumptions can cause real headaches, especially when relationships change or money is on the line.

Common Overlap Scenario: Co-Founders With Equal Shares

Imagine you and a co-founder each own 50% and you’re both directors. Things go well for a while, but then you disagree about whether to:

• take on investment,
• sell a key asset (especially if it triggers “major transaction” rules),
• increase director pay, or
• sign a long-term lease.

Without clear decision rules, you can get stuck in deadlock. Even if you’re “technically right” about who has the power, a dispute can still slow your business down (and can get expensive quickly).

Common Overlap Scenario: Investor Shareholders Who Want A Say

When you bring on investors, they’re often happy for directors to run the company day-to-day. But they’ll want visibility and control over major decisions that could affect the value of their shares.

This is where a shareholders agreement usually includes “reserved matters” like:

• taking on debt above a threshold,
• issuing new shares (or changing share rights),
• changing the company’s core business,
• selling key IP, or
• entering into related party transactions.

If you ignore those approval steps, you can create a breach of contract between shareholders (and a governance mess for the company).

Acting In Different “Capacities” Matters

One practical tip: when you sign documents or make decisions, be clear whether you’re doing it as:

• a director (making a management decision on behalf of the company), or
• a shareholder (exercising ownership voting rights).

That’s why it’s important to document decisions properly, especially for:

• share issues and ownership changes;
• director appointments/resignations;
• major company purchases/sales; and
• related party arrangements (e.g. renting property you own to your company).

Director Duties In NZ: Why “I Own The Company” Isn’t A Defence

In the “director vs shareholder” debate, director duties are often the missing piece. As a director, you owe duties to the company (not to individual shareholders personally, and not to yourself as an owner).

While we won’t dive into every duty in the Companies Act 1993, a few key themes matter for small business owners:

• Act in good faith and in the best interests of the company.
• Use powers for a proper purpose.
• Don’t trade recklessly or incur obligations the company can’t meet.
• Take reasonable care, diligence and skill.

That’s why saying “but I’m the majority shareholder” won’t necessarily protect you if you’ve made decisions as a director that breach your duties or put the company at risk.

Related Party Transactions Need Extra Care

Many small businesses have related party arrangements (and they can be totally legitimate), for example:

• you lend money to the company;
• the company pays you director fees;
• the company rents premises from you; or
• you sell an asset to the company.

When directors are also shareholders (or connected to shareholders), you’ll want to document these transactions properly, make sure approvals are handled correctly, and confirm terms are commercially sensible. It’s much easier to do this upfront than to unwind it later during a dispute, audit, or due diligence process.

How To Avoid Disputes: Set Clear Rules In Writing

If you want to manage overlapping powers without constant tension, the best thing you can do is put clear governance rules in place early. This is part of “getting your legal foundations right” from day one.

1) Have A Constitution And Keep It Up To Date

A constitution can tailor governance rules for your company (including how directors are appointed, how shareholder voting works, and what thresholds apply).

If you’re not sure whether you have one (or whether it’s doing what you need), it’s worth reviewing your Company Constitution as your business grows and ownership changes.

2) Use A Shareholders Agreement To Handle Real-World Scenarios

A shareholders agreement is often where the “real-life” rules sit, especially for founder-run companies and startups. It can cover things like:

• reserved matters (shareholder approval required);
• deadlock processes (what happens if 50/50 founders can’t agree);
• how shares can be sold or transferred;
• what happens if someone stops working in the business; and
• confidentiality and restraint expectations.

In practice, a Shareholders Agreement is one of the most effective tools to reduce founder disputes and protect investor relationships.

3) Document Decisions Properly (Especially When It Feels “Obvious”)

Small business owners often make decisions quickly, and that’s a good thing. But you still want a paper trail for major decisions, including:

• director resolutions (board decisions);
• shareholder resolutions (ownership-level approvals);
• share issue paperwork; and
• changes to director/shareholder registers.

Even in a one-director company, using a written Directors Resolution can help show the decision was made properly and with care.

4) Plan For Ownership Changes Before They Happen

People don’t usually start a business expecting to fall out with a co-founder or to sell shares down the track. But planning for it early can prevent a lot of stress later.

Think about scenarios like:

• a shareholder wants to exit;
• you want to bring in an investor;
• you want to transfer shares to a family trust; or
• one founder stops contributing but wants to keep their shares.

It’s much easier to manage these changes when you have agreed rules for transferring shares and decision-making authority.

Practical Examples: Director Decisions vs Shareholder Decisions

Sometimes the best way to understand “director vs shareholder” is to map common business moments to the right decision-maker. Here are examples we see a lot with NZ SMEs.

Signing A Commercial Lease

Usually, signing a lease is a director-level decision (it’s part of running the business). But if it’s a major long-term commitment, your shareholders agreement might require shareholder approval.

If you’re negotiating premises, it’s smart to have the lease reviewed so you understand risk areas like outgoings, personal guarantees, and make-good clauses. A Commercial Lease Review can help you avoid signing something that limits your future options.

Hiring Your First Employees

Hiring is typically a director decision. But it still needs to be done properly from an employment law perspective, including having clear written agreements.

As your team grows, using a tailored Employment Contract helps protect your business around confidentiality, IP ownership (where relevant), and termination processes.

Issuing New Shares To An Investor

Issuing shares changes ownership, voting rights, and often future control. In NZ, issuing shares is usually a board/director power under the Companies Act 1993, but it can be constrained by the constitution and/or a shareholders agreement (for example, requiring shareholder approval, offering shares to existing shareholders first, or meeting agreed investor consent thresholds).

It’s also one of the moments where misunderstandings can do the most damage. For example: if you issue shares without following the Companies Act process and the rules in your constitution/shareholders agreement, the issue can be challenged later (especially in due diligence when you try to raise more money or sell the business).

Declaring Dividends

Dividends are a common source of conflict in small companies. Shareholders often expect dividends because they “own the company”, but dividends aren’t automatic.

Directors generally decide whether to declare dividends, and they must consider solvency and compliance requirements. So even if shareholders want cash out, directors may need to prioritise reinvesting in the business or keeping the company financially safe.

Selling The Business

A business sale often involves both director and shareholder action. Directors may manage the transaction process, but shareholders may need to approve certain steps (for example, where a “major transaction” needs shareholder approval, or where shareholders are selling their shares).

When you’re approaching a sale, you’ll also want sale documents that match the deal structure (share sale vs asset sale), and a clean record of company approvals. A Business Sale Agreement can be a key part of getting the handover right.

Key Takeaways

• The “director vs shareholder” distinction matters in NZ companies, even when the same people hold both roles.
• Directors generally manage the company day-to-day, while shareholders typically vote on structural changes and certain reserved matters (whether required by the Companies Act 1993, the constitution, or a shareholders agreement).
• Directors owe duties to the company under the Companies Act 1993, and those duties don’t disappear just because you’re also a shareholder.
• Overlapping roles can lead to deadlocks and disputes, especially in 50/50 founder companies or when investors come on board.
• A well-drafted Company Constitution and Shareholders Agreement help clarify decision-making power, reserved matters, and what happens when someone exits.
• Documenting key decisions (director and shareholder resolutions) and planning for share transfers early can save you major headaches later.

If you’d like help setting up (or untangling) the rules between directors and shareholders in your company, we’re here to help. You can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.