How To Legally Issue Shares And Options In New Zealand

If you’re running a growing business, it’s pretty normal to reach a point where you need to bring other people “into the ownership” in some way.

Maybe you’re raising capital from investors, bringing in a co-founder, rewarding a key team member, or setting up an employee incentive plan. In all of these scenarios, you’ll usually be looking at issuing shares, issuing options, or doing a mix of both.

Done properly, equity can help you grow faster and keep great people on board. Done poorly, it can create expensive disputes, messy cap tables, and control issues that are hard to unwind later.

This guide walks you through how to issue shares and options in New Zealand in a practical, step-by-step way, with the key legal checks you should be thinking about from day one.

What Does It Mean To Issue Shares And Options In New Zealand?

Before you start drafting documents or updating your cap table, it helps to be clear on what you’re actually issuing.

Issuing Shares (Equity Now)

When you issue shares, you are creating (or allocating) ownership in your company to someone immediately. Shares typically come with rights, which can include:

• Voting rights (ability to vote on major company decisions)
• Dividend rights (ability to receive a share of profits if dividends are paid)
• Rights on exit (ability to receive a share of sale proceeds if the business is sold)

In New Zealand, shares are issued by a company (not by a sole trader or partnership). So if you’re currently operating as a sole trader, you’ll generally need a company structure before you can properly issue shares.

Issuing Options (A Right To Acquire Equity Later)

An option is not a share. It’s a legal right (usually conditional) that gives someone the option to buy or receive shares later, typically if certain conditions are met.

Options are common where you want to:

• reward someone for staying with the business over time (vesting)
• tie equity to performance milestones
• avoid giving away immediate ownership before you’re confident it’s the right move

Options can be a great tool, but they still need careful structuring so you don’t accidentally give away control or create unclear obligations.

Why “Getting The Paperwork Right” Matters

Issuing shares and options sounds simple in conversation (“we’ll give you 10%”), but legally it’s detailed. You need to get clear on:

• what exactly is being issued (shares, options, or something else)
• who is receiving it (and on what conditions)
• what rights attach to it
• how you’ll handle future issues like someone leaving, raising capital, or selling the business

This is where documents like a Shareholders Agreement and Company Constitution can make a huge difference to protecting your business long-term.

Step 1: Check Your Company Structure And Your Power To Issue Equity

The first step is making sure your business is actually set up to issue shares or options in New Zealand.

Are You Operating Through A Company?

If your business is a company, you can generally issue shares (subject to your constitution and the Companies Act requirements).

If you’re not a company (for example, you’re a sole trader), you can’t issue “shares” in the same way. In that case, your first step is usually a Company Set Up so you have the right legal vehicle to bring on owners or investors.

Check Your Constitution (And Any Shareholder Restrictions)

Your constitution (if you have one) may set rules about issuing shares, such as:

• whether directors can issue shares without shareholder approval
• pre-emptive rights (existing shareholders must be offered new shares first)
• limits on the classes of shares you can issue
• share transfer restrictions

If you don’t have a constitution, the default rules in the Companies Act 1993 generally apply.

Directors Must Act Properly

Issuing shares is a serious decision because it changes ownership and control. Directors need to act in the best interests of the company and comply with their duties under the Companies Act 1993.

Practically, this means you should be able to explain why the issue is fair and beneficial to the company (for example, raising capital, attracting key talent, or bringing in a strategic partner).

Step 2: Decide What You’re Issuing And Set The Commercial Terms

This is the part many founders rush through, but it’s where most future disputes start.

Before you issue anything, get very clear (in writing) on the “commercial deal” you’ve actually agreed. That includes the numbers, but also the rights and the “what if” scenarios.

Key Questions To Answer Before You Issue Shares

• How many shares will be issued? (and what % ownership does that represent after the issue?)
• What price will be paid? (cash, contribution of assets, services, or other value?)
• Will the shares be ordinary shares or a separate class? (different rights can be attached)
• Will the investor or founder have any special rights? (board seat, veto rights, information rights)

Key Questions To Answer Before You Issue Options

• How many options? (and what % could they convert into?)
• What is the exercise price? (what do they pay to convert?)
• What is the vesting schedule? (time-based vesting, milestone-based vesting, or both?)
• What happens if they leave? (good leaver vs bad leaver treatment)
• What happens on a sale of the business? (accelerated vesting, forced exercise, or cash-out?)

If you’re issuing options to employees, you’ll also want the employment side set up properly, including a clear Employment Contract, so everyone understands how their role and their equity incentives fit together.

Be Careful With “Handshake” Equity Promises

It’s common for early-stage businesses to make informal promises like “you’ll get 5% if this works out.” The problem is that misunderstandings around equity are much harder to fix than misunderstandings around salary.

If you’re negotiating equity with anyone (co-founder, contractor, advisor, investor), it’s worth documenting the key deal points early, then formalising them properly before anything is issued.

Step 3: Put The Right Legal Documents In Place (Before You Issue)

Once the commercial terms are decided, you’ll want to lock them in with the right legal documents. This protects both sides and reduces the chance of disputes later.

Shareholders Agreement

A shareholders agreement sets the “rules of the road” between owners. It usually covers issues like:

• how decisions are made (and what needs unanimous approval)
• what happens if a shareholder wants to sell their shares
• what happens if someone leaves the business
• how future funding rounds will work
• dispute resolution processes

This is why having a proper Shareholders Agreement can be so important when you’re issuing equity to anyone outside your original founder group.

Company Constitution (Or An Updated Constitution)

A constitution can add (or change) the default rules under the Companies Act, including around:

• share classes
• share transfers
• director powers
• shareholder voting and meeting procedures

If you’re about to bring on new shareholders or introduce options, it’s often the right time to adopt or update a Company Constitution so your governance rules match how you actually want to run the business.

Option Deed Or Employee Equity Plan Documents

Options should be documented properly, usually through an option deed (and sometimes an overarching plan). This should clearly set out:

• grant date and number of options
• exercise price and process to exercise
• vesting conditions and schedule
• treatment on termination, resignation, redundancy, or sale
• what happens if there’s a restructure or new funding round

For many businesses, an Option Deed is a clean way to document the terms properly and avoid later confusion.

Consider Privacy And Record-Keeping (Especially If You’re Expanding)

When you start bringing on shareholders and option holders, you’re handling more personal information (addresses, identity details, shareholding details, communications). As your business grows, it’s often sensible to make sure your Privacy Policy and internal processes align with the Privacy Act 2020.

Also Consider Financial Markets (Securities) Compliance

Depending on who you’re offering shares or options to (for example, external investors, multiple employees, or people outside your close founder group), your offer may also raise Financial Markets Conduct Act 2013 (FMC Act) issues - including whether you need to rely on an exclusion (like offers to certain eligible or wholesale investors) or prepare disclosure documents.

Because the FMC Act can apply even to smaller raises or employee offers depending on the structure, it’s worth getting advice early so your equity offer is compliant as well as commercially workable.

Step 4: Follow The Formal Process To Issue Shares (Companies Act Compliance)

Once your documents are ready, you can move to the formal issue process. In New Zealand, issuing shares isn’t just “updating a spreadsheet” - it has legal steps under the Companies Act 1993.

The exact steps depend on your constitution and share structure, but the process often includes the following.

1. Director Approval (And Sometimes Shareholder Approval)

Typically, directors approve a share issue by resolution, provided they have the authority to do so under the constitution (or the default rules).

Sometimes you’ll also need shareholder approvals, especially if the issue affects shareholder rights or triggers pre-emptive rights.

2. Directors’ Certificates And “Fair And Reasonable” Consideration

Before shares are issued, directors generally need to sign the required Companies Act certificates confirming things like the issue being in the best interests of the company and that the consideration (including non-cash consideration, where relevant) is fair and reasonable to the company.

This is particularly important where shares are issued for services, IP, or other non-cash value, because you’ll want clear records supporting the valuation and the directors’ decision-making.

3. Meet Pre-Emptive Rights Requirements (If They Apply)

Pre-emptive rights are designed to protect existing shareholders from being diluted without having the chance to participate.

If pre-emptive rights apply, you may need to first offer the new shares to existing shareholders on the same terms before issuing them to a new person.

This is one of those areas where it’s easy to accidentally “get it wrong” if you’re relying on assumptions, so getting legal advice before issuing is often a smart move.

4. Issue The Shares And Update The Share Register

Companies must maintain a share register showing:

• who owns shares
• how many shares they own
• when the shares were issued or transferred
• what consideration was paid (if applicable)

You’ll also typically issue share certificates (where relevant), and record the issue in company records.

5. Update Companies Office Details (Where Required)

Some changes must be notified to the Companies Office - for example, changes to shareholdings that affect the company’s “ultimate holding company” position, and (commonly) updates to the shareholding information the Companies Office holds on the public register, depending on what has changed and how your company records are maintained.

While the Companies Office process is usually straightforward, the key is making sure your underlying documents and approvals are correct before you lodge anything - and that you’re meeting any required timeframes for notification.

Step 5: Set Up Options Properly (So They Don’t Become A Future Headache)

Options can be a really effective way to incentivise people while protecting your control early on - but only if the terms are clear and consistent.

Make Vesting And “Leaver” Rules Crystal Clear

A well-drafted option arrangement will spell out:

• when options vest (for example, monthly over 4 years, with a 12-month cliff)
• what happens if someone leaves early (unvested options usually lapse)
• what happens if someone is terminated for serious misconduct (often harsher treatment)
• exercise windows (for example, 30–90 days after leaving)

This matters because if your documents are silent (or inconsistent), you may end up negotiating under pressure later - like during an exit, a dispute, or a redundancy situation.

Be Careful With Tax And Accounting Treatment

Equity incentives can have tax and accounting implications (for both the company and the individual), depending on how they’re structured and when benefits are received.

This article is general information only and isn’t tax advice. As a general rule, talk to your accountant (or a tax advisor) early, and make sure your legal documents match the intended tax outcome.

Align Options With Your Shareholder Rules

Options don’t exist in a vacuum. You want to make sure your option terms work alongside your constitution and shareholders agreement, particularly on:

• what happens on a sale of the company
• drag-along/tag-along rights
• new funding rounds and dilution
• restrictions on transfers

If you don’t align these documents, you can end up in a situation where you’re contractually promising one thing to an option holder but your company rules make it hard (or impossible) to deliver it cleanly.

Key Mistakes To Avoid When You Issue Shares And Options In New Zealand

Equity can be a growth tool, but it’s also one of the fastest ways to create long-term problems if it’s rushed. Here are some common pitfalls we see small businesses run into.

Issuing Equity Without A Clear Plan For Control

Even “small” equity grants can affect who controls decisions. If you issue shares without thinking about voting thresholds and reserved matters, you might accidentally make it harder to run your business day-to-day.

Not Thinking About The Next Capital Raise

Imagine you issue shares informally to a few people early on. Later, an investor wants to come in - and they ask for clean documentation, clear ownership, and predictable governance.

If your cap table is messy, raising funds can become slower, more expensive, or even fall over entirely.

Using Templates That Don’t Match Your Business

Equity documents are one of those areas where generic templates often cause more harm than good. If the documents don’t match your actual business model, ownership intentions, and growth plans, you can end up with contradictions and loopholes.

Failing To Document What Happens When Someone Leaves

This is a big one. If a co-founder, employee, or contractor leaves, you want a clear and fair process for what happens to their shares or options.

Without proper leaver provisions, you can end up with “dead equity” on your cap table - ownership held by someone no longer contributing - which can be a major blocker to future growth.

Key Takeaways

• To issue shares and options in New Zealand, you generally need the right company structure and the legal authority under your constitution and company rules.
• Shares give someone ownership now, while options usually give someone the right to acquire shares later (often with vesting conditions).
• Before issuing equity, you should clearly document the commercial terms, including price, percentage, rights, vesting, and what happens if someone leaves.
• Strong governance documents like a Shareholders Agreement and Company Constitution can help prevent disputes and make future fundraising smoother.
• Issuing shares requires following the Companies Act process, including approvals, directors’ certificates, and maintaining accurate company records like the share register.
• Depending on who you’re offering equity to, you may also need to consider FMC Act (securities/disclosure) compliance.
• Options should be documented carefully (often with an option deed) so vesting, exercise rules, and exit outcomes are clear from day one.

If you’d like help issuing shares or options in your business (or you want to make sure your existing equity structure is set up properly), you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.