If you're trying to work out how to get financing for a business, you're not alone. Most New Zealand small businesses need funding at some stage - whether it's to launch, buy equipment, hire staff, expand into a new site, or simply manage cash flow between invoices and bills.
But here's the part many business owners only discover once they're already in talks with a lender or investor: raising money isn't just a "finance" exercise. It's a legal exercise too.
The right legal foundations can make it easier to raise finance, help you negotiate better terms, and reduce the risk that you'll lose control of your business (or end up personally liable when things go wrong).
Below, we'll walk you through the key legal essentials to sort out before you start raising funds in New Zealand, whether you're pursuing debt (like a loan) or equity (like investors).
What Are Your Main Financing Options (And Why Does The Legal Setup Change)?
Before you focus on pitching, applications, or interest rates, it helps to get clear on the type of finance you're actually raising - because the legal work can be very different depending on the path you take.
Common Ways To Finance A Small Business
- Debt finance (you borrow money and pay it back): business loans, overdrafts, working capital facilities, equipment finance, invoice finance.
- Equity finance (you sell part of the business): angel investors, private investors, early-stage funding rounds.
- Hybrid finance (a mix of debt and equity characteristics): convertible instruments and other "convert later" style arrangements.
- Bootstrapping and internal funding: reinvesting profits, delaying expansion, customer pre-payments (these can still raise legal issues around contract terms and consumer law).
If you're trying to get financing for a business efficiently, it's worth knowing this upfront: lenders usually care most about repayment ability and security. Investors care most about ownership, control, and exit rights. Both care about whether your business looks legally organised.
That's why it's a good idea to think about "funding readiness" as part of your business foundations - not just something you do after you've already found a funding opportunity.
How Do You Make Your Business "Funding Ready" From A Legal Perspective?
When funding discussions start moving quickly, it's easy to feel like you have to say "yes" to whatever terms are put in front of you. The best way to avoid that is to get your legals tidy early - so you can negotiate with confidence.
Get Your Structure Right (It Affects What You Can Offer)
Your business structure impacts what you can legally offer to funders and how risk is allocated.
- Sole trader: simple setup, but you're usually personally on the hook for business debts. Some lenders may still lend (often with personal guarantees), but equity investment is trickier because there are no "shares" to issue.
- Partnership: you can raise money, but partnerships can be messy if the roles, profit split, and exit rules aren't clearly documented.
- Company: often the most "investor-friendly" structure because ownership is represented by shares, and there are clearer governance rules. A company can also help separate your personal assets from business liabilities (although personal guarantees can still cut across this).
If you're raising investment (rather than a straightforward loan), having a company structure tends to make the process smoother. It also makes it easier to document rights and responsibilities properly in a Shareholders Agreement.
Make Sure Ownership Records Are Clean
Whether you're speaking to an investor, a bank, or even a potential business partner, you'll be asked questions like:
- Who owns the business (and in what percentages)?
- Are there any side agreements or "handshake deals" about ownership?
- Can the business actually issue shares (and on what terms)?
- Is there any dispute between founders or owners?
If your ownership situation is unclear, funding conversations can stall - or you could end up accepting terms that don't reflect what you thought you owned.
Line Up The Core Contracts That Prove Your Business Is Real
Funders don't just invest in ideas - they invest in businesses that can operate and enforce their rights.
Depending on what you do, that might mean having key customer, supplier, contractor, or partner agreements ready to go. If you employ staff, well-drafted Employment Contract documents help show you're managing legal risk and obligations properly (which matters when funders are assessing operational stability).
What Legal Documents Do You Need Before You Raise Funds?
This is where many business owners feel overwhelmed - because there's no single "funding document" that fits every business. Your paperwork will depend on who you're raising money from and what you're offering in return.
That said, there are a few documents that commonly come up when you're looking at how to get financing for a business and you want to do it safely.
If You're Raising Equity: Set The Rules Early
If you bring investors into your business, you'll usually need documentation that deals with control, decision-making, and what happens when someone wants to leave.
Common legal documents include:
- Shareholders agreement setting out voting rights, reserved matters, transfer rules, and what happens on exit (for many small businesses, this becomes the "rulebook" for the relationship).
- Company constitution (if your company has one) that sets additional governance rules and can interact with shareholder arrangements. Having a Company Constitution can be particularly useful when ownership is split or when you're planning to grow.
- Term sheet or heads of agreement to document key commercial terms before you spend time (and money) on full legal docs. Even where it's intended to be non-binding, the wording matters - you don't want accidental obligations.
Also think about your longer-term plan. For example, you might want to keep the ability to bring in future investors without needing unanimous approval, or you may want protections that stop an investor from blocking day-to-day decisions.
If You're Taking On Debt: Understand Security, Guarantees, And Default Triggers
With loans and other debt products, the "legal" side often shows up as security documents and default terms.
Some common legal issues to watch for include:
- Personal guarantees (you personally promise to repay if the business can't).
- Security over business assets (the lender may take rights over equipment, stock, receivables, or other assets).
- Reporting obligations (financial reporting, bank covenants, restrictions on further borrowing).
- Default events (what counts as a breach and what the lender can do if it happens).
This is exactly where tailored advice matters. A clause that looks "standard" might still create a major risk if it doesn't match how your business actually operates (for example, seasonal cash flow or reliance on a small number of customers).
If You're Sharing Risk With A Partner: Document The Relationship
Sometimes "funding" comes through a collaboration: a strategic partner contributes capital, inventory, a premises, or key resources, and you contribute labour, expertise, or operations.
If you're going down this road, you'll want the relationship documented clearly - often through a Partnership-style agreement or a bespoke collaboration arrangement - so you're not relying on assumptions when disputes arise.
What Laws Do You Need To Keep In Mind When Raising Funds In New Zealand?
Raising funds can trigger legal obligations beyond "business as usual", especially if you're accepting money from other people in exchange for returns or ownership. Getting this wrong can create serious headaches later - including disputes, reputational damage, or regulatory issues.
Here are a few key legal areas to keep on your radar.
Fair Trading Act 1986: Be Careful What You Promise
The Fair Trading Act 1986 is a big one. It prohibits misleading and deceptive conduct in trade.
That means if you're pitching your business - to investors, partners, and in some contexts even customers - you need to be able to back up what you say.
- If you forecast revenue, be clear it's a forecast and explain the assumptions.
- If you say you have "exclusive" supplier terms or "guaranteed" contracts, make sure that's true and documented.
- If you're talking about future products or expansion plans, avoid presenting them as already locked in unless they are.
This isn't about being pessimistic. It's about being accurate - and protecting yourself from claims that your pitch was misleading.
Companies Act 1993: Director Duties And Proper Governance
If you're operating through a company (which is common when you're exploring getting financing through equity), director duties matter.
The Companies Act 1993 sets out duties like acting in good faith and in the best interests of the company. Funding decisions can create conflicts - for example, if you're negotiating a deal that benefits one shareholder more than another, or if a director has an interest in the lender or investor.
Having clear governance, written consents/resolutions, and consistent records reduces the chance of internal disputes later (and helps show funders you're organised).
Funding discussions often involve sharing sensitive business information - sometimes including customer lists, pipeline details, or employee information.
If you collect and use personal information, you need to handle it in line with the Privacy Act 2020. It's also a good moment to make sure your business has the right customer-facing policies in place, like a Privacy Policy, especially if you operate online.
Even where privacy law isn't the main issue, good data practices can make your business more "investable" because funders don't want to inherit unmanaged privacy risk.
Financial Markets And Securities Law (When It Applies)
Depending on who you're raising money from, what you're offering (for example, shares or convertible instruments), and how broadly you're making the offer, New Zealand's financial markets and securities rules may apply - including disclosure requirements and limits on who you can raise from without a regulated offer.
This area can get complex quickly and the right approach depends heavily on your specific facts (including whether an exclusion applies). In practical terms: if you're raising equity or using a "convert later" instrument, it's worth getting advice early to avoid accidental non-compliance.
How Do You Protect Your Business When Investors Or Lenders Ask For "More Control?"
In many funding negotiations, the money isn't the hardest part - the control terms are.
You might be offered funding, but with conditions like:
- the investor gets a seat on the board or has veto rights;
- you must meet certain growth targets;
- you can't take on new debt without approval;
- you must report financials on a tight schedule;
- you must sell the business if the investor wants to exit (or you can be forced to buy them out).
None of these are automatically "bad". Sometimes they're commercially reasonable. But you need to understand what you're giving up - and whether the deal still works for you.
Negotiation Red Flags To Watch For
- Veto rights over ordinary decisions (this can slow your business down dramatically).
- Unclear exit provisions (you don't want to discover later that you're obligated to buy someone out at a price you can't afford).
- Founder "lock-in" without protection (if you're required to stay for years, make sure there are fair terms around what happens if you're sick, burnt out, or the investor relationship turns sour).
- Personal guarantees you didn't expect (particularly if you thought operating through a company fully protected you).
Don't Skip Confidentiality When Sharing Your Numbers
In funding discussions, you'll likely share financials, pricing, strategy, suppliers, product roadmaps, and other commercially sensitive information.
A well-drafted Non-Disclosure Agreement can set the ground rules before you share those details. It won't solve every problem, but it's a practical layer of protection that's often overlooked in the rush to "just get the deal done".
As a bonus, having an NDA ready can make you look more professional when you're trying to get financing and you're looking to build trust quickly.
Key Takeaways
- If you're working out how to get financing for a business, start by choosing the right funding path (debt, equity, or hybrid) because each option has different legal requirements and risks.
- Before you raise funds, make sure your business structure and ownership records are clear - messy ownership can stall deals or lead to disputes later.
- Equity funding often requires strong governance documents like a Shareholders Agreement and sometimes a Company Constitution to set decision-making rules and protect you as the business grows.
- Debt funding can involve security and personal guarantees, so you should understand what assets (and which people) are actually on the line if things don't go to plan.
- When pitching or negotiating, be careful not to overpromise - the Fair Trading Act 1986 can apply if statements are misleading or can't be substantiated.
- Raising funds often involves sharing sensitive information, so having a Non-Disclosure Agreement and good privacy practices (including a Privacy Policy) can protect your business and build credibility with funders.
- Don't DIY complex funding documents - getting tailored legal advice early can save you serious time, cost, and stress later.
Disclaimer: This article provides general information only and does not constitute legal, financial or tax advice. You should obtain advice tailored to your circumstances before acting on any information in this article.
If you'd like help getting legally ready to raise funds - whether that means setting up your structure, preparing a Shareholders Agreement, or reviewing funding terms - you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.
