Partly Paid Shares In NZ: Legal Essentials

If you’re raising capital, bringing in a co-founder, or giving key people a stake in the business, you’ve probably come across partly paid shares. They can be a practical way to issue shares now, while allowing the shareholder to pay for them over time.

But here’s the catch: partly paid shares can create real legal and commercial risk if you don’t document the arrangement properly. From a director’s perspective, you also need to think about your duties under the Companies Act 1993 and what happens if the money is never paid.

This guide breaks down what partly paid shares are in New Zealand, why businesses use them, what your obligations are, and how to set them up in a way that protects your company from day one.

What Are Partly Paid Shares (And How Do They Work)?

Partly paid shares are shares issued by a company where the shareholder has only paid part of the issue price so far, and still owes the company the remainder.

In plain terms, the company issues the shares now, but the shareholder pays later (either by instalments or when the company calls for the balance). That unpaid portion is often called:

• unpaid capital
• amount unpaid on shares
• calls (when the company requests payment of the unpaid amount)

This is different from:

• Fully paid shares: the shareholder pays the full issue price upfront.
• Unpaid shares: shares issued where nothing has been paid yet (not common in practice, and typically higher risk unless carefully structured).

What Does “Issue Price” Mean?

When a company issues shares, it sets an issue price (the amount the shareholder must pay to the company for the shares). For example:

• You issue 10,000 shares at $1 each (issue price = $10,000 total).
• The shareholder pays $2,000 upfront.
• The shares are partly paid, and $8,000 remains unpaid.

That unpaid amount can become a real asset for the company (a debt owed to the company), but only if the arrangement is properly documented and enforceable.

Why Do NZ Businesses Use Partly Paid Shares?

For many small businesses and startups, partly paid shares are appealing because they can solve a cashflow or timing issue while still letting you formalise ownership now.

Common reasons you might consider partly paid shares include:

• Bringing in a co-founder who can’t pay the full amount upfront, but will pay as the business grows.
• Rewarding a key contributor with equity now, with payment structured over time (especially where the person is also working in the business).
• Staged investment where someone is “committed” but the full funds will be injected over milestones.
• Keeping control of the cap table while still raising funds (you can issue shares and set clear payment obligations).

They can also be used as a commercial lever: if the shareholder doesn’t pay, you may want the company to have rights to cancel or forfeit the shares. However, you can’t assume you have those rights unless your constitution and/or shareholder documentation actually provides for them - and any forfeiture, lien, or suspension mechanisms need to be drafted carefully so they’re enforceable under the Companies Act 1993 and your company’s governing documents.

A Quick Reality Check: They’re Not Always the Best Tool

Partly paid shares are just one option. Depending on your goals, you might be better off using:

• a loan structure (shareholder lends funds to the company later),
• a vesting arrangement, or
• an investment instrument like a SAFE or convertible note (more common in early-stage fundraising).

If you’re unsure which structure fits, it’s worth getting advice early. Fixing a messy share issue later can be far more expensive than setting it up properly at the start.

What Are The Legal Risks With Partly Paid Shares?

Partly paid shares can be completely legitimate, but they can also create confusion and disputes if you don’t set clear rules about payment, rights, and consequences.

Here are some of the key legal and commercial risks to think about.

1. Non-Payment Risk (The Company Might Never Get The Money)

The biggest risk is simple: the shareholder might not pay the remaining amount.

If that happens, your company may be left with:

• a shareholder who still votes (and potentially blocks decisions),
• uncertainty around whether dividends should be paid, and
• a debt that is difficult to enforce if the documents are unclear.

Even if the unpaid amount is technically owed, enforcing payment can still mean time, cost, and relationship damage.

2. Disputes About Shareholder Rights

People often assume that if shares are partly paid, the shareholder has “less rights”. That’s not automatically true.

Unless your governing documents say otherwise, a shareholder may still claim rights like:

• voting rights,
• rights to receive notices and attend meetings, and
• rights on a sale or exit event.

That’s why it’s important to clearly document what rights attach to the shares, and what happens if payment isn’t made when due.

3. Director Duties And Proper Process

Issuing shares isn’t just an administrative task. Directors need to ensure the issue is done properly, and that decisions are made in the best interests of the company.

As a director, you should be thinking:

• Is the issue price fair?
• Is the company properly protected if the shareholder defaults?
• Have we followed the company’s constitution (if any), and the Companies Act 1993 requirements around issuing shares (including any required approvals)?
• Have we updated the share register and required records?

If you’re operating under a Company Constitution, you’ll also need to check what it says about share issues, calls on shares, and forfeiture or transfer mechanics.

4. Messy Exits (Especially When People Fall Out)

Imagine this: your co-founder gets partly paid shares, pays a small amount, then leaves the business. Two years later, your company is doing well and you’re selling.

If you don’t have clear legal documents in place, you could be stuck negotiating with a former co-founder who still holds shares they never fully paid for.

This is where a properly drafted Shareholders Agreement can make a huge difference, because it can set expectations around payment, transfers, defaults, and what happens when someone exits.

How Do You Issue Partly Paid Shares Properly In NZ?

To issue partly paid shares safely, you want to treat it like a real financing arrangement: clear terms, written documentation, and proper company process.

While the exact steps depend on your structure and documents, a typical setup looks like this.

1. Decide The Terms (Before You Issue Anything)

Before you issue shares, lock in the commercial deal terms, including:

• Issue price (how much each share costs).
• Amount paid upfront and the unpaid balance.
• Payment timing (fixed schedule vs “on call”).
• Whether interest applies on overdue amounts.
• Rights attached to the shares while partly paid (voting/dividends/etc.).
• Default consequences (forfeiture, buy-back, transfer, suspension of rights).

These aren’t just “nice to haves”. They are the practical points that prevent disputes later.

2. Check Your Constitution And Any Shareholder Restrictions

If your company has a constitution, it may:

• require director or shareholder approvals for issuing new shares,
• give existing shareholders pre-emptive rights (first right to buy new shares), and/or
• set out rules around calls, forfeiture, or lien over shares.

It’s also important to know that, in New Zealand, statutory pre-emptive rights can apply by default (unless they’re excluded or modified in accordance with the Companies Act 1993). That means you may need to offer new shares to existing shareholders first, or follow a compliant process to disapply those rights.

If you don’t have a constitution, it might be worth considering whether adopting a constitution is the right move for your company’s growth. A tailored Company Constitution can give you more control than default settings.

3. Use A Share Subscription Or Share Issue Document

For partly paid shares, you should document the subscription properly. Depending on the situation, that might include a share subscription agreement or specific issue terms that cover payment obligations and default consequences.

In many cases, the broader rules will sit in a shareholders agreement, and the actual issue will be documented using share issue paperwork. If you’re raising capital from an investor, this might be combined with other documents like a Share Subscription Agreement.

4. Pass The Right Resolutions And Update Company Records

Issuing shares usually requires proper approvals and record-keeping. That might include:

• director resolutions approving the share issue and the issue price,
• updating the company’s share register,
• issuing share certificates (if your company does this), and
• ensuring the company’s internal records reflect the unpaid amount as a call/receivable.

Keeping clean records matters not just legally, but commercially too. Investors, buyers, and accountants will often ask for evidence of share issues and payment status during due diligence.

What Should Your Documents Cover For Partly Paid Shares?

Partly paid shares are one of those areas where templates can leave dangerous gaps. The goal isn’t just to “issue the shares” - it’s to make sure the company can enforce payment and manage the relationship if things change.

Here are the clauses and topics you’ll usually want to cover.

Payment Terms And Calls

• How much is due and when (specific dates or a call process).
• How the company issues a call notice (in writing, to what email/address, with how much notice).
• What happens if payment is late (interest, fees, suspension of rights).

Default And Consequences

This is the section that often saves relationships (and businesses). Clear default terms can help avoid drawn-out arguments later.

• Whether shares can be forfeited if payment isn’t made (and if so, that the forfeiture mechanism is valid under the Companies Act 1993 and the company’s constitution).
• Whether the company can force a transfer or buy-back.
• How the buy-back/transfer price is calculated (e.g. lower of cost vs valuation).
• What happens to voting and dividend rights while in default (noting this needs to be set clearly in the relevant documents to be enforceable).

Also note: if you’re relying on a share buy-back as the default remedy, New Zealand has strict rules around company share buy-backs (including approvals and solvency requirements). Your documents should be drafted with those statutory constraints in mind, otherwise the “remedy” you’re expecting may not be available when you need it.

Shareholder Exit Scenarios

Even in strong businesses, people come and go. Your documents should deal with common exit events like:

• resignation or termination (if the shareholder is also an employee),
• death or incapacity,
• relationship breakdown between founders,
• a sale of the business or major asset sale.

This is where having both the right company documents and employment documents can matter. For example, if the shareholder is also working in the business, having a clear Employment Contract (and aligning it with your equity terms) can reduce confusion about what’s owed and what happens on exit.

Information Rights And Confidentiality

Shareholders often receive financial information and sensitive commercial details. If you’re issuing shares to someone who isn’t actively involved day-to-day, you’ll want to be clear about:

• what information they’re entitled to receive, and
• how confidentiality is managed (especially where they have other business interests).

It can also be helpful to include confidentiality obligations contractually, supported by a properly drafted Confidentiality Clause in the relevant agreements.

Tax, Accounting, And Compliance Considerations (The Practical Stuff That Trips People Up)

Even though this is a “legal guide”, it’s worth flagging some practical issues that often come up with partly paid shares.

Note: the below is general information only and isn’t tax or accounting advice. It’s a good idea to speak to your accountant (and legal adviser) about your specific structure.

How Will The Unpaid Amount Be Recorded?

The unpaid portion is generally treated as a receivable (money owed to the company). That can affect:

• your balance sheet,
• due diligence for investment or sale, and
• how you present the company’s financial position to lenders or suppliers.

Make sure your accountant is aware of the terms (including whether the amount is payable on demand, by instalments, or subject to conditions).

Be Careful With “Sweat Equity” Arrangements

Sometimes founders use partly paid shares as a way of giving someone equity “for work”. That can be fine, but you should be clear about whether the shares are being paid for in cash or whether there’s another arrangement (like services being credited toward the issue price).

If you want equity tied to work performed over time, a structured vesting approach may be more appropriate than leaving shares partly unpaid. In those cases, documenting your arrangement properly (and aligning it with the company’s governance documents) is key - especially if you’re planning future fundraising.

Privacy And Business Operations

If the shareholder will be involved in operations, you might also need to think about how you handle business data and access. For example, if you’re sharing customer lists, marketing databases, or internal systems, make sure your business has a compliant Privacy Policy and appropriate internal controls.

Key Takeaways

• Partly paid shares are shares issued where the shareholder has paid only part of the issue price and still owes the balance to the company.
• They can be useful for founders, staged investment, and cashflow-friendly capital raising - but only if the payment obligations and consequences are clearly documented.
• The main risk is non-payment, which can leave your company with a shareholder who has rights but hasn’t fully funded their shares.
• Your company’s documents (especially your constitution and shareholder arrangements) should clearly set out payment terms, calls, default rules, and what happens if someone exits.
• When issuing shares, remember statutory constraints under the Companies Act 1993 can apply (including default pre-emptive rights for existing shareholders, unless validly excluded or modified).
• Proper approvals and record-keeping matter, including passing resolutions and updating the share register, so your cap table stays clean for future investment or sale.
• Because partly paid shares can create long-term governance and dispute risks, it’s worth getting legal advice before you issue them - not after things go wrong.

If you’d like help setting up partly paid shares (or reviewing your constitution and shareholder documents so you’re protected from day one), you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.