Private Shares In A Company: Key Considerations For NZ Businesses

If you’re running a growing business in New Zealand, it’s common to reach a point where “just us founders” turns into “we need to bring someone in”. That might be a co-founder, an investor, a key employee, or even family members who are helping fund the next stage.

That’s where issuing shares in a private company can come in.

Private shares can be a powerful way to raise capital, reward people who help you grow, and set your business up for long-term success. But they also come with legal and commercial risks if you don’t get the details right from day one.

This guide breaks down what private shares are, how they work in NZ companies, and the key legal steps you should think about before issuing, transferring, or selling shares.

What Are Private Shares (And What Makes Them “Private”)?

In plain terms, shares are “units of ownership” in a company. If your company has shares, the shareholders own those shares, and their shareholding represents (among other things):

• Ownership (a slice of the company)
• Economic rights (like dividends, if declared)
• Control rights (like voting on certain company decisions)
• Exit rights (what happens if the company is sold or wound up)

When people talk about private shares, they’re usually referring to shares in a private company (often called a “closely held” company). That is, a company that is not publicly listed on a stock exchange and does not offer shares to the general public in the same way a public company might.

Most small and medium NZ businesses are private companies. That means:

• your shareholders are typically founders, family members, employees, or private investors
• shares aren’t freely traded on a public market
• share transfers are often restricted or controlled by agreement
• your company’s rules (and shareholder arrangements) are usually more tailored

In New Zealand, a lot of the “mechanics” around issuing and transferring shares sit under the Companies Act 1993. But the practical reality is that your paperwork (constitution, shareholders agreement, issue/transfer documents) often matters just as much as the statute.

Why Do NZ Small Businesses Use Private Shares?

Private shares aren’t just a “startup thing”. We see established tradies, agencies, professional services firms, online retailers, and family businesses use private shares to support growth and succession.

Common reasons you might use private shares include:

Raising Capital (Without Taking On Debt)

Instead of borrowing money (and taking on repayment obligations), you might bring in an investor who buys shares. They’re taking a risk on your business, and in return they get an ownership stake.

This can help fund:

• new equipment or fitout
• stock purchases
• new hires
• marketing spend
• expansion to a second location

Bringing In A Co-Founder Or Key Operator

Sometimes the business needs a new partner with complementary skills (sales, technical delivery, operations, industry relationships). Shares can align incentives, but only if expectations are documented properly.

It’s very common for businesses to formalise this with a Shareholders Agreement so everyone is clear on decision-making, exits, and what happens if things change.

Rewarding And Retaining Talent

If you’re trying to keep a key employee long-term, shares (or share-like incentives) can be part of the package.

This is where “vesting” often comes into play - meaning someone earns shares gradually, rather than receiving them all upfront. If you’re considering this pathway, a Share Vesting Agreement can help avoid disputes later (especially if someone leaves earlier than expected).

Succession Planning And Family Business Transitions

For family businesses, private shares can be used to transition ownership over time. That might be gifting or selling shares to the next generation, or gradually changing control while keeping day-to-day management stable.

If you’re thinking about a transition like this, it often helps to map it out carefully - and in many cases, changing company ownership involves more than just “handing over shares”.

How Private Shares Work In Practice: The Key Building Blocks

Before you issue or move private shares around, it helps to understand the basic “share architecture” of a company.

1) Shareholders, Shares, And The Share Register

Every NZ company must maintain a share register. This is the formal record of:

• who the shareholders are
• how many shares each shareholder holds
• when shares were issued or transferred
• amount paid (if relevant)

This matters because if there’s ever a dispute, the share register is one of the first documents that gets looked at.

2) Classes Of Shares (Not Always Needed, But Often Useful)

Not all shares have to be identical. Depending on your constitution and what you’re trying to achieve, you can have different “classes” of shares (for example, shares with different voting or dividend rights).

For many small businesses, a single class of “ordinary shares” is enough. But if you’re bringing in an investor and want to preserve founder control, or create a profit-share structure without full voting rights, it may be worth exploring share classes properly.

This is also where your company’s governing document can become critical - having a clear Company Constitution can make it much easier to manage what rights attach to shares and how decisions are made.

3) Directors vs Shareholders (They’re Not The Same Thing)

In NZ companies:

• shareholders own the company
• directors manage or govern the company (and must comply with director duties)

In a small business, the same people are often both directors and shareholders - but as soon as you bring in outside investors, that’s not always the case.

This distinction matters because a shareholder doesn’t automatically have the right to run the business day-to-day, and directors can’t ignore their legal duties just because a shareholder “wants it”. Under the Companies Act 1993, directors have duties that include acting in the best interests of the company and exercising care and diligence.

Issuing Private Shares: What You Should Decide Before You Do Anything

Issuing shares is one of those steps that sounds simple (“we’ll just give them 10%”), but can become messy fast if you don’t agree on the details upfront.

Before you issue private shares, work through these business-owner questions.

How Much Equity Are You Actually Giving Away?

Percentages can be misleading if you’re not also clear on the total number of shares on issue and whether more shares might be issued later.

For example, “10%” today might become “7%” after a future capital raise (this is called dilution). That may be fine - as long as everyone understands it from the start.

What Exactly Is The New Shareholder Paying (Money, Services, Or Both)?

Some shareholders buy shares for cash. Others receive shares in exchange for working in the business (or bringing assets or clients into the company).

Where it gets risky is when the arrangement is informal. If someone says “I’ll do marketing for 6 months and then I get shares”, that should be documented properly - otherwise you can end up in a dispute about performance, timing, or what was actually agreed.

Will The Shares Vest Over Time?

Vesting can be a sensible way to protect the business if you’re issuing shares to someone who hasn’t yet proven they’ll be in it for the long haul.

A common scenario is a new co-founder or key hire who receives shares gradually over 2–4 years, with rules about what happens if they leave early.

Who Controls Major Decisions?

Even a minority shareholder can have meaningful influence depending on voting rights and reserved matters.

You’ll want to be clear on questions like:

• Do all shareholders get voting rights?
• Which decisions require a shareholder vote vs a director decision?
• Do you need unanimous approval for major changes (like issuing new shares or selling the business)?

This is one of the key reasons businesses put a tailored shareholders agreement in place early - it prevents “surprise veto power” and keeps decision-making predictable.

Do You Need A Directors’ Resolution Or Other Approvals?

Share issues often require proper company approvals and documentation. Practically, that may include board resolutions and updated registers.

For smaller companies with one director, formal paperwork still matters - a properly recorded Directors Resolution can help show that decisions were made correctly and reduce the risk of disputes later.

Transferring Or Selling Private Shares: How It Usually Works In NZ

At some point, private shares often need to change hands. This could be because:

• a shareholder wants to exit
• you’re bringing in a new investor
• a co-founder relationship breaks down
• you’re selling the business

In a private company, share transfers are rarely “just a handshake”. They typically involve legal steps and careful coordination, because the buyer is stepping into ownership and (often) gaining rights in the company.

Step 1: Check Restrictions In Your Constitution Or Shareholders Agreement

Many private companies have restrictions like:

• pre-emptive rights (existing shareholders get first chance to buy)
• director approval requirements
• consent thresholds (e.g. majority or unanimous approval)

These restrictions can be very useful. They help you avoid a situation where you suddenly end up “in business” with someone you didn’t choose.

Step 2: Document The Transfer Properly

When you transfer shares, you should make sure the paperwork is completed correctly and the company records are updated. If you’re unsure about the proper process and what documents are involved, it’s worth reading up on how to transfer shares and getting advice specific to your company.

Step 3: Use A Share Sale Agreement Where Appropriate

If there’s money changing hands (or any meaningful risk), it’s usually smart to have a written agreement that sets out things like:

• purchase price and payment terms
• what warranties the seller gives about the company
• what happens if there’s a breach
• restraints, confidentiality, and IP protections (where relevant)

This is especially important where the buyer is relying on information provided by the seller. A tailored Share Sale Agreement can help allocate risk in a way that’s commercially fair and legally enforceable.

Step 4: Update The Share Register (And Consider Any Companies Office Filings, If Relevant)

Your share register should always reflect the current shareholding. In most cases, a share transfer is recorded internally in the company’s share register rather than “lodged” as a standalone update with the Companies Office. However, you may still need to make Companies Office filings if other company details change at the same time (for example, changes to directors or registered address, or updates made as part of the company’s annual return process).

From a business owner’s perspective, this is about more than “admin” - clear company records help protect you if there’s later disagreement about who owns what.

What Legal And Compliance Issues Should You Watch For With Private Shares?

Private shares sit at the intersection of ownership, control, tax, and compliance. You don’t need to be across every technical detail, but you should know where the common traps are.

Getting The “Deal” Wrong (And Creating Founder Disputes)

The biggest risk we see with private shares is not that a company issues shares - it’s that the expectations weren’t aligned.

For example:

• A founder thinks shares are “earned” only if milestones are met, but the other person thinks the shares are immediate.
• An investor expects a say in hiring/firing, but the directors want full control of operations.
• A departing shareholder wants to sell to a third party, but the remaining owners want to keep the company “in house”.

The earlier you document the rules, the easier it is to keep relationships intact and the business running smoothly.

Unclear Valuation And Pricing

With private companies, there isn’t a public market price. That means you need a method to value shares (or a clear way to calculate a buyout price).

Some businesses use an agreed formula. Others require an independent valuation. The “right” approach depends on your business, your growth stage, and how likely it is that someone will exit in the near future.

Investor Offers And Financial Markets Rules

If you’re raising money by issuing shares, you should be cautious about how the offer is made and who it’s made to. New Zealand’s financial markets rules (including the Financial Markets Conduct Act 2013) can apply to offers of shares in certain circumstances.

This doesn’t mean you can’t raise money privately - it just means you should get advice on how to structure the raise properly, whether any exclusions apply, and what disclosures or investor documentation may be needed, so you don’t accidentally create compliance issues.

Privacy And Handling Shareholder Information

Once you have multiple shareholders, you’ll be holding more personal information - names, addresses, contact details, and sometimes bank details for dividends or distributions.

Because NZ businesses must comply with the Privacy Act 2020, it’s smart to think about how your business collects, stores, and shares personal information. If you collect personal information through your website (for example, investor enquiries or shareholder communications), having a clear Privacy Policy is often a practical step.

Tax, Accounting, And Employee Share Scheme Considerations

Share issues and share transfers can have tax and accounting consequences (for the company and the individuals involved). For example:

• issuing shares at a discount (or as part of remuneration) can raise tax issues depending on the structure
• if you’re offering shares (or options) to employees, specific employee share scheme rules and reporting obligations may apply
• changing ownership can impact how profits are distributed
• payments to exiting shareholders need to be handled correctly

You’ll usually want your lawyer and accountant aligned before you lock in the transaction documents. (This article is general information only and isn’t tax or financial advice.)

Key Takeaways

• Private shares are a common way for NZ businesses to raise capital, bring in partners, and reward key people - but they need to be structured carefully to avoid future disputes.
• Before issuing shares, get clear on percentage vs dilution, what the shareholder is contributing, whether shares vest, and who controls major decisions.
• In private companies, share transfers are often restricted by a constitution or shareholders agreement, and you should document transfers properly and keep the share register up to date.
• Where money is involved (or where risk is high), a written share sale agreement can help allocate risk and reduce confusion about price, warranties, and exit terms.
• Keep an eye on wider compliance issues, including director duties under the Companies Act 1993, potential fundraising rules under the Financial Markets Conduct Act 2013, and data handling under the Privacy Act 2020.
• If you’re not sure what documents you need or how to structure the deal (including any employee share or tax implications), getting tailored advice early is often far cheaper than trying to unwind a bad share arrangement later.

If you’d like help issuing, transferring, or restructuring private shares in your NZ company, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.