Reviewing a Share Sale Agreement and Constitution in New Zealand

Buying or selling shares in a New Zealand company can look straightforward on paper, but the legal risk often sits in the details people skip. Founders commonly focus on the price and completion date, then miss restrictions in the constitution, consent rights held by other shareholders, or warranties that go much further than expected. Another common mistake is relying on informal discussions about what is included in the deal, instead of checking whether the share sale agreement actually matches the company records and the parties' expectations.

A proper share sale agreement & constitution review helps you spot those issues before you sign. It tells you whether the seller can legally transfer the shares, whether pre-emptive rights or director approvals apply, what liabilities are being allocated, and whether the constitution creates practical problems after completion. For founders, investors and small business owners, this is often the difference between a clean transaction and an expensive dispute.

Overview

A share sale agreement deals with the transfer terms, while the constitution can control whether the transfer is allowed and how the company must handle it. Both documents need to be reviewed together, because a well-drafted sale agreement can still fail if it does not fit the company's governing rules.

• Whether the constitution restricts transfers, requires board approval, or gives existing shareholders first rights to buy
• Whether the seller actually owns the shares being sold, free of security interests or competing claims
• How the agreement handles price adjustments, payment timing, and completion steps
• What warranties and indemnities are being given, and whether they are reasonable for the deal
• Whether shareholder rights, voting thresholds, dividend rights, and drag or tag provisions will affect the parties after completion
• Whether company records, share registers, resolutions, and Companies Office filings align with the proposed transaction

What Share Sale Agreement & Constitution Review Means For New Zealand Businesses

For a New Zealand business, this review means checking not just the sale contract, but the legal plumbing of the company itself before you sign.

In practice, a share sale is not only a private deal between buyer and seller. The transaction sits inside the framework created by the Companies Act 1993, the company's constitution, any shareholders agreement, board resolutions, and the company's own records. If those documents do not line up, a deal can be delayed, challenged, or become much riskier than expected.

This matters in common founder situations. A business owner might be selling part of the company to an investor. A co-founder may be exiting. An SME owner may be buying all shares in an established company instead of purchasing assets. In each case, the buyer is stepping into the company with its existing obligations, contracts, liabilities, and internal governance settings.

That is why a share sale review is different from a simple contract review. You are not only asking, “What does the agreement say?” You are also asking, “Can this transfer happen under the constitution?” and “What rights or risks come with these shares once the ink is dry?”

The share sale agreement sets the deal terms

The agreement usually records:

• who is buying and selling
• how many shares are being transferred
• the purchase price and how it is paid
• what must happen at completion
• what promises the seller makes about the company and the shares
• what happens if something turns out to be untrue

For a buyer, these clauses affect value and protection. For a seller, they affect exposure after settlement. A clause that looks standard can still create a major problem if it is too broad, too vague, or inconsistent with the deal that was discussed.

The constitution can override assumptions

The constitution sets internal company rules. Many business owners have not looked at it for years, especially if the company adopted a standard form when it was incorporated. That is where founders often get caught.

A constitution may contain transfer restrictions that require:

• directors to approve the transfer
• existing shareholders to be offered the shares first
• specific notice procedures to be followed
• special shareholder approval for certain changes in control

If the agreement assumes a clean transfer but the constitution requires extra steps, the parties can end up in breach or unable to complete on time.

Other documents often matter too

A constitution review should not happen in isolation. If there is a shareholders agreement, financing document, employee share scheme, or security arrangement, those documents may also affect the transaction.

For example, a lender may hold security over shares, or a shareholders agreement may include drag-along or tag-along rights that are not obvious from the sale agreement alone. A buyer who ignores those documents can inherit a governance problem from day one.

Legal Issues To Check Before You Sign

The main legal question is simple: do the transaction documents, company rules, and company records all support the deal you think you are doing?

1. Does the seller have clear title to the shares?

The seller should own the shares being sold, and those shares should be properly recorded in the share register. That sounds basic, but records in small companies are not always tidy.

Check:

• whether the share register matches the claimed ownership
• whether past share issues and transfers were properly approved
• whether there are security interests, pledges, or other claims over the shares
• whether any previous arrangements give someone else a right to acquire the shares

If title is unclear, the buyer may pay for something the seller cannot validly transfer.

2. Are there transfer restrictions in the constitution?

The constitution may set conditions that must be met before shares can be sold. Those conditions can affect timing, deal certainty, and negotiating leverage.

Common examples include:

• pre-emptive rights requiring existing shareholders to be offered the shares first
• director discretion to refuse registration of a transfer
• notice requirements and formal transfer procedures
• consent thresholds for major ownership changes

Before you rely on a verbal promise that “everyone is on board”, check what the constitution actually requires and whether the necessary approvals are being obtained in the right way.

3. Does a shareholders agreement also apply?

A shareholders agreement can contain extra rules that sit alongside the constitution. Sometimes it is stricter. Sometimes it covers practical rights that the constitution does not.

Review whether it contains:

• pre-emption rights
• tag-along rights for minority shareholders
• drag-along rights allowing a majority sale to compel others
• reserved matters requiring approval from certain shareholders
• exit rights or default transfer mechanisms

If the share sale agreement ignores these rights, another shareholder may object or claim the process was invalid.

4. What exactly is being warranted?

Warranties are contractual promises about the shares and the company. They are often heavily negotiated because they allocate risk after completion.

Buyers usually want broad warranties on matters such as:

• ownership of the shares
• accuracy of accounts
• material contracts
• compliance issues
• disputes and claims
• employment matters

Sellers usually want those promises limited by disclosure, materiality thresholds, time limits, and monetary caps. This is one of the most important parts of the review, because a warranty package that looks standard can expose a seller to significant post-sale claims.

5. Are there indemnities, and are they proportionate?

An indemnity is usually more specific and stronger than a general warranty claim. It may require one party to cover a defined loss if a particular risk event happens.

A buyer may ask for an indemnity if there is a known issue, such as:

• an unresolved dispute
• a compliance problem under a key commercial contract
• an employment claim risk
• an unresolved Companies Office or record-keeping issue

Indemnities should be drafted carefully. Poor wording can shift far more risk than one party intended.

6. Do the completion steps actually work?

Completion mechanics often get less attention than price, but they matter because they determine whether legal ownership changes cleanly.

Check whether the agreement clearly deals with:

• signed transfer documents
• board approvals and resolutions
• updates to the share register
• issue of replacement share certificates, if relevant
• delivery of company records and key documents
• timing of payment and release of funds

If completion steps are vague, disputes often start with a simple question: who was meant to do what, and when?

7. Will the buyer inherit hidden commercial exposure?

In a share sale, the company itself stays in place. That means the buyer usually takes the company with its existing contracts, employees, liabilities, disputes, and compliance history.

This differs from an asset sale, where the buyer can often choose which assets and liabilities to take on. A buyer should therefore review the business position behind the legal documents, including major customer contracts, supplier arrangements, commercial leases, financing documents, and any unresolved claims. Legal review and commercial due diligence should work together.

8. Are post-completion rights and control clear?

The constitution and any shareholders agreement can shape what happens after the sale. This is especially important where the buyer acquires only part of the company or where founders remain involved.

Check how the documents deal with:

• director appointment rights
• voting thresholds
• dividend rights
• share classes and attached rights
• future capital raising
• deadlock procedures
• forced transfer events

Sometimes the legal problem is not whether the transfer can happen, but whether the buyer will have the level of control they expected after completion.

Common Mistakes With Share Sale Agreement & Constitution Review

The most common mistake is reviewing the sale agreement in isolation and assuming the rest of the company paperwork will sort itself out.

Ignoring an old constitution

Many SMEs operate for years without referring to the constitution. Then a share sale comes up and everyone assumes it is a formality. An old constitution may still contain transfer rules that no one remembered, or rights that no longer suit how the business is run.

If those rules are not addressed before you sign, the deal timetable can break down very quickly.

Treating company records as an admin issue

Founders sometimes think the share register, prior resolutions, and Companies Office updates are housekeeping points that can be fixed later. They are not always minor. If the records do not support the shareholding position, title and voting rights may be unclear.

This is where buyers and investors often lose confidence, even if the underlying business is attractive.

Accepting broad warranties without real limits

Sellers often focus on getting the price agreed and assume the legal schedule is standard. Then they discover they have promised far more than intended, across areas they do not fully control.

Common pressure points include:

• long claim periods
• uncapped liability
• promises about every aspect of the company with little qualification
• no protection for matters already disclosed to the buyer

Before you sign, check whether the liability clauses are commercially realistic.

Assuming all shareholder support is informal

A founder may say other shareholders are happy with the transaction, but the legal requirements may still need formal notices, waiver documents, or board approval. Informal support does not replace proper process.

This problem often appears in companies with a few close founders, where everyone has worked on trust for years.

Missing change of control effects

The transfer of shares may trigger consequences outside the sale documents. Key contracts, finance facilities, leases, or investor arrangements may contain change of control clauses or consent requirements.

If those clauses are missed, the buyer can complete the acquisition and then discover a core contract is at risk.

Using generic templates for a live business sale

Online templates can be useful for learning the shape of a document, but they often miss the details that matter in an actual transaction. A founder-led company with uneven records, investor rights, or legacy arrangements usually needs more than a fill-in-the-blanks contract.

The main risk is not just bad drafting. It is false confidence that the paperwork is sorted when key issues were never checked.

FAQs

Does a constitution always need to be reviewed in a share sale?

Yes, if the company has a constitution, it should be reviewed as part of the transaction. It may contain transfer restrictions, approval requirements, or rights affecting the sale and the buyer's position after completion.

Is a share sale agreement enough on its own?

No. The agreement records the deal terms, but it does not override the constitution, shareholders agreement, or defective company records. Those documents need to align.

What is the difference between buying shares and buying assets?

In a share sale, the buyer acquires ownership of the company and usually inherits the company with its existing rights and liabilities. In an asset sale, the buyer usually picks specified assets and may leave more liabilities behind.

Can directors refuse to register a share transfer?

Sometimes, yes. The answer depends on the constitution and the company's governing documents. Director approval rights and transfer discretion should be checked before you sign a contract.

What should sellers pay close attention to?

Sellers should focus on warranties, indemnities, disclosure, liability caps, claim periods, and completion obligations. The goal is to avoid promising more than the seller can fairly stand behind.

Key Takeaways

• A share sale agreement and the company constitution should be reviewed together, not separately.
• The constitution may restrict transfers, require approvals, or give other shareholders first rights to buy.
• Buyers should check title to shares, company records, warranty coverage, indemnities, and post-completion control rights.
• Sellers should carefully review warranty scope, liability caps, disclosure protections, and completion obligations before signing.
• Share sales can also be affected by shareholders agreements, finance documents, and change of control clauses in key commercial contracts.
• Early legal review helps avoid delays, failed completion steps, and disputes about what the parties thought had been agreed.

If you want help with transfer restrictions, warranties and indemnities, shareholder approvals, and completion documents, you can reach us on 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.