Section 174 of the New Zealand Companies Act: What It Means for Company Directors

If you are a company director in New Zealand, section 174 of the Companies Act is one of those provisions you do not want to leave vague in your mind. A common mistake is assuming every director must always agree before the company can act. Another is relying on informal conversations instead of checking what your constitution says. A third is signing contracts or approving major decisions without being clear on who actually had authority to commit the company.

Section 174 matters because it deals with how director action can be taken, and in particular when unanimous consent can stand in for a formal board meeting. That sounds procedural, but the practical consequences are real. It can affect whether decisions are valid, whether records are adequate, and whether directors have exposed themselves to avoidable disputes later.

This guide explains what section 174 companies act means in practice, when founders and SMEs usually run into it, and what to do before you sign a contract, raise money, issue shares, or make a key operational decision.

Overview

Section 174 of the New Zealand Companies Act 1993 allows directors to act by unanimous written consent in place of a directors' meeting, unless the company constitution says otherwise. For many private companies, this is a practical shortcut, but it only works properly when every director agrees and the decision is documented clearly.

• Check whether your company has a constitution and whether it changes the default rule.
• Confirm who is currently appointed as a director and entitled to vote.
• Make sure the consent is genuinely unanimous, in writing, and covers the actual decision being made.
• Keep the written resolution with the company records and board papers.
• Consider whether the decision also triggers other legal steps, such as shareholder approval, Companies Office filings, or contract updates.

What Section 174 Companies Act Means For New Zealand Businesses

Section 174 gives directors a lawful way to make decisions without gathering in the same room, but only if they do it properly.

Under the Companies Act 1993, directors usually exercise the powers of the company together as a board. In day to day business, that often happens at a meeting, whether in person, by phone, or by other permitted means. Section 174 creates another option. If all directors entitled to vote on a matter sign or otherwise consent in writing, the resolution can be treated as valid as though it had been passed at a directors' meeting.

For startups and SMEs, this can be very useful. Many founder-led companies make decisions quickly. You might need to approve a new supplier agreement, sign off on banking authorities, issue shares to an investor, or appoint a new director while everyone is in different locations. Section 174 helps keep the business moving without waiting for a formal meeting.

That said, section 174 is not a free pass to skip board process. The legal effect depends on the details.

What the rule is really doing

The section recognises that unanimous written consent can be just as reliable as a meeting when every director has had the opportunity to consider the same decision and agrees to it. The key feature is unanimity. If even one director does not agree, section 174 is not satisfied.

This matters because board decisions are not just internal admin. They are often the legal foundation for later steps, such as:

• entering into a major contract
• issuing or transferring shares
• approving finance documents or guarantees
• appointing officers or changing authorities
• approving distributions or other company actions that have specific statutory requirements

If the board process is defective, the company may still face disputes over whether the decision was properly made, whether someone had authority, or whether directors complied with their duties.

How section 174 interacts with the company constitution

The default position under the Companies Act can be changed by a company constitution. That is where founders often get caught.

Some companies do not have a constitution at all, in which case the Act's default rules usually apply. Others adopted a constitution at incorporation, during company setup, an investment round, or when bringing in multiple shareholders. That constitution may add procedural requirements for board resolutions, signatures, notice periods, quorum, casting votes, or categories of decisions needing extra approval.

Before relying on section 174, check:

• whether your company has a constitution
• whether the constitution allows written resolutions of directors
• whether it requires a particular signing method or form of consent
• whether some decisions also require shareholder approval
• whether any investor documents impose separate consent rights

Founders sometimes assume the Companies Act is the whole answer. In practice, the constitution and shareholder documents can be just as important.

Section 174 is about process, not about avoiding directors' duties

A written resolution can replace the meeting, but it does not replace the underlying obligations directors owe to the company.

Directors still need to act in good faith and in what they believe to be the best interests of the company. They still need to exercise care, diligence and skill, avoid reckless trading, and comply with any specific statutory tests that apply to the decision. A unanimous written resolution is not effective protection if the decision itself was unlawful or made without proper consideration.

For example, if directors approve a transaction when the company is under financial pressure, they should still consider solvency issues carefully. If they are issuing shares, they should still check the constitution, shareholder rights, and the terms of issue. If they are authorising a director to sign a contract, they should still review the contract rather than treating the resolution as a box-ticking exercise.

When This Issue Comes Up

Section 174 usually becomes relevant when a business needs a decision made quickly and wants confidence that the paperwork matches the reality.

Most SMEs do not think about this provision until a transaction forces the issue. The problem often appears when someone asks for evidence that the board approved something, or when directors disagree later about what was decided.

Founders making fast decisions

Early stage companies often run on messages, calls, and informal approvals. That works until the company needs cleaner records.

You may run into section 174 when:

• a bank asks for a board resolution to open accounts or change signatories
• an investor wants evidence that the issue of shares was properly approved
• a major customer contract is ready to sign and the board is spread across locations
• the company wants to appoint or remove a director
• the business is restructuring shareholdings before a raise or sale

In these situations, written unanimous consent is often the fastest lawful route, if the board is aligned.

Companies with multiple directors and changing relationships

The risk increases as soon as there is more than one decision-maker and not all of them are founders on the same page.

Disputes often start with assumptions. One director thinks a short email chain was enough. Another thinks they only agreed in principle. A third says they never saw the final contract. Section 174 can help avoid that uncertainty, but only where the written resolution states the exact decision and every director entitled to vote agrees.

This is particularly relevant for companies with:

• co-founders who share board seats
• independent directors
• investor-appointed directors
• family-owned companies transitioning to a more formal structure
• SMEs preparing for sale, investment, or external finance

Before you sign a contract or spend money on setup

This issue often comes up at the point where the business is about to commit itself externally.

For example, before you sign a commercial lease, approve a software platform agreement, guarantee obligations to a supplier, or spend money on a new site, you may need a clear board decision. If the company later tries to challenge the commitment, poor internal approval records can become a major distraction.

Section 174 is especially useful when a formal meeting would delay a genuine business need, but speed should not come at the cost of accuracy. The written resolution should identify:

• the company name
• the directors consenting
• the exact decision approved
• the date of consent
• any authority given to a named person to sign related documents

During share issues and ownership changes

Share transactions are a common pressure point because they usually require both legal precision and good records.

If a company is issuing new shares, accepting an investor, implementing an employee share arrangement, or transferring control between shareholders, section 174 may be used to approve the board side of the process. But it is only one part of the picture. You may also need to consider the constitution, existing shareholder rights, any shareholders agreement, share certificates or registers, and any Companies Office updates.

That is where founders often treat board approval as the whole task when it is only one step in a larger legal process.

Practical Steps And Common Mistakes

The safest approach is to treat section 174 as a useful mechanism for board approval, not as a shortcut around proper governance.

If your company wants to rely on written unanimous consent, the practical work is mostly about accuracy, records, and checking what else sits around the decision.

Step 1: Confirm the board composition

Start with the basics. Check who the current directors are at law, not just who is active in the business day to day.

Problems arise when companies rely on consents from people who have resigned, ignore newly appointed directors, or forget that a person was never formally appointed in the first place. The company records and Companies Office details should match the real position.

Step 2: Review the constitution and related documents

Do this before circulating any written resolution.

Look for special rules about board decision-making, reserved matters, investor consent rights, or signature requirements. If there is a shareholders agreement, term sheet, or investment deed, review that too. A valid section 174 written resolution may still leave you in breach of another agreement if a required consent was missed.

Step 3: Draft the decision precisely

A vague approval creates room for later argument.

The written resolution should set out exactly what is being approved. If contracts are involved, identify them clearly. If a person is authorised to sign, state their name and scope of authority. If the board considered attached documents, keep those with the resolution.

Good board wording usually covers:

• the background to the decision, in brief
• the formal resolutions passed
• authority to sign or complete documents
• any conditions that must be satisfied first
• the effective date

Step 4: Make sure the consent is actually unanimous

This is the core section 174 requirement.

If one director abstains, objects, or simply does not sign, you generally cannot treat the matter as a valid unanimous written resolution under section 174. In that situation, the company may need to call a directors' meeting and follow the voting rules that apply there.

Do not assume silence equals consent. Do not rely on a casual message that does not clearly approve the actual resolution. If speed matters, circulate the final version and obtain clear written agreement from each director.

Step 5: Store the resolution with company records

The document needs to be findable later.

Keep signed written resolutions with board records, constitutional documents, shareholder records, and any transaction file. This becomes particularly important during due diligence, external finance, disputes between founders, or a sale process.

Good record keeping also helps with related legal tasks, such as updating registers, preparing contracts, or supporting authority given to staff and advisers.

Common mistakes directors make

The same errors come up repeatedly in founder-led businesses.

• Assuming an informal chat counts as unanimous written consent.
• Using a written resolution when the constitution restricts or modifies that process.
• Approving a broad idea, but not the actual contract or transaction documents.
• Forgetting that shareholder approval may also be needed.
• Failing to update registers, Companies Office records, or internal authorities after the decision.
• Treating a written resolution as a substitute for proper consideration of directors' duties.

What this means for wider business legal hygiene

Board approval is only one part of running a company properly. Many of the situations where section 174 appears also overlap with other legal areas.

For example, if you are building out a startup or scaling an SME, a board decision may sit alongside:

• choosing or changing your business structure
• issuing shares or updating shareholder arrangements
• signing customer terms, supplier, or contractor contracts
• protecting your brand through a trade mark application
• reviewing privacy settings and notices before collecting customer data
• checking fair marketing claims before selling online
• documenting employment contracts or contractor arrangements

That does not mean every decision needs a formal legal project. It does mean board paperwork works best when it matches the company records, contracts, and ownership documents around it.

FAQs

Can directors approve a decision by email under section 174?

Potentially, yes, if the company constitution does not prevent it and the email record clearly shows unanimous written consent to the specific resolution. The safer approach is to use a formal written resolution document that each director signs or expressly approves.

Does section 174 remove the need for a board meeting in every case?

No. It provides an alternative when all directors entitled to vote agree in writing. If unanimity is not available, or if the constitution requires a meeting for certain matters, the board should follow the meeting process instead.

Is a section 174 resolution enough for issuing shares?

Usually not by itself. Share issues often involve additional steps, such as checking the constitution, shareholder rights, subscription terms, registers, and any filing or record-keeping requirements.

What happens if one director does not sign?

The company generally cannot rely on section 174 for that decision. The directors may need to hold a meeting and make the decision under the normal voting rules, if the matter can lawfully be decided that way.

Do small private companies need to worry about this, or only larger businesses?

Small private companies should care about it just as much. In fact, informal decision-making is more common in smaller businesses, which is exactly where gaps in authority and records tend to show up later.

Key Takeaways

• Section 174 of the Companies Act 1993 allows New Zealand directors to make decisions by unanimous written consent instead of a directors' meeting, unless the constitution says otherwise.
• The rule is useful for startups and SMEs, but only when every director entitled to vote agrees clearly in writing.
• You should always check the company constitution, shareholder arrangements, and any reserved matters before relying on a written resolution.
• A valid section 174 process does not replace directors' duties or other legal steps attached to the decision, such as share documentation, authority to sign contracts, or Companies Office updates.
• Clear drafting and good company records are the best protection against later disputes about whether a board decision was valid.

If your business is dealing with section 174 companies act and wants help with board resolutions, shareholder approvals, share issue documents, or company record updates, you can reach us on 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.