Share Sales in New Zealand: Legal Steps for Buying or Selling a Company

Buying or selling a company through a share sale can look straightforward on paper, but this is where many business owners get caught. A seller might assume they can hand over the shares without checking shareholder approvals, restraints or third party consents. A buyer might focus on price and miss hidden liabilities, poor records, unresolved employment issues or contracts that can be terminated after the deal signs. Another common mistake is relying on headline promises instead of making sure the share sale agreement clearly covers warranties, indemnities, completion steps and what happens if something goes wrong.

A share sale changes who owns the company, but the company itself keeps its contracts, debts, employees and legal history. That means the deal documents need to do more than record a purchase price. They need to allocate risk properly and deal with what sits inside the company before you sign. This guide explains what a share sale means in New Zealand, the legal issues to check, the mistakes buyers and sellers often make, and the questions to ask before committing to the deal.

Overview

A share sale transfers ownership of a company by transferring its shares from the seller to the buyer. The company continues as the same legal entity, so its assets, liabilities, contracts and obligations usually stay with it unless the deal documents or other parties say otherwise.

• Check the company constitution, shareholder agreements and Companies Office records before you sign.
• Confirm exactly what shares are being sold, who owns them, and whether any approvals, pre-emptive rights or consent requirements apply.
• Review key business risks inside the company, including contracts, debts, disputes, employment issues, leases, privacy practices, data protection issues and compliance problems.
• Use a written share sale agreement that deals with price, payment terms, warranties, indemnities, restraints, conditions and completion steps.
• Do not rely on verbal statements about revenue, customers, liabilities or future performance.

What Share Sale Means For New Zealand Businesses

A share sale means the buyer acquires ownership of the company itself, not just selected assets. That is the central legal point to understand before you sign.

In a standard share sale, the shareholders sell some or all of their shares to a new owner. The company remains registered as the same New Zealand company. Its existing rights and obligations usually stay in place. Customers may see no immediate change, but control of the company has changed hands.

This matters because a buyer is not just buying plant, stock, goodwill or client relationships. The buyer is stepping into ownership of a company that may also have unpaid debts, weak contracts, unresolved claims, outdated records, tax exposure, personal grievance risk, or compliance issues that are not obvious from a quick conversation.

Share sale versus asset sale

A share sale is different from an asset sale. In an asset sale, the buyer usually chooses particular assets and sometimes selected liabilities. In a share sale, the buyer acquires the company with its history attached.

That difference affects due diligence, risk allocation and the shape of the contract. Buyers often prefer strong warranties and indemnities in a share sale because the unknown risk sits inside the company. Sellers often want tighter limits on those promises so they are not exposed indefinitely after completion.

Why founders and SMEs choose a share sale

A share sale can be commercially attractive because it may preserve the business as a going concern. Existing contracts, staff arrangements, licences and supplier relationships may continue more smoothly than in an asset transfer, although that should never be assumed without checking the underlying documents.

Founders also use share sales when bringing in an investor, selling only part of the business, or exiting a company that already has systems, staff and customer arrangements operating through one legal entity. In other cases, a buyer may prefer a full takeover of the company rather than rebuilding the business through multiple asset assignments and novations.

Who is actually selling

The seller in a share sale is usually the shareholder, not the company. That sounds basic, but it is a common source of confusion. If several shareholders own the company, the buyer may need some or all of them to sell, depending on how much control the buyer wants.

Before you sign, confirm:

• the exact legal names of all selling shareholders,
• the number and class of shares each holds,
• whether any shares are subject to security interests, trusts or other restrictions,
• whether the constitution or shareholders agreement restricts transfers, and
• whether any spouse, trustee, investor or lender needs to consent.

If these points are not sorted early, settlement can stall just when both sides think the deal is done.

Legal Issues To Check Before You Sign

The main legal job before signing is to confirm what the buyer is taking on and who bears the risk if something inside the company is not as expected. The paperwork should match the commercial deal and the real state of the business.

1. Company records and authority

Start with the company’s core records. A buyer should check the Companies Office details, share register, constitution, director records and any shareholder agreement. A seller should make sure these records are up to date before the business goes to market.

Key questions include:

• Does the share register match what the parties think is being sold?
• Are there different share classes with different voting or dividend rights?
• Do existing shareholders have first rights to buy the shares?
• Do directors or shareholders need to approve the transfer?
• Are there any irregularities in past share issues or transfers?

If the records are messy, fix that before you rely on a draft agreement. Poor record keeping can undermine the entire transaction.

2. Due diligence on the company

A buyer should carry out legal due diligence and contract review before signing or at least before the deal becomes unconditional. This is where you test the seller’s claims against actual documents.

Legal due diligence often covers:

• material customer and supplier contracts,
• loan agreements and security arrangements,
• leases and property occupation rights,
• employment agreements and contractor terms,
• intellectual property ownership and licences,
• privacy policies, privacy notices and data handling practices,
• existing disputes, complaints or regulatory issues,
• insurance cover,
• health and safety systems, and
• compliance with sector specific requirements.

This is not about perfection. It is about identifying issues early enough to change the price, negotiate protections, require a fix before completion, or decide not to proceed.

3. Contracts that may react to the sale

Do not assume every business contract will stay in place after a change in ownership. Some contracts include change of control clauses, consent requirements, termination rights or restrictions on assignment and subcontracting.

This matters most where the company depends heavily on:

• a major customer contract,
• a key supplier arrangement,
• a finance facility,
• a lease or commercial lease,
• a franchise or distribution arrangement, or
• a software or technology licence.

If a critical contract can be terminated because the shares change hands, the buyer may be paying for a business that looks very different after completion. Sellers should identify these contracts early so the deal timetable is realistic.

4. Warranties and indemnities

Warranties are promises about the state of the company. Indemnities are promises to reimburse specific losses if certain risks materialise. These clauses are often the most negotiated part of a share sale agreement.

Common warranty areas include:

• ownership of the shares,
• accuracy of accounts,
• absence of undisclosed liabilities,
• status of material contracts,
• employment matters,
• intellectual property ownership,
• privacy compliance,
• litigation and disputes, and
• compliance with laws relevant to the business.

An indemnity may be used where a particular risk is already known, such as an ongoing dispute, a historic compliance issue or a debt likely to crystallise after settlement. Buyers usually want broad protection. Sellers usually want disclosure against the warranties, financial caps, time limits and clear claim procedures.

5. Disclosure process

A proper disclosure process protects both sides. A seller can disclose known issues against the warranties. A buyer can assess whether those issues are acceptable and price them in.

Good disclosure is specific and document based. Vague statements that records are available for inspection are rarely enough. If there is an employment dispute, customer complaint, defect in title, privacy incident or overdue amount, it should be disclosed clearly and tied to supporting material.

6. Restraints and transition arrangements

If the seller knows the customers, systems and market well, the buyer may ask for restraint clauses. These can restrict the seller from competing, soliciting staff or approaching customers for a set period and within a defined area.

These restraints need careful drafting. If they go too far, they may be hard to enforce. If they are too weak, they may not protect the buyer’s goodwill.

The parties should also decide whether the seller will stay on for a handover period. If so, document the role, duration, payment and authority clearly. Do not leave post sale support to a vague promise.

7. Employees and contractors

In a share sale, employees usually remain employed by the same company because the employer entity has not changed. That does not mean employment issues can be ignored.

A buyer should review:

• written employment agreements,
• pay, leave and holiday records,
• bonus or commission arrangements,
• restraint clauses and confidentiality terms,
• contractor classifications, and
• any disciplinary, restructuring or personal grievance issues.

If the records are poor or the company has misclassified workers, the liability sits inside the company the buyer is purchasing.

8. Intellectual property and business know how

The buyer should confirm that the company actually owns the brand assets, software, content, designs, databases and other intellectual property used in the business. This is especially important where founders have built material personally or through related entities.

Check for:

• trade marks registered in the correct owner’s name,
• copyright assignments from contractors and developers,
• software licence compliance,
• domain and social account control, and
• confidential information protections.

Even though a share sale is not a business launch document, ownership gaps in these assets can materially affect value.

9. Price, payment and completion mechanics

The commercial terms need legal precision. A share sale agreement should say exactly how the price is calculated, when it is paid, whether there is a deposit, and what happens if a completion account or earn-out mechanism applies.

Completion mechanics often include:

• signed share transfer documents,
• board approvals and shareholder resolutions,
• director resignations and appointments,
• release of personal guarantees if agreed,
• delivery of statutory records and company information, and
• updates to the share register and Companies Office filings.

Set out who is responsible for each step. Completion day problems usually arise because everyone assumed someone else was handling the details.

10. Tax and accounting issues

Tax can affect the value and structure of the deal, but it needs specific advice from an accountant or tax adviser. A lawyer can help make sure the contract reflects the agreed allocation of risk, but the numbers and tax treatment should be checked separately.

Before you sign, the parties should be clear on any tax assumptions built into the price and whether adjustments or indemnities are needed for known historic issues.

Common Mistakes With Share Sale

The biggest mistakes happen when the parties treat a share sale like a simple handover instead of a risk transfer. The company keeps its history, so loose drafting and rushed due diligence can become expensive very quickly.

Relying on a heads of agreement as if it is the final deal

A term sheet or heads of agreement can be useful, but it is usually not enough on its own. If key matters are left open, such as warranty scope, restraint terms, conditions or the treatment of debt and working capital, disputes often start before settlement.

Use preliminary documents carefully and make sure everyone understands what is binding and what still needs to be negotiated.

Ignoring shareholder restrictions

Many private companies in New Zealand have constitutions or shareholder agreements that limit share transfers. Founders often forget about pre-emptive rights, drag and tag rights, or approval thresholds set years earlier.

If you miss these restrictions, the buyer may sign a deal that cannot complete as planned, or the seller may end up in breach of existing obligations to other shareholders.

Assuming due diligence is only the buyer’s problem

Sellers who prepare properly often get cleaner deals and fewer post settlement claims. If you are selling, organise records early, identify gaps, and think through what needs to be disclosed before you start serious negotiations.

Waiting until the buyer asks difficult questions usually leads to delay, distrust and price pressure.

Using generic warranties

Not every business needs the same warranty package. A software company, manufacturer, professional services firm and retailer each carry different risks. Generic drafting can miss the issues that actually matter.

Tailor the warranties and indemnities to the business. This is where founders often get caught if they rely on a recycled precedent that does not match the company being sold.

Leaving known problems out of the disclosure material

Sellers sometimes avoid disclosing bad news in the hope the deal will complete first. That approach can backfire badly. If the buyer later discovers a known issue that should have been disclosed, the seller may face a warranty claim and a much more hostile dispute.

Specific disclosure is usually the safer path. It lets the parties price the issue or agree a targeted indemnity before completion.

Forgetting post completion practicalities

The legal completion of a share sale does not automatically transfer business knowledge, passwords, bank mandates, key contacts or operational control. Those items should be planned and documented.

Make a practical completion checklist that covers:

• handover of records and credentials,
• banking authorities,
• director and signing authorities,
• customer and supplier communications where appropriate,
• access to systems and data, and
• ongoing assistance from the seller if agreed.

Without this, the buyer may own the shares but still struggle to operate the business smoothly on day one.

FAQs

Is a share sale the same as buying a business?

Not exactly. In a share sale, the buyer acquires the shares in the company that operates the business. In an asset sale, the buyer acquires selected business assets and may leave some liabilities behind.

Does a share sale transfer all liabilities to the buyer?

The company keeps its liabilities because it remains the same legal entity. The buyer takes ownership of that company, which is why due diligence and warranty protection matter so much.

Do we need a written share sale agreement?

Yes, in practice you should have one. A written agreement records the price, conditions, warranties, indemnities, restraint terms and completion steps, and it reduces the chance of later disputes.

Can a contract be affected when shares in a company are sold?

Yes. Some contracts include change of control clauses or consent requirements. Key contracts should be reviewed before the deal becomes unconditional.

Do employees need to sign new agreements after a share sale?

Usually not just because the shares changed hands, since the employer company remains the same. Even so, the buyer should still review employment records and any existing risks before signing.

Key Takeaways

• A share sale transfers ownership of the company, while the company itself usually keeps its assets, contracts, liabilities and legal history.
• Before you sign, check the constitution, shareholder agreements, share register, Companies Office records and any approval or consent requirements.
• A buyer should carry out legal due diligence on contracts, employment, intellectual property, privacy, disputes, leases, finance and compliance issues inside the company.
• The share sale agreement should clearly cover price, payment terms, conditions, warranties, indemnities, disclosure, restraints and completion mechanics.
• Sellers should prepare records early and disclose known issues properly, rather than relying on verbal explanations or late stage fixes.
• Tax treatment and accounting assumptions should be reviewed with an accountant or tax adviser alongside the legal documentation.

If you want help with due diligence, 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.