Share Types And Share Classes In New Zealand Companies

If you’re running (or about to start) a New Zealand company, sooner or later you’ll hear people talking about “shares” and different share classes. It can feel a bit abstract at first - until you’re bringing in a co-founder, raising investment, rewarding key people, or planning for a future sale.

The good news is that share classes don’t need to be confusing. Once you understand the building blocks (what a share actually is, what rights can attach to it, and why you might want more than one class), you’ll be able to make much more confident decisions for your business.

Below, we’ll break down the most common types of shares and share classes used in New Zealand companies, what they’re for, and the legal “watch-outs” that matter for small business owners.

What Are Shares And Share Classes (And Why Do They Matter)?

In a New Zealand company, a share is essentially a bundle of rights in that company. Those rights typically relate to things like:

• Ownership (your economic interest in the company)
• Control (your ability to vote and influence decisions)
• Profits (your ability to receive dividends if declared)
• Value on exit (what you receive if the company is sold or wound up)

Share classes come into play when a company issues more than one “type” of share, where each type has different rights attached. For example, one class might carry voting rights and another might not. Or one class might get paid first if the company is sold.

Think of it this way: if shares are “units” of ownership, then share classes are different categories of ownership - designed for different people and different business goals.

In New Zealand, share structures are governed largely by the Companies Act 1993, plus your company’s own internal rules (usually your constitution and shareholder arrangements). The Act sets the framework, but your documents determine the detail.

What Rights Can Be Attached To Different Share Classes?

Before we get into the common types, it helps to understand the usual “rights menu” you can mix and match when creating share classes.

Voting Rights

Voting rights determine who gets a say in key decisions - like appointing directors, approving major transactions, or changing the company’s constitution. A share class might have:

• 1 vote per share
• multiple votes per share (e.g. “super voting”)
• no voting rights at all

Dividend Rights

Dividend rights determine who can receive distributions of profit (if the directors decide to pay dividends and the company meets solvency requirements). A class might have:

• equal rights to dividends with other classes
• a fixed or preferred dividend amount
• no dividend entitlement

Rights On Sale Or Liquidation

If the company is sold, wound up, or otherwise returns value to shareholders, share classes can control “who gets paid first” and “how much”. This is where preference shares and investor-style arrangements often matter most.

Conversion Or Redemption Rights

Some share classes can be structured so they:

• convert into another class in certain circumstances (e.g. on an IPO or sale)
• can be bought back or redeemed by the company under agreed conditions

Because these rights can have major implications for control and value, it’s worth getting your structure properly documented from day one - especially if you’re planning to raise money, bring in partners, or scale quickly.

Common Types Of Shares And Share Classes In New Zealand Companies

There’s no single “correct” share structure for every NZ business. Many small companies start simple, with just one class of ordinary shares. As the business grows, share classes may be introduced to reflect different roles (founders, investors, key staff) and different risk profiles.

Ordinary Shares

Ordinary shares are the most common share type in New Zealand. They usually carry:

• voting rights (often 1 vote per share)
• rights to dividends (if declared)
• rights to share in surplus assets if the company is wound up

For many owner-operated companies, a single class of ordinary shares is enough - particularly where the owners are the same people managing the business day-to-day.

Non-Voting Shares

Non-voting shares are often used when you want someone to have an economic interest in the company (e.g. receive dividends or benefit from growth) without having control over decisions.

This can be useful in situations like:

• bringing in passive investors who don’t need a say in operations
• allocating shares to family members for succession planning (where appropriate)
• creating staff equity incentives without changing voting dynamics

Note: if you’re considering any structure for tax outcomes, make sure you get advice from a qualified New Zealand tax advisor - tax consequences are highly fact-specific, and this article isn’t tax advice.

Non-voting shares can reduce the risk of “too many cooks in the kitchen”, but you still need to ensure the rights are clearly defined to avoid disputes later.

Preference Shares

Preference shares are commonly used in investment scenarios. They can be designed so that preference shareholders receive certain benefits ahead of ordinary shareholders, such as:

• priority payment on a sale or liquidation (a “liquidation preference” concept)
• a preferred dividend amount (if dividends are paid)
• special consent rights over certain decisions

Preference share terms can get complex fast. If you’re negotiating with investors, the “headline” valuation is only one part of the story - the share class rights can materially change who gets what, and when.

Redeemable Shares (Or Shares Subject To Buyback)

Sometimes shares are structured so they can be redeemed or bought back by the company in specific circumstances - but this needs to be done in a way that’s permitted by the Companies Act 1993 and your company’s documents (and it must meet solvency requirements at the relevant time).

This may arise when:

• a shareholder exits and you want the company to repurchase their shares
• you’re implementing an employee equity arrangement with an “exit mechanism”
• you want to tidy up ownership as the company matures

If you’re exploring this path, having the right documents matters - a tailored Share buyback agreement can help set out process, pricing, timing, and protections.

Founder Shares / Investor Shares (By Another Name)

You’ll often hear people refer to “founder shares” or “investor shares”. In practice, these are usually just different share classes with tailored rights.

For example, founders might hold ordinary shares with voting control, while investors receive a preference class with downside protection on exit.

There’s no one-size-fits-all wording here - what matters is that the class rights align with the commercial deal and are properly recorded.

Why Would A Small Business Use Different Share Classes?

When you’re busy running a business, it’s tempting to keep your cap table simple. And often, that’s the right move early on.

But there are several common situations where creating (or restructuring) share classes can make your company easier to fund, easier to manage, and less likely to end up in a shareholder dispute.

1. Bringing In Investors Without Giving Up Control

If you want capital but you’re not ready to give investors voting control, a separate class of non-voting or limited-voting shares can be a solution.

Just be careful: investors may still request “protective provisions” (i.e. certain decisions require their consent). Those protections can be implemented via share class rights and/or shareholder agreements.

2. Rewarding Key People (Without Creating Governance Chaos)

Equity incentives can be powerful, especially when cashflow is tight and you’re trying to attract top talent.

Rather than issuing ordinary voting shares to staff (which can complicate decision-making), companies sometimes use a different class, or implement vesting conditions so shares are earned over time.

This is where a properly drafted Share vesting agreement can be a game-changer - it helps align incentives while protecting the business if someone leaves early.

3. Protecting Founders If Someone Leaves

One of the biggest “pain points” we see is when co-founders split - and the company didn’t plan for it upfront.

Different share classes can help, but more often the real protection comes from having clear rules about transfers, valuation, and exit rights documented from the start (we’ll cover this below).

4. Planning For A Sale Or Succession

Share classes can influence how sale proceeds are distributed, and who has the power to approve a sale.

If you’re building your company with a future sale in mind, it’s worth thinking early about:

• who needs to approve an exit
• how proceeds would be split
• whether certain shareholders should be paid first

5. Keeping Things Clean For Compliance And Record-Keeping

Even in a small business, having a clear, well-documented structure can reduce friction with:

• banks and funders
• potential buyers
• new investors
• your accountant and advisors

The “admin” side might not be glamorous, but it’s often what makes growth and fundraising smoother later.

How Do You Create Or Change Share Classes In A New Zealand Company?

Creating share classes isn’t just a matter of saying “these shares are different now”. You need to make sure the company has the legal power to issue different classes, and that the rights are properly recorded.

Exactly what steps are required will depend on your company’s current structure and documents - but generally, here’s what’s involved.

Check Whether Your Company Has A Constitution

In New Zealand, a company may or may not have a constitution. If you do, it often sets out rules about shares and share classes, issue procedures, and transfer restrictions.

If you’re relying on a constitution (or need to adopt one), having a properly drafted Company Constitution can help ensure the share class rights and processes are clearly set out - and consistent with the Companies Act 1993.

Decide What Rights Attach To Each Share Class

This is the commercial design stage. You’ll want to get really clear on questions like:

• Which class has voting rights (and how many votes)?
• How will dividends work, if any?
• What happens on a sale of the business?
• Can shares be converted, redeemed, or bought back?
• Do certain shareholders get veto rights over major decisions?

It’s also important to pressure-test your plan with “future scenarios”. For example: if you raise money twice, will the structure still work? If you sell only part of the business, is the outcome fair and predictable?

Pass The Right Company Resolutions

Changes to share structure often require formal approvals - for example, directors’ resolutions, and in some cases shareholders’ resolutions as well.

Also, if you’re varying the rights attached to an existing share class, the Companies Act 1993 can require approval from the affected class (often referred to as an “interest group” or class approval), in addition to any other approvals your constitution or shareholder arrangements require. This is a common area where companies accidentally miss a required step.

Keeping good governance records matters (and it’s something buyers and investors often check during due diligence). A Directors resolution template can help you understand what those internal approvals typically look like, though you’ll still want the wording tailored to your situation.

Update Company Records And The Share Register

Whenever shares are issued, transferred, redeemed, or bought back, the company must keep proper records - including maintaining an up-to-date share register.

If share transfers are part of the restructure, make sure you’re also handling the transaction correctly. The process and documentation can matter a lot (especially when pricing, payment timing, and shareholder consents are involved), so it’s worth understanding How to transfer shares in a way that protects the company and the people involved.

Be Careful About “Accidental” Promises

One common risk is agreeing to something in principle (“you’ll get 10% of the business” or “you’ll be treated like an investor”) without documenting what that really means.

If the rights aren’t clearly recorded, you can end up with:

• disputes about voting power
• disputes about dividend entitlements
• confusion over what happens if someone leaves
• major headaches during fundraising or sale negotiations

Getting the structure right early is one of the easiest ways to avoid those problems.

What Legal Documents Should Support Your Share Classes?

Share classes are only as good as the documents backing them up. For small businesses, the biggest problems usually happen when expectations aren’t aligned - or when the paperwork doesn’t match what the founders “thought” they agreed to.

Here are the key documents that often come up when you’re setting up or managing share classes in New Zealand.

A Shareholders Agreement

A constitution sets internal company rules, but a shareholders agreement usually goes further by dealing with “relationship issues” between shareholders - especially around exits, disputes, and decision-making.

For example, a strong Shareholders Agreement often covers:

• how shares can be transferred (and when they can’t)
• what happens if a shareholder wants to leave
• how shares are valued on exit
• deadlock processes (what happens if owners can’t agree)
• rules around raising capital and issuing new shares
• drag-along/tag-along rights in a business sale

Even if you have multiple share classes, you’ll usually still want a shareholders agreement to make sure the “real-world” scenarios are dealt with clearly.

Share Issue And Share Transfer Documents

Whenever you’re issuing shares, admitting a new shareholder, or reshuffling ownership, you’ll generally need properly prepared issue/transfer documentation and updated company records.

If you’re doing something broader (like bringing in a new owner or changing the ownership mix as part of a restructure), it’s worth thinking about the bigger picture of Changing company ownership, because it can affect control, tax, governance, and future saleability.

Employee Equity And Vesting Documents (If Applicable)

If you’re offering equity to staff or contractors, don’t rely on a handshake deal.

Vesting documents can help ensure that equity is earned over time and aligns with performance or retention milestones. As mentioned earlier, a Share vesting agreement is often used to set clear rules around what happens if someone leaves early, is terminated, or doesn’t meet milestones.

Company Governance Records

Even small companies should keep good governance hygiene. That means recording key decisions properly, including share issues, buybacks, and changes to rights.

This isn’t just about “doing it properly” - it’s also about protecting you if there’s ever a disagreement about what was approved and when.

A Quick Note On Getting Tailored Advice

There’s a lot of flexibility in how you can design share classes in NZ companies - which is great, but it also means small drafting mistakes can have outsized consequences.

If you’re negotiating with investors, issuing equity to staff, or restructuring ownership (including any buyback or redemption mechanics), it’s worth getting advice specific to your business and your goals. It’s usually much cheaper to set it up correctly now than to fix it later after a dispute (or right before a funding round or sale).

Key Takeaways

• Share classes let you create different “types” of shares with different rights - commonly around voting, dividends, and payouts on a sale or liquidation.
• Many NZ small businesses start with one class of ordinary shares, but introduce new share classes when raising investment, rewarding key people, or planning for growth.
• Common share classes include ordinary shares, non-voting shares, and preference shares, each suited to different commercial goals.
• Changing or creating share classes usually requires the right internal approvals, proper records (including the share register), and documents that clearly set out the rights attached to each class - and if you’re varying class rights, you may also need approval from the affected class/interest group.
• A well-drafted constitution and shareholders agreement can prevent misunderstandings and reduce the risk of expensive disputes later.
• If you’re issuing equity to staff, consider vesting so ownership is earned over time and your business is protected if someone leaves early.

If you’d like help setting up share classes, restructuring ownership, or putting the right documents in place, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.