Shares In New Zealand: What Startups Need To Know

If you’re building a startup or growing a small business, you’ll probably hear the word “shares” early on - from investors, advisors, co-founders, or even your accountant.

And while shares can be a powerful way to fund growth and reward the people helping you build your business, they can also create serious headaches if you issue them without a plan.

This guide breaks down how shares work in New Zealand, what they usually mean for ownership and control, and the key legal decisions you’ll want to make before you start handing out equity. It’s general information only (not legal, tax or financial advice) - and it’s worth getting tailored advice for your specific situation.

What Are Shares (And Why Do They Matter For Your Business)?

In plain English, shares are units of ownership in a company.

If your business is a registered company (usually a limited liability company), the company can be owned by one person or many people. Each owner is a shareholder, and their ownership is measured by the number (and type) of shares they hold.

Shares matter because they usually affect things like:

• Control: who gets to vote on major decisions (like appointing directors or approving certain transactions).
• Money: who may receive dividends (if the company pays them) and who gets paid if the company is sold.
• Risk and expectations: what happens if someone leaves, stops contributing, or there’s a dispute.
• Growth: whether you can raise capital and bring in investors without losing control of your business.

It’s also worth clearing up a common misconception: shares are not just a “paperwork thing”. If you issue shares to someone, you’re usually giving them real legal rights in your company.

That’s why it’s so important to get the structure right from day one.

Do I Need To Be A Company To Issue Shares?

Generally, yes. In New Zealand, shares are a company concept.

If you’re operating as a sole trader or partnership, you don’t issue shares - the ownership structure works differently.

So if you want to bring in investors, split equity between founders, or create an employee equity plan, one of the first questions is whether you should operate through a company.

Companies Vs Other Business Structures

Here’s a simple way to think about it:

• Sole trader: you personally own the business. Simple, but you and the business are legally the same person.
• Partnership: two or more people own the business together. Useful in some cases, but it can be risky if the relationship breaks down without clear documents.
• Company: the business is a separate legal entity. Ownership is divided into shares, and control is typically managed through directors and shareholder decisions.

If your business is planning to scale, raise investment, or bring on co-founders, a company structure is often the most flexible option.

Once you’re set up as a company, your internal rules can be supported by a Company Constitution (or you might rely on the default rules under the Companies Act).

One important point: casual promises like “you’ll get 10% of the business” can create real misunderstandings if they’re not documented properly. Share issues and transfers should be handled through the proper company process and records - otherwise you risk disputes, compliance issues, and unexpected tax outcomes later.

How Do Shares Work In Practice (Ownership, Voting, And Profits)?

When you issue shares, you’re setting up three big building blocks in your company:

• Who owns what (ownership percentages)
• Who controls what (voting power and decision-making)
• Who gets what financially (profits and sale proceeds)

These don’t always line up perfectly - especially if you introduce different classes of shares or special rights. But for many small businesses, they’re closely linked.

Ownership Percentage

Ownership percentage is typically calculated based on the number of shares held compared to the total shares on issue.

For example:

• Founder A holds 70 shares
• Founder B holds 30 shares
• Total shares = 100

Founder A owns 70% and Founder B owns 30%.

This becomes important when:

• you’re raising investment (new shares can dilute existing shareholders)
• you’re selling the business (sale proceeds are often distributed based on ownership)
• you’re trying to make strategic decisions (majority owners often have more control)

Voting Rights

Many shares come with voting rights. This means shareholders can vote on certain matters - for example, approving major transactions or appointing directors.

However, not every decision is made by shareholders day-to-day. Companies are typically managed by directors, and directors have legal duties (including duties to act in the best interests of the company).

If you’re bringing in co-founders or outside investors, it’s worth being really clear on:

• what decisions require shareholder approval
• what decisions directors can make without shareholder input
• what happens if there’s a deadlock (e.g. 50/50 ownership)

Dividends And Profit Sharing

A common question is: “If someone has shares, do they automatically get paid?”

Not necessarily.

Shareholders may receive dividends if the company declares them - but many startups don’t pay dividends, especially in early years. Profits are often reinvested into growth.

So if you’re issuing shares to a co-founder or early contributor, make sure you’re aligned on expectations. Otherwise, you might find yourself having awkward conversations later when someone expects a “shareholder payout” that was never actually part of the plan.

Issuing Shares: The Big Decisions To Make Before You Hand Out Equity

Issuing shares can feel like a quick way to seal a deal - “Let’s just split it 50/50” or “We’ll give them 5%.”

But shares affect the long-term future of your business, so it’s worth stepping back and getting your legal foundations right.

1) How Many Shares Will The Company Have?

There’s no one “correct” number of shares for a company to have. What matters is that the structure makes sense for your business and future plans.

Some businesses start with a small number (e.g. 100 shares) because it’s easy to understand. Others use a larger number to make future allocations simpler.

The bigger issue is this: once shares exist, changes can have flow-on effects for voting, dilution, and shareholder rights. It’s best to set this up strategically from the start.

2) Who Will Own Shares (Founders, Investors, Family, Contractors)?

Think carefully before you issue shares to anyone who isn’t genuinely part of your long-term ownership plan.

For example:

• Issuing shares to a contractor as “payment” can get complicated quickly, especially if they leave or the relationship ends (and there can also be tax considerations to work through).
• Issuing shares to friends/family investors without clear documents can create pressure and confusion later (and may raise “offer” and disclosure issues depending on how you raise funds).
• Issuing shares early without vesting can mean someone keeps a large stake even if they stop contributing.

If you want to reward someone, there may be alternatives (like bonuses, commission structures, or service agreements) that don’t permanently change the ownership of your business.

3) Will Shares Vest Over Time?

Vesting is a common way to protect the business if someone leaves early. Instead of giving someone all their shares upfront, their entitlement can “vest” gradually over time (or based on milestones).

This can be documented in a Share Vesting Agreement.

Vesting can be especially helpful for:

• co-founders (so equity reflects actual long-term contribution)
• key early hires (if you’re creating an incentive plan)
• advisor arrangements (where value is delivered over time)

Exactly how vesting should work depends on your team, your industry, and your growth plan - and it can also have tax implications - so it’s worth getting tailored advice.

4) Do You Need Different Classes Of Shares?

Some companies keep it simple and only issue one class of ordinary shares.

Others create different classes, for example:

• shares with different voting rights
• shares with different rights to dividends
• shares with different rights on a sale (priority returns)

This is where things can get technical, and it’s one of the areas where using a generic template can cause real problems. If you’re thinking about bringing in investors and offering special rights, you’ll usually want lawyer help to make sure your documents align.

5) What Happens If Someone Wants To Leave Or Sell Their Shares?

This is the part that founders often don’t think about early - until it becomes urgent.

Imagine this:

• You’ve built your business for 3 years.
• A co-founder leaves.
• They still own 40% of the company.
• They want to sell their shares to someone you’ve never met (or worse, a competitor).

Without clear rules, you can end up stuck with an ex-founder as a shareholder, or forced into messy negotiations.

This is exactly why many startups put a Shareholders Agreement in place. It can set out things like:

• how shares can be transferred
• rights of first refusal (existing shareholders get first chance to buy)
• what happens if someone leaves (good leaver / bad leaver rules)
• how deadlocks are resolved
• how big decisions are made

The earlier you address this, the easier it usually is - because everyone is aligned and optimistic at the start.

Common Share Mistakes Startups Make (And How To Avoid Them)

Shares can be a growth tool, but they’re also one of the easiest ways for a startup to accidentally build in conflict.

Here are some common mistakes we see.

Issuing Shares Without Any Written Agreement

If you have multiple shareholders, you want more than just “we agreed over coffee.”

Even if everyone is getting along now, your business will (hopefully) evolve - people’s circumstances change, investors come in, and sometimes relationships break down.

A properly drafted Shareholders Agreement helps turn expectations into enforceable rules.

Splitting Shares 50/50 Without A Deadlock Plan

A 50/50 split can sound “fair” at the beginning - but it can also create deadlocks where neither founder can make a decision without the other.

If you do go 50/50, make sure you have a clear deadlock mechanism and decision-making process in writing.

Giving Away Too Much Equity Too Early

Early-stage founders sometimes give away large chunks of the company to secure help, introductions, or short-term work.

The risk is you end up diluted before you’ve even raised proper investment, and you might struggle to attract future investors if too much equity is already allocated.

As a rule of thumb: treat shares like a long-term asset, not a quick fix.

Not Matching Shares With The Right Legal Documents

Shares don’t sit in isolation. They interact with:

• your company’s internal governance documents (like a Company Constitution)
• agreements between shareholders
• any employee incentive arrangements
• your overall business structure and compliance settings

If these documents don’t align, you can end up with conflicting rules or unclear obligations.

What Legal Documents Do I Need When Dealing With Shares?

When you’re dealing with shares, the “right” documents depend on what you’re trying to do - for example, setting up with co-founders, raising capital, or restructuring ownership.

That said, these are some common documents and why they matter.

Shareholders Agreement

A Shareholders Agreement is one of the most important documents for a company with more than one owner.

It can cover the real-world issues that come up in growing businesses, like decision-making, exits, funding rounds, transfers, dispute resolution, and confidentiality.

Company Constitution

A Company Constitution sets internal rules for the company and can work alongside a shareholders agreement.

Some businesses rely on default legal rules, but having a tailored constitution can help where you need specific rules for share issues, transfers, and governance.

Share Sale Documentation

If someone is buying or selling shares (instead of buying business assets), you’ll typically need a written share sale arrangement to reflect the commercial deal and protect everyone involved.

For example, a Share Sale Agreement can help document the price, completion steps, warranties, and what happens if something goes wrong.

Share Vesting Agreement

If equity is earned over time, a Share Vesting Agreement can set out when shares vest, what happens if someone leaves, and what “good leaver / bad leaver” means in your business.

Employment And Contractor Documents (If Equity Is Part Of The Deal)

Sometimes shares are offered as part of an overall package for a key hire or contractor. If that’s the case, make sure your underlying engagement terms are also properly documented. You’ll also want to get tax advice early, because “equity as part of remuneration” can be treated differently from ordinary salary/wages.

For employees, that usually means having an Employment Contract in place that aligns with what you’re promising (and what you’re not promising).

And if you’re collecting shareholder or employee personal information as part of your records and onboarding, it’s also smart to make sure your privacy compliance is sorted - including having a Privacy Policy where relevant.

It can feel like a lot, but the goal is simple: you want your shares, governance rules, and commercial arrangements to all point in the same direction.

Key Takeaways

• Shares are units of ownership in a company, and they usually affect control (voting), money (dividends/sale proceeds), and long-term decision-making.
• If you want to issue shares, you’ll generally need to operate through a company structure, not as a sole trader or partnership.
• Before issuing shares, it’s important to decide on the share structure, whether shares will vest, and what happens if a shareholder wants to leave or sell.
• A 50/50 split can create decision-making deadlocks, so it’s worth building a clear process for resolving disputes into your documents.
• A tailored Shareholders Agreement and Company Constitution can help protect your business and reduce the risk of messy disputes as you grow.
• If you’re transferring ownership, documents like a Share Sale Agreement help ensure the commercial deal matches what happens legally.
• If you’re raising funds or issuing shares to people outside the founding team, it’s also important to consider whether any NZ financial markets/securities law obligations apply, and to get tax advice on any equity arrangements.
• Because shares create real legal rights, it’s usually not the place for DIY templates - getting advice early can save you major headaches later.

If you’d like help setting up your shares, structuring equity for co-founders or investors, or putting the right agreements in place, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.