The Ins and Outs of Shareholders Agreements and Company Constitutions (2025 Updated)

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So you’ve just set up a company and might now be wondering: what’s next?

You may have heard advice that you need both a Shareholders Agreement and a Company Constitution.

These are the key foundational documents you’ll need when setting up a company – so you’re on the right track!

However, like many founders and business owners, you might be confused about what they are and how they differ.

There are many types of companies but, put simply, there are the shareholders who own the company, and the directors who manage the day-to-day affairs of the business.

Since a company is made up of various people and roles, it is crucial to put the appropriate legal documents in place to address:

The rights and responsibilities of shareholders and directors
Rules on running the company (including meetings and special decisions)
The holding and transferring of shares
Processes for resolving disputes

Which documents are appropriate depends on how your company is structured, the shareholding arrangement, board composition, and the specific risks associated with your business.

This article will discuss Company Constitutions and Shareholders Agreements – examining their purpose, their differences, and whether you need one or both for your company in 2025.

What Are They And How Are They Different?

A Company Constitution is a formal set of ground rules for how the company will be run, including the directors’ powers and duties, procedures for holding meetings, and voting processes.

Meanwhile, a Shareholders Agreement usually sets out more specific and detailed rules concerning the relationships among shareholders and directors, and how the company’s capital can be held, valued, and transferred.

And that’s the basic distinction.

Legal practice typically sees Constitutions as providing general governance, while Shareholders Agreements cover more specific issues. There can be some overlap between the two – which is where much of the confusion originates!

For example, while a Constitution may include general rules around issuing and transferring shares, a Shareholders Agreement can complement this with additional provisions such as:

Methods for valuing shares
“Drag-along” and “tag-along” rights
Provisions regarding events of default
Share vesting arrangements

If you have both a Company Constitution and a Shareholders Agreement, they must be drafted carefully to minimise overlap and ensure consistency throughout. For further guidance, our Legal Requirements for Starting a Business guide offers additional insights.

So that’s how a Company Constitution and a Shareholders Agreement are distinct from one another.

But, just how important is it to have each document in place?

Company Constitutions

Why Should I Have A Constitution?

A Company Constitution is a formal and broad document that governs how your company is managed. Even though the Companies Act 1993 – as amended through to 2025 – sets out some basic rules, a Constitution enables you to cater for more specific scenarios that are unique to your business.

Having robust processes formally set out in writing can be invaluable in keeping your company on track and reducing disputes among directors and shareholders.

How Do I Get A Company Constitution?

If you don’t yet have a Constitution – don’t worry! When you incorporate your company, most incorporation providers will supply a standard Constitution.

Even if you choose not to adopt one immediately, the Companies Office provides model constitutions that will serve as your Constitution. They’re called ‘model’ constitutions because you can replace them with a customised version if needed.

If you are unsure of your requirements, it might be wise to seek advice from one of our expert lawyers who specialise in company formation.

What’s Usually Included In A Constitution?

A well-drafted Constitution typically covers the following aspects:

Powers and duties of directors
Mechanisms for issuing and transferring shares
Procedures for holding annual general meetings
Voting methods on key decisions
Authorisation for the company to enter into contracts

If you’re curious for more information on what to include, reviewing the current model constitutions can be a useful guide. These points are similar, yet distinct, to the details you’d expect in a Shareholders Agreement.

Shareholders Agreements

Why Should I Have a Shareholders Agreement?

Whenever you have two or more shareholders in your company, it is prudent to establish a Shareholders Agreement to safeguard everyone’s interests. This document defines how control of the company will be shared between shareholders and directors.

While the early stages of your business may appear clear-cut, unexpected issues can arise later. A Shareholders Agreement ensures that pre-agreed rules and processes are in place to manage these situations.

Additionally, potential shareholders will often require to see an agreement before investing in your company. Drafting a Shareholders Agreement from the outset ensures all parties are aligned and understand what they are signing up for. For more on this, check out our guide on Sole Trader vs Company.

What’s Usually Included In a Shareholders Agreement?

A Shareholders Agreement typically defines the relationships among the shareholders, the company, and its directors. It usually covers provisions such as:

The procedures for selling and issuing shares
The appointment and removal of directors
Requirements and special decisions that need shareholder approval
First rights of refusal in share transfers

Depending on how your company is structured, these details will be tailored to meet your business’s specific needs. A knowledgeable lawyer can draft a Shareholders Agreement that reflects your company’s interests and helps avoid future disputes. You might also find our Business Legals 101 Guide useful for deeper insights on legal documentation.

Can I Change a Constitution or Shareholders Agreement Later?

In short, yes – both documents can be updated as your business grows and circumstances change. For instance, if you transition to a new company structure or if legislative amendments require adjustments, you may need to update your Constitution.

Changing a Constitution can be somewhat complex, as it typically requires a “special resolution” which needs the approval of at least 75% of the shareholders. Similarly, if a new shareholder is joining, updating the Shareholders Agreement might be necessary, either through a Deed of Amendment signed by all parties or a Deed of Accession for the new shareholder.

What To Take Away…

In summary, while Company Constitutions and Shareholders Agreements are similar, they serve distinct roles as important legal documents:

Company Constitutions set out the general, high-level rules for the governance of the company, whereas Shareholders Agreements provide more specific provisions tailored to the needs of the shareholders.

Often, it is most efficient and cost-effective to rely on model rules or a template for your Constitution, while reserving more specific provisions for your Shareholders Agreement.

Ultimately, the decision on which documents to utilise depends on the size, structure, and particular needs of your company. A qualified lawyer can help determine the best approach for you, ensuring that your legal foundations are strong as you move forward in 2025 and beyond.

Talk to a Lawyer

If you’d like to discuss whether you need a Company Constitution, a Shareholders Agreement, or both, our friendly team of expert lawyers is here to help. We draft these legal documents every day and can provide tailored advice for your business.

You can reach us on 0800 002 184 or email us at [email protected]. For further reading on related legal documents, you might also explore our Start a Courier Company article, which covers additional aspects of setting up a business in New Zealand.

There may also be other documents you require – such as Terms and Conditions for your business and Employment Contracts. For a comprehensive overview of the legal essentials for new businesses, review our Business Legals 101 Guide or get in touch with us.

Remember, as your business evolves, keeping your legal documents up to date is not only a compliance matter but also a strategic move to safeguard your company’s future.

Regie Anne Gardoce

Regie is a lawyer at Sprintlaw, with a law degree from UNSW. Regie has previous experience working across law firms and tech startups, and has brought these passions together in her work at Sprintlaw.

Tomoyuki Hachigo

Tomo is the co-founder of Sprintlaw and a commercial lawyer with a broad range of legal experience. Before starting Sprintlaw, he was an M&A lawyer at a top-tier law firm advising businesses of all sizes from large corporates to startups.