What Are Preference Shares?

If you’re a startup looking to raise capital in New Zealand, you might be considering the issuance of preference shares.

But what exactly are preference shares in the New Zealand context?

While some might think that preference shares have rigid characteristics defined by law, the reality is they offer flexibility to tailor preferences to your specific needs.

Investors in New Zealand startups often seek preference shares, so it’s crucial to grasp their implications.

By understanding preference shares under New Zealand law, you’ll be better equipped to negotiate your capital raise and secure favourable terms.

What Do Preference Shares Offer Potential Investors in New Zealand?

The adaptable nature of preference shares in New Zealand can be a significant draw for investors.

Given the inherent risks of investing in a startup, New Zealand investors may seek preference shares to safeguard their investment.

As a startup, it’s essential to understand the various types of preference shares available so you can make informed decisions about what to offer.

Types Of Preference Shares in New Zealand

Convertible/ Non-Convertible	Convertible preference shares allow shareholders to convert their shares into ordinary shares at a predetermined rate after a specific date. Non-convertible preference shares remain as preference shares without the option to convert.
Cumulative/ Non-Cumulative	Cumulative preference shares ensure that shareholders can accumulate unpaid dividends to be paid out in the future. Non-cumulative preference shares do not offer this carry-over of dividend rights.
Participating/ Non-participating	Participating preference shares provide shareholders with the right to additional earnings or assets beyond the fixed dividends, including during liquidation. Non-participating preference shares do not have this entitlement.
Redeemable/ Non-redeemable	Redeemable preference shares can be repurchased by the company at a future date, while non-redeemable shares cannot be bought back in this manner.

What Does It Mean To Be A Preference Shareholder in New Zealand?

In the event of a company going into liquidation in New Zealand, preference shareholders have a higher claim on assets than ordinary shareholders.

This prioritisation means they are more likely to recoup their investment before ordinary shareholders.

However, all company debts must be settled before any shareholder distributions are made.

What Should I Consider When Issuing Preference Shares in New Zealand?

The flexibility of preference shares can be particularly appealing to investors in New Zealand, as they often provide more financial security than ordinary shares.

Given the risks associated with startup investments, New Zealand investors may prefer or insist on preference shares.

Depending on your negotiation leverage, you may need to consider offering preference shares to attract investment.

Key Takeaways

Issuing preference shares can mitigate the investment risk for those buying into your company in New Zealand.

They offer a less volatile option than ordinary shares and can provide more predictable dividends for investors.

If you’re uncertain about how to proceed with issuing preference shares or have questions about the options available in New Zealand, don’t hesitate to contact us on 0800 002 184. We’re here to assist!

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