How to transfer shares in a New Zealand company

By On Your Terms
May 2024

Whether your Kiwi company is taking on a new shareholder, one of your shareholders wants out, a shareholder dies or defaults under the shareholders’ agreement, or all the shares in your company are being sold, it’s critical to follow the correct process to ensure the shares are validly transferred. In this blog, we set out the key steps to correctly transfer shares and record the transaction.  

How to transfer shares – step-by-step

To ensure a seamless transition of share ownership, follow these steps to transfer shares in a privately owned New Zealand company:

1. Check the company’s constitution and shareholders’ agreement

Not all companies have a shareholders’ agreement or constitution (it’s not a legal requirement in New Zealand to have either document in place). If a company doesn’t have a constitution, the New Zealand Companies Act 1993 will apply to the company instead.

However, if the company does have either (or both) of these documents, you’ll need to check if they contain any restrictions on share transfers or any particular rules to be followed. Such rules or restrictions might include: 

• a requirement for director approval for certain types/values of transactions, including certain share transfers
• a requirement for shareholders to offer the shares to each other before they can offer them to a third party (known as pre-emptive rights)
• a requirement for all shareholders to sell where other shareholders are selling (known as drag-along rights)
• an option for other shareholders to join in where shares are being sold (known as tag-along rights)
• a requirement for shareholder consent or approval of the new shareholder

The shareholders’ agreement or constitution may also state that any such rules or restrictions can be overridden where agreed by a specified number of shareholders/directors, but the only way to find out is to read the documents – so take a look!

2. Prepare a share sale and purchase agreement

Documenting who the shares are being sold from and to, for what price, timing of payment, and any terms or conditions related to the sale (such as warranties given by the seller regarding the ownership of the shares, financial position of the company, its assets or operations, or whether directors appointed by the selling shareholder must resign) is important to prevent any misunderstandings and protect the interests of the seller and the buyer. While a share sale and purchase agreement is not compulsory, recording the agreement formally in writing is strongly recommended as it will clearly record the terms of the deal agreed between the seller and the buyer and also encourages discussions about aspects of the sale you may not have thought of, or may not realise you are not on the same page about. 

If the purchase price is significant, the buyer is not an existing shareholder or related to the seller, there are some unique terms, the sale is subject to the satisfaction of conditions (such as due diligence, finance, entering into a new shareholders’ agreement), or all of the shares in the company are being sold, documenting the deal in a sale and purchase agreement is a prudent investment.

3. Obtain any required consents

Under the NZ Companies Act 1993, on receipt of a signed share transfer form, the company must enter the name of the new shareholder on the share register unless the board of directors resolves to refuse or delay registration and the board is permitted to do this under the company’s constitution. For this reason, and because it is good governance practice, a proposed share transfer should be approved by resolution of the board of directors.           

If the company’s constitution or shareholders’ agreement states that shareholders’ consent (or waiver of shareholder ‘pre-emptive rights’) is required, you’ll need to obtain this consent.

Consent can either be obtained in a meeting of shareholders or directors (and recorded in the minutes) passed by the number of votes required under the company’s constitution (or shareholders’ agreement), or as a written resolution signed by the required number of directors or shareholders (the safest approach is to have all directors and shareholders sign).

Depending on the nature of the share transfer transaction (including the size of the shareholding being transferred), consent may also be required from third parties such as the landlord of the company’s premises, counterparties to key business contracts, or the Overseas Investment Office. Any such required consents, and the associated timing, will need to be detailed in the Sale and Purchase Agreement as a condition for the transaction completing.  Failure to obtain consent from a landlord or counterparty to a key business contract may allow the landlord to terminate the company’s lease or the customer/supplier to terminate the contract with the company. So it’s very important to check whether consent is required.

4. Complete the transaction and sign share transfer form

To complete the transaction, the buyer must pay the purchase price and perform any other obligations set out in the Sale and Purchase Agreement on (or before, where applicable) the completion date.  The seller will need to deliver the signed share transfer and all other consents and approvals required on the completion date.

The Companies Act 1993 requires a form of transfer to be signed by the seller and the buyer to be valid. There may also be other requirements stated in the company’s constitution or shareholders’ agreement. Your share transfer form will need to contain the details of the current shareholder, the new shareholder, the number and type of shares being transferred and the date of transfer.

5. Update share register and other records

Once the share transfer form is signed and the transfer of shares to the new shareholder (the buyer) is approved, the share register of the company must be updated to reflect the change in ownership. The new shareholder will be officially recorded as the owner of the transferred shares.

The New Zealand Companies Act 1993 requires all companies to keep an up-to-date share register, and it is an offence not to do so. Also, if you look to take on further investment in the future, your company will be much more appealing if it has all its records in order.

You will also need to update the company’s records held by the New Zealand Companies Office to include the new shareholding details.

If there is an existing shareholders’ agreement, the new shareholder will also need to sign a Deed of Accession to become bound by this agreement.

Key takeaways

If you’re transferring shares in a privately owned NZ company, you need to check for (any obtain) any required consents, document your transaction correctly, and update your share register. Following these steps will help to  prevent later misunderstandings or disputes and ensure the right shareholder has legal title to the shares.  

On Your Terms has Share Sale and Purchase Agreements, Share Transfers and Company Approvals,  Company Registers (including a Share Register), a Shareholders’ Agreement, Shareholders’ Agreement and Constitution bundle and a Deed of Accession to Shareholders’ Agreement available at a great price.

On Your Terms makes business legals easy for Kiwi SMEs. We help businesses gain peace of mind through our simple online process for purchasing customised, affordable legal documents and tools. By combining human legal expertise with the speed and convenience of technology we offer a new way to legal, including free information, legal resources, and connections with NZ lawyers.