Is my New Zealand business ready for investors?

By On Your Terms co-founder Claire Bodle
September 2024

What legal areas will an investor look at?

Before making an investment decision, investors typically conduct due diligence to assess a business’ risks and opportunities. Due diligence involves examining and assessing a business’ records, documents, processes, practices, structure, leadership and personnel. For example, an investor will want to see your business plans, financial statements, projections and legal documents to assess the current financial position of your company, where it’s heading and whether any issues are likely to come up in the future.

Below are some key legal areas investors commonly look at when evaluating a potential investment opportunity in a New Zealand company.

Corporate Structure and Governance

An investor will want to see the ownership and management structure of your business, including details of shareholdings and directorships. In addition to documentation outlining the roles and responsibilities of these key stakeholders, you will also need to show:

• A share register showing current and past shareholdings in your company
• Share transfer documentation (ie, sale and purchase agreements and share transfers) showing any transfers of shares from one party to another
• Board and/or shareholder approvals of any new shares issued or other company actions which require sign-off
• Correct documentation appointing directors (ie, either detailed in the shareholders’ agreement or a shareholders' resolution appointing director)
• Any director indemnity documentation (ie, an indemnity the company provides the directors in case of claims against the directors)

Intellectual Property Protection

You may be asked to provide evidence that any valuable intellectual property assets such as copyright, patents or trademarks are adequately protected. This might include:

• Product or service supply agreements or licence arrangements with your customers clearly detailing any IP ownership or use rights
• Registered trademarks for your business name and branding
• Registered patents for any original inventions
• Copyright notices on written material or other original work
• Employment and independent contractor agreements showing your business has retained all appropriate IP rights
• Licence agreements showing you have appropriate use rights for any IP you licence from another party

See further details on protecting your intellectual property rights in our Guide to Intellectual Property in NZ.

Shareholder rights

Potential investors in a company will want to review the shareholders’ agreement to understand what rights and obligations they would take on as a shareholder, as well as the structure of decision-making, how new shares may be issued, and profit distribution within the company. A shareholders’ agreement outlines key provisions such as voting rights, dividend policies, exit strategies, and dispute resolution procedures which are critical for assessing the potential security and return on an investor’s investment.

Agreements with Staff

If you have staff, you’ll also need to provide copies of your employment and/or independent contractor agreements. These will need to demonstrate that your business is compliant with all relevant employment laws in respect of any company employees. Where any key staff are engaged as contractors, the terms of those contracts will be of particular interest (eg, remaining length of contract term, notice periods, pay, any restraints of trade).

Contracts with key suppliers and contractors

If you have a key supplier that would be hard to replace, an investor will want to know that the business relationship isn’t likely to be disrupted. Likewise, if a few key clients generate a large amount of your revenue, they’ll want evidence these clients are sticking around. Longer term contracts, with reasonable, balanced terms (including in respect of rate review rights)  will therefore be viewed favourably.

If you lease equipment to customers, or provide products on credit , investors will also be keen to see documentation clearly setting out your rights over those goods (ie a registered security interest).  

Property

If you have a shop, office or warehousing space that is key to your business, an investor will want reassurance that you aren’t about to lose your access rights. If you do have a lease approaching its end date, they’ll be taking a look at your renewal rights and any potential for rent increases.  

Regulatory Compliance

Compliance with both industry-specific accreditations or licences, and general NZ company and consumer laws, is another aspect investors check for to have confidence in the business.  

Laws you’ll need to show compliance with include:

• Companies Act 1993 - if your business is a registered company
• Consumer Guarantees Act 1993 - if your business provides goods or services to individuals for household use
• Privacy Act 2020 – where you collect any customer personal information
• Fair Trading Act 1986 – in relation to any advertising you do
• Unsolicited Electronic Messages Act 2007 – which restricts sending ‘spam’

To check compliance, investors might look to see that all company transactions have been correctly approved, or that you follow the correct processes for any faulty product returns. Privacy obligations require a business to inform customers how it collects, uses, stores and shares their personal information, and to have processes and practices in place to ensure it follows through. Investors will want to see that you make a privacy policy available to customers and evidence that you’ve implemented data protection measures.

For more information on New Zealand consumer laws, see our Guide to Consumer Law in New Zealand.

How do I provide my business documents to investors?

A great way to make all your business information available to potential investors is to set up a ‘data room’, where you store your information and documents online and allow potential investors to access it.

The more you organise your information into a system that is easy for investors to search, the smoother (and faster) the process will be. No matter how much a potential investor loves your product or service, if they see that you haven’t protected your IP rights, don’t have commitments from key customers in the form of signed contracts, or don’t have rules in place between shareholders – they are likely to lack the confidence in your business to invest.

Key points

Having your contracts, rules, registrations and compliance practices in place will give a potential investor confidence to provide funding for your business. By getting this all set up from the start of your business journey, you’ll prevent delays when it’s time to explore funding opportunities.