Different Share Classes In New Zealand

If you’re building a startup or growing an SME, raising capital (or bringing in a co-founder) often means issuing shares.

But here’s the part many business owners don’t realise until they’re already negotiating with an investor: not all shares have to be the same.

In fact, using different share classes in New Zealand can be one of the most practical ways to balance control, reward, and investment risk - as long as you set it up properly from day one.

This guide breaks down what share classes are, why they matter, common types you’ll see in New Zealand companies, and how to document them so they actually work when it counts.

What Are “Different Classes Of Shares” In New Zealand (And Why Would You Use Them)?

A “class of shares” is essentially a category of shares that comes with a specific bundle of rights and obligations.

In a simple company, everyone might hold “ordinary shares” with the same rights. But as soon as you want to treat different shareholders differently (for example, founders vs investors, or employees vs early supporters), you may need different share classes.

For many founders, different share classes aren’t about making things complicated - they’re about making the deal clear.

What Rights Can Be Different Between Share Classes?

Depending on how your company is structured, share classes can differ on rights like:

• Voting rights (e.g. one vote per share, no votes, or extra votes)
• Dividend rights (e.g. entitled to dividends first, or a fixed percentage)
• Capital return rights if the company is sold or wound up (e.g. investors get their money back first)
• Conversion rights (e.g. preference shares converting to ordinary shares later)
• Transfer restrictions (e.g. some shares can’t be sold without approvals)
• Redemption rights (e.g. shares can be redeemed in certain situations, if your documents allow it and the legal steps are followed)

These rights are usually set out in your company’s governing documents - and if they aren’t properly documented, you can end up with “handshake deal” expectations that don’t hold up when there’s pressure (like a funding round, dispute, or sale).

Why Startups And SMEs Use Different Share Classes

Here are a few common scenarios where different share classes in New Zealand are useful:

• Raising investment while keeping founder control (for example, investors get economic protections without controlling votes)
• Rewarding early team members without giving away too much decision-making power
• Bringing in strategic partners who contribute value but shouldn’t influence day-to-day direction
• Managing risk for investors by offering preference-style rights
• Preparing for future rounds by having a structure that can scale

Done well, share classes can help your company grow faster because everyone understands the rules and the upside.

How Share Classes Work Under New Zealand Company Law

In New Zealand, companies are governed primarily by the Companies Act 1993, and the details of how shares work in your company will depend on:

• your company’s constitution (if you have one)
• the terms of issue for the shares (what rights attach to them)
• any shareholder agreements between owners
• the share register and related company resolutions

This is why it’s important to think of share classes as both a legal structure and a documentation exercise.

Do You Need A Constitution To Have Different Share Classes?

Not always - but in practice, a constitution is often the cleanest way to set out different share class rights (and avoid ambiguity).

In many cases, you can issue shares with different rights by clearly setting the rights out in the terms of issue. However, certain features (like redemption) commonly need to be expressly permitted in the constitution, and investors will usually expect the constitution to reflect the agreed class rights so they’re clear and enforceable.

If you’re planning to create multiple classes of shares - especially where voting, dividends, or exit rights differ - it’s worth considering a tailored Company Constitution so the rules are clearly set out and consistent with how you actually want the business to run.

It’s also common (especially for startups with multiple founders or investors) to put key commercial arrangements in a Shareholders Agreement, like who can issue new shares, what happens if someone leaves, and how a sale of the business is handled.

Can You Just “Agree” On Different Rights Informally?

This is where people often get caught out.

You and your investor might agree that their shares are “non-voting” or that they’ll “get their money back first”, but unless those rights are properly attached to the shares and reflected in the right documents, you may not have an enforceable structure.

It’s also important to keep in mind that altering or cancelling rights attached to a share class can trigger specific approval requirements under the Companies Act (including shareholder approval and, in some cases, approval from the affected class as well).

That’s why getting the setup right early can save you expensive rework later - particularly if you’re heading into due diligence for a funding round or sale.

Common Different Classes Of Shares In New Zealand (With Practical Examples)

There’s no single “correct” set of share classes. What makes sense depends on your goals, your capital plan, and your risk profile.

That said, here are some common share classes you’ll come across in New Zealand startups and SMEs.

1. Ordinary Shares

Ordinary shares are the standard share type in many companies.

They typically carry:

• voting rights (often one vote per share)
• rights to dividends (if declared)
• rights to share in surplus assets on liquidation (after creditors)

When they’re used: founders and “regular” shareholders often hold ordinary shares, especially in early-stage companies before outside investment.

Practical watch-out: if everyone only has ordinary shares, it can be harder to offer an investor downside protection without giving away governance control.

2. Preference Shares

Preference shares are commonly used when an investor wants some form of priority compared to ordinary shareholders.

“Preference” can mean different things, but it often involves:

• priority dividends (paid first, or at a set rate)
• liquidation preference (getting capital returned before ordinary shareholders on a sale or wind-up)
• conversion rights (ability to convert to ordinary shares later, often on a funding round or IPO)

When they’re used: angel or seed investment, especially where investors want risk protection.

Practical watch-out: preference structures can get technical quickly. If the “preference” mechanics aren’t crystal clear, you can end up with a dispute at the exact worst time - when you’re selling the business or allocating exit proceeds.

3. Non-Voting Shares

Non-voting shares are shares that don’t carry the right to vote on shareholder resolutions (or have limited voting rights).

When they’re used:

• bringing in a passive investor without giving them decision-making power
• allowing family members to share in economic upside without involvement in control
• certain employee equity arrangements (depending on strategy)

Practical watch-out: even if shares are “non-voting”, shareholders can still have rights under the Companies Act and your documents - and they may still influence outcomes commercially. Non-voting doesn’t mean “no rights”.

4. Redeemable Shares

Redeemable shares are shares that can be redeemed (bought back by the company) in certain situations, based on agreed terms.

When they’re used: sometimes in investment structures or where you want a pathway to return capital without a full sale of the business.

Practical watch-out: redemptions and buybacks are regulated in New Zealand and usually require (among other things) the company to meet the required solvency test and to follow the Companies Act process. These arrangements should be drafted carefully in the constitution/terms of issue, and implemented with the right resolutions and company records.

5. Founder Shares (Or “A/B” Shares With Different Voting Power)

You’ll sometimes hear the term “founder shares”. In practice, this can mean a special class (for example, “A shares”) held by founders, with different voting rights than other shares (for example, “B shares”).

When they’re used: when founders want to raise capital while keeping control over key decisions (especially at early stages).

Practical watch-out: voting structures affect investor appetite. Some investors are comfortable with founder control; others aren’t. The key is to structure it transparently and fairly so everyone understands how decisions are made.

6. Employee Equity (Share Issues Or Option-Style Arrangements)

Startups often want to incentivise employees without paying top-of-market cash salaries.

Sometimes this is done through issuing a separate class of shares, but often it’s done through option-style arrangements or plans that grant rights to acquire shares later (usually subject to vesting conditions).

If you’re heading down this route, it’s worth thinking about how equity will vest, what happens if an employee leaves, and whether there are transfer restrictions. In many cases, a formal Share Vesting Agreement is a smart way to keep things clear and protect the company if someone exits early.

Practical watch-out: employee equity can have tax and reporting consequences (for both the company and the employee) depending on how it’s structured, when rights vest, and whether shares/options are issued at a discount. It’s worth getting legal and tax advice before implementing an employee equity plan.

What Legal Documents Do You Need When Issuing Different Share Classes?

When you set up different share classes in New Zealand, the “idea” is only half the job. The other half is documenting it properly so:

• the rights are enforceable
• future investors (and buyers) can understand your cap table
• you don’t accidentally create inconsistent or conflicting obligations

Here are the key documents most startups and SMEs should consider.

A Constitution (If You’re Creating Special Rights)

Your constitution is often where share class rights are formally set out, including voting rights, dividend priorities, and liquidation preferences.

If you don’t yet have one, it may be the right time to adopt a Company Constitution that matches how you’re raising capital and running governance.

A Shareholders Agreement

Different share classes handle “what rights attach to shares”. A shareholders agreement often handles “how shareholders behave”.

This can cover things like:

• decision-making thresholds (what requires ordinary vs special approval)
• restrictions on issuing new shares (so founders don’t get unexpectedly diluted)
• what happens if someone wants to sell their shares (pre-emptive rights, approvals)
• deadlock processes
• confidentiality and restraint provisions (where appropriate)

For many businesses with more than one owner, a tailored Shareholders Agreement is a key part of getting the ownership structure right from day one.

Share Issue Documentation And Resolutions

When you issue shares, you typically need to handle the proper company processes, such as:

• board resolutions approving the issue
• share subscription documents (who’s getting what shares, for what price, on what terms)
• updating the share register
• issuing share certificates (if you use them)

If you’re allocating shares between founders or bringing in an investor, it’s also common to document the investment terms carefully (especially if money is changing hands or there are special rights being negotiated).

What If You’re Transferring Shares Instead Of Issuing New Ones?

Sometimes, rather than issuing new shares, an existing shareholder sells or transfers shares to someone else (for example, a new co-founder buying in, or a founder exiting).

That process needs to be documented properly too, and it can involve director approvals, share transfer forms, and updates to the share register. If you’re in this situation, it’s worth reading up on transferring shares so you don’t miss the key steps.

What Are The Risks If You Get Share Classes Wrong?

We’re all for keeping things practical - but it’s also important to understand what can go wrong if your share structure is unclear or poorly documented.

Misaligned Expectations Between Founders And Investors

If an investor believes they have priority rights, but the documents don’t reflect that (or reflect it differently), you can end up in a messy dispute.

Even if nobody intends to fight, misunderstandings can derail funding rounds and slow down growth.

Difficulty Raising Money In The Future

Future investors typically want to see a clean, logical cap table.

If your share classes are inconsistent, poorly defined, or overly complex, you may face:

• longer due diligence
• requests to restructure before investment
• higher legal costs
• deals falling through because the risk feels too high

Exit Problems (Sale Of Business Or Restructure)

Here’s a scenario we see all the time: your business is doing well, and a buyer wants to acquire it.

Suddenly, the question becomes: “Who gets paid what on completion?”

If you’ve got preference rights, conversion rights, or special dividend arrangements that aren’t set out clearly, the sale process can become more stressful than it needs to be. It can also reduce your negotiating power if the buyer sees uncertainty.

If you’re planning ahead for a potential sale, it’s also worth understanding the legal side of changing company ownership, because share rights and approvals often matter more than people expect.

Unintended Control Outcomes

Sometimes businesses create different share classes to “protect the founders”, but accidentally create:

• deadlocks (no one can reach required thresholds)
• minority veto rights that block day-to-day decisions
• rights that trigger unexpectedly (for example, redemption or conversion events)

This is why the structure has to match how you actually operate - not just how it looks on paper.

How Do You Choose The Right Share Class Structure For Your Business?

There’s no one-size-fits-all answer. The “right” structure depends on your commercial plan and who’s coming on the journey with you.

To keep it practical, here are questions you can use to guide your decision-making.

1. Are You Optimising For Control, Capital, Or Simplicity?

Most founders want all three - but usually you’ll prioritise one.

• Control: you may want founder-weighted voting or limits on investor voting.
• Capital: you may need investor-friendly rights like preference returns.
• Simplicity: you may keep only ordinary shares early, and negotiate protections via other terms.

A good structure balances these priorities without making governance unworkable.

2. What’s Your Funding Plan Over The Next 12–24 Months?

If you expect multiple funding rounds, you’ll want a structure that can scale without constant rewrites.

On the other hand, if you’re taking one small investment and don’t plan to raise again, you might keep the structure simpler - as long as everyone’s expectations are still protected properly.

3. Do You Need Employee Equity (Now Or Later)?

If you’re planning to hire and retain key staff, equity incentives can be powerful - but you’ll want to make sure they’re set up in a way that protects the business if someone leaves early.

This is where clear vesting mechanics (for example via a Share Vesting Agreement) can make a big difference.

4. How Will Decisions Be Made Day-To-Day?

Share class rights can affect voting, but they don’t replace good governance.

It’s worth clarifying:

• which decisions are made by directors vs shareholders
• which decisions require special thresholds
• how you resolve disputes or deadlocks

These are often the “real world” issues that cause problems later - not the technical share labels.

5. Are You Building With An Exit In Mind?

You don’t need to plan a sale from day one, but it helps to ensure your share rights won’t make a future exit harder.

Clear, well-documented share class terms can make your business more attractive in due diligence and reduce the risk of last-minute renegotiations.

Key Takeaways

• Setting up different share classes in New Zealand can help startups and SMEs raise capital, reward contributors, and manage control - but only if the rights are properly documented.
• Share classes can differ by voting rights, dividend entitlements, priority on exit (liquidation preference), conversion rights, and redemption mechanisms.
• Common share classes include ordinary shares, preference shares, non-voting shares, redeemable shares, and founder-style A/B shares with different voting power.
• Your Company Constitution and Shareholders Agreement are often the key documents for defining and managing share class rights.
• If you’re moving shares between people (rather than issuing new shares), you’ll still need the correct process and documents, including following the steps for transferring shares.
• Getting share classes wrong can create disputes, slow future fundraising, and cause major headaches during a sale or restructure - so it’s worth getting advice early and doing it properly.

This article is general information only and isn’t legal or tax advice. Different rules can apply depending on your constitution, the terms of issue, and your specific transaction - especially for buybacks/redemptions and employee equity.

If you’d like help setting up the right share structure, preparing a constitution, or documenting a capital raise, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.