Ordinary Shares In New Zealand: How They Work

If you’re building a startup or growing an SME in New Zealand, chances are you’ll hear the term ordinary shares very early on - often before you’ve even raised your first dollar.

And that makes sense. Ordinary shares are the most common type of shares used by NZ companies, and they’re usually the “default” option founders issue to themselves, bring on co-founders with, and later sell to investors.

But while ordinary shares can be simple in concept (they represent ownership in a company), the legal and commercial details matter a lot. The way you structure ordinary shares can affect control, decision-making, dividends, dilution, investor negotiations, and what happens if someone wants to leave.

Below, we’ll break down what ordinary shares are, how they work under NZ company law, and the practical issues startups and SMEs should think about from day one.

What Are Ordinary Shares (And Why Do They Matter)?

Ordinary shares are a type of equity interest in a company. If your company issues ordinary shares to someone, that person becomes a shareholder (an owner) of the company.

In practical terms, ordinary shares usually come with three core “buckets” of rights:

• Voting rights (for example, voting on director appointments or major company decisions)
• Dividend rights (a right to share in profits if the company declares dividends)
• Capital rights (a right to share in the value of the company if it is sold or wound up, after debts are paid)

In many small companies, ordinary shares are the only type of shares on issue. That means all shareholders are generally treated the same - each share is typically worth one “unit” of ownership, one vote, and a proportional entitlement to dividends (if any are paid).

Ordinary Shares vs Other Share Types

Startups sometimes use other share classes too (depending on what investors want and how the company is structured). For example:

• Preference shares (often giving investors priority to get their money back first in an exit)
• Non-voting shares (useful where you want someone to share in profits but not control decisions)
• Different classes of ordinary shares (for example, “A” shares with votes and “B” shares with limited votes, though this needs to be set up carefully)

For many SMEs, keeping things straightforward with a single class of ordinary shares is a solid starting point - but it’s still important to document the commercial deal properly, because “simple” doesn’t always mean “risk-free”.

What Law Applies In New Zealand?

Most of the key rules around shares in NZ companies come from the Companies Act 1993 and the company’s own governing documents (particularly its constitution, if it has one).

That’s why it’s worth getting your structure right early - because once shares are issued, changing the rules later can be difficult (and sometimes requires shareholder approvals you may not easily get).

Why Do Startups And SMEs Use Ordinary Shares?

Ordinary shares are popular because they’re flexible, widely understood, and they align with how many founders think about ownership: “I own X% of the company.”

In real life, ordinary shares are used for:

• Founder ownership (splitting the company between co-founders)
• Early hires and advisors (sometimes through share issues or option plans)
• Capital raising (issuing shares to investors in exchange for funding)
• Family business arrangements (bringing in family members or transitioning ownership over time)
• Long-term succession planning (gradually transferring ownership to the next generation or management)

Ordinary Shares Help You Turn “Value” Into “Ownership”

If your business needs funding to grow, you generally have two broad pathways:

• Debt (like a loan), where you repay the money
• Equity (like ordinary shares), where someone contributes money in return for a slice of ownership

Equity is attractive for many startups because you might not have the cashflow (or security) to take on large debt early on. For SMEs, equity can also be useful where you’re bringing in a business partner, key employee, or strategic investor who will add value beyond money.

They’re Also A “Control” Tool - For Better Or Worse

Here’s the catch: issuing ordinary shares isn’t just about raising money. It’s about sharing control.

Even a small shareholding can create practical decision-making issues if expectations aren’t aligned. That’s why it’s common to pair a share structure with a Shareholders Agreement - so you’re not relying on assumptions when things get stressful.

How Ordinary Shares Are Issued And Recorded In NZ

Issuing ordinary shares isn’t just a “handshake” moment. In New Zealand, there are formal steps companies should follow so the share issue is valid and properly recorded.

The exact process depends on your company’s existing setup (for example, whether you have a constitution, what it says, and what approvals are required), but commonly it involves the following.

1) Decide The Basics: How Many Shares And At What Price?

Before you issue any ordinary shares, you’ll generally need to determine:

• How many shares you’re issuing
• Who will receive them
• What they pay (if anything) - for example, $1 per share, or a higher price reflecting the company’s value
• Whether the shares are fully paid or partly paid (partly paid shares can create ongoing obligations and complexity)

In a fundraising context, those commercial terms are often documented in a subscription arrangement like a Share Subscription Agreement.

2) Check What Your Constitution Says (If You Have One)

Your company constitution can set out important rules about issuing and transferring shares - including rights attached to shares, director powers, and procedures shareholders must follow.

If you’re not sure whether you should adopt one (or update one), it’s worth getting advice early, because a well-drafted Company Constitution can save a lot of back-and-forth later, especially once you have multiple shareholders.

3) Approvals And Company Resolutions

Depending on your constitution and share structure, issuing shares may require:

• a director resolution
• a shareholder resolution (particularly where the issue impacts voting power or rights)
• compliance with any pre-emptive rights or other share issue restrictions in the constitution or shareholders’ agreement

It’s worth noting that, under the Companies Act 1993, there are default pre-emptive rights that apply to the issue of new shares unless they’re modified or excluded (for example, through the constitution or by the required shareholder approvals). This is one of those areas where “we’ll sort it later” can lead to messy disputes - especially if a shareholder later argues the shares were improperly issued.

4) Update The Share Register And Companies Office Records

Once shares are issued, the company needs to keep accurate internal records (including a share register). The Companies Office must also be notified of changes to shareholdings, and there are specific timeframes for doing this, so it’s important to attend to the updates promptly.

If you’re setting things up from scratch, you’ll also need to incorporate your company and get the share structure right at the beginning - the Company Set Up stage is the ideal time to lock in the basics properly.

What Rights Do Ordinary Shares Usually Give Shareholders?

When business owners talk about ordinary shares, they often focus on “percentages”. But legally, the real question is: what rights are attached to the shares?

Under NZ law, rights can be shaped by:

• the Companies Act 1993
• the constitution (if the company has one)
• shareholder agreements and transaction documents

Voting Rights

Ordinary shares often carry voting rights. In many companies, this means:

• one share = one vote on shareholder resolutions
• major decisions require shareholder approval

As a founder, you’ll want to think ahead about which decisions should require shareholder approval versus which decisions directors can make day-to-day.

Dividend Rights

Ordinary shareholders typically have the right to receive dividends if the company declares them.

Two practical points for SMEs:

• Many growing businesses don’t pay dividends for a long time - profits are reinvested.
• Dividends aren’t automatic; they require proper processes and must comply with solvency requirements under the Companies Act.

Rights On A Sale Or Wind-Up

If the company is sold or wound up, ordinary shareholders usually share in the remaining value after liabilities are paid. If you introduce other share classes later (like preference shares), those holders may have priority over ordinary shareholders.

This is one reason early-stage founders sometimes feel surprised during fundraising: the “headline valuation” might look great, but the distribution rules in an exit can materially affect what ordinary shareholders actually receive.

Information And Participation Rights

Shareholders may have rights to receive certain company information and participate in major decisions. In practice, a lot of the “how it works day-to-day” is governed by a tailored Shareholders Agreement (for example, meeting rules, veto rights, deadlock processes, and what happens if a shareholder stops working in the business).

Common Ordinary Share Scenarios For Startups And SMEs (And What To Watch For)

Ordinary shares are most likely to become legally “real” when something changes - a new investor comes in, a founder leaves, or the business gets an offer to buy it.

Here are the big scenarios we see startups and SMEs run into.

Raising Capital Without Losing Control

It’s normal to want funding and still stay in the driver’s seat. But ordinary shares dilute existing shareholders - meaning your percentage ownership goes down when new shares are issued.

Before you raise, it’s worth mapping out:

• your current cap table (who owns what)
• how much you’re willing to dilute
• whether investors will ask for special rights (sometimes via a separate class of shares)
• whether you need future “headroom” for employee equity or another funding round

If you don’t plan this early, you can end up issuing shares in a way that makes later raises harder (or forces you into a restructure at the worst possible time).

Founder Or Employee Equity: Vesting And Leaver Terms

If you’re allocating ordinary shares to a co-founder or key team member, one of the biggest risks is what happens if they leave early.

Imagine this: you give a co-founder 40% in ordinary shares on day one. Six months later, they stop contributing - but they still legally own that 40%. That can seriously limit your ability to raise funds, make decisions, or sell the business.

A common solution is vesting, where equity is earned over time (or can be bought back if someone leaves early). This is often documented in a Share Vesting Agreement.

Vesting can be structured in different ways (time-based vesting, milestone vesting, cliff periods), and it should match how your business actually operates - so getting it drafted properly matters.

Transferring Ordinary Shares (Selling, Gifting, Or Moving Shares Between Owners)

Share transfers come up more often than people expect, for example:

• a founder wants to exit
• a shareholder relationship breaks down
• you want to bring in a new business partner
• you’re restructuring ownership for succession planning

Even in a small company, transfers should follow a clear process so the company remains compliant and the deal is enforceable. If you’re navigating this, How To Transfer Shares is a useful starting point to understand what’s involved (and when to get tailored advice).

Pre-Emptive Rights: Do Existing Shareholders Get “First Dibs”?

Many companies build in pre-emptive rights so that if new shares are issued (or sometimes if shares are sold), existing shareholders have the first opportunity to buy them. In addition, the Companies Act 1993 contains default pre-emptive rights on the issue of new shares unless they’re excluded or modified (for example, through a constitution or by the required shareholder approvals).

Pre-emptive rights can:

• help founders avoid unexpected dilution
• stop shares ending up with someone you didn’t choose
• make it harder to raise funds quickly if the process is too rigid

There’s no one-size-fits-all answer here - what’s “best” depends on whether your priority is tight control, fast fundraising, or flexibility for growth.

Dividends Vs Reinvestment: Managing Expectations In SMEs

In SMEs (especially profitable ones), shareholders sometimes expect dividends. But in growth businesses, you may want to reinvest profits into staff, equipment, expansion, or product development.

This is less about legal compliance and more about clear expectations - and the best time to align those expectations is before someone becomes a shareholder.

A good Shareholders Agreement can set out how dividends will be considered, what level of approval is required, and how disputes will be handled if priorities differ.

Ordinary Shares And Your Other Legal Foundations

Your share structure doesn’t exist in a vacuum. For most startups and SMEs, you’ll also want to make sure the rest of your business is protected from day one, including:

• clear contracts with staff (like an Employment Contract) so equity arrangements don’t become a substitute for proper employment terms
• strong customer and supplier contracts so company value is actually protected
• privacy compliance if you collect customer data (the Privacy Act 2020 applies broadly, including to many small businesses)

Getting the “whole picture” right is what makes your company investable and resilient - not just the share numbers on paper.

Key Takeaways

• Ordinary shares are the most common share type in NZ and typically carry voting, dividend, and capital rights.
• For startups and SMEs, ordinary shares are often used for founder ownership, bringing on business partners, and raising investment - but they can also create control and dilution issues if not structured properly.
• Issuing ordinary shares should follow a clear legal process, including checking your constitution, obtaining the right approvals, and updating the share register (and notifying the Companies Office within the required timeframes where applicable).
• A tailored Shareholders Agreement is often essential to manage real-world issues like decision-making, dilution, deadlocks, and what happens if a shareholder wants to leave.
• If you’re giving equity to co-founders or key team members, vesting can protect the business if someone exits early - it’s usually documented in a Share Vesting Agreement.
• Share transfers (selling or gifting shares) should be handled carefully so the transaction is enforceable and the company stays compliant.

This article is general information only and does not constitute legal advice. If you’d like advice tailored to your situation, it’s best to speak with a lawyer.

If you’d like help issuing ordinary shares, setting up your share structure, or putting the right documents in place for your startup or SME, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.