{"id":219744,"date":"2023-01-11T10:02:53","date_gmt":"2023-01-10T21:02:53","guid":{"rendered":"https:\/\/legalvision.co.nz\/?p=219744"},"modified":"2023-05-05T11:18:20","modified_gmt":"2023-05-04T22:18:20","slug":"selling-shares-in-a-private-company","status":"publish","type":"post","link":"https:\/\/legalvision.co.nz\/corporations\/selling-shares-in-a-private-company\/","title":{"rendered":"Selling Shares in a Private Company in New Zealand"},"content":{"rendered":"<p><span style=\"font-weight: 400\">As businesses grow, shareholders may want to realise some or all of their investment by selling shares in the company. Reasons for selling shares in the company might include a shareholder dispute, loss of faith in the business, or retirement. Regardless of the reasons for selling your shares in a private company, some essential elements must be considered. This article will discuss:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">pre-emptive rights;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">disclosure obligations; and<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">how to determine the price of the shares you sell.<\/span><\/li>\n<\/ul>\n<h2><span style=\"font-weight: 400\">Consider if There Are Pre-Emptive Rights<\/span><\/h2>\n<p><span style=\"font-weight: 400\">Pre-emptive rights \u2014 also called rights of first refusal \u2014 give a company\u2019s shareholders the right to buy shares of another shareholder before the selling shareholders can sell to an outsider. The <\/span><a href=\"https:\/\/legalvision.co.nz\/business-structures\/what-is-a-company-constitution\/\"><span style=\"font-weight: 400\">company\u2019s constitution<\/span><\/a><span style=\"font-weight: 400\"> or the <\/span><a href=\"https:\/\/legalvision.co.nz\/corporations\/what-is-a-shareholders-agreement\/\"><span style=\"font-weight: 400\">shareholders\u2019 agreement<\/span><\/a><span style=\"font-weight: 400\"> will outline the specifics of how the pre-emptive process is governed. You should check those documents to see your company&#8217;s specific details and processes.\u00a0<\/span><\/p>\n<p>\u00a0<\/p>\n<p><span style=\"font-weight: 400\">The purpose of pre-emptive rights is to protect the relative position and rankings of existing shareholders. Pre-emptive rights give existing shareholders some control over the transfer of shares to unrelated third parties. This is because many private companies do not want unvetted outsiders buying shares and obtaining influence over the company\u2019s direction. Typically, the shareholder&#8217;s agreement will also provide that the board has the right to approve (or not) that third party. Only where the company directors have complied with the pre-emptive process can the directors authorise selling the shares to an outsider.<\/span><\/p>\n<p>\u00a0<\/p>\n<p><span style=\"font-weight: 400\">If your company does not have a tailored constitution or a shareholders\u2019 agreement, then the Companies Act&#8217;s default rules will apply. Except in very specific circumstances, these default rules do not restrict who shares can be transferred to. This means that anyone outside the company may buy those shares; the other shareholders do not have pre-emptive rights. In practice, this is often undesirable.\u00a0<\/span><\/p>\n<p>\u00a0<\/p>\n<h2><span style=\"font-weight: 400\">Remember Your Disclosure Requirements<\/span><\/h2>\n<p><span style=\"font-weight: 400\">A key consideration when selling shares is your disclosure obligations. New Zealand law has specific (and extensive) disclosure requirements for when companies offer financial products which are set out in the <\/span><a href=\"https:\/\/www.legislation.govt.nz\/act\/public\/2013\/0069\/latest\/whole.html\"><span style=\"font-weight: 400\">Financial Markets Conduct Act 2013<\/span><\/a><span style=\"font-weight: 400\"> (FMCA). These are in place to protect purchasers, given the asymmetry of information between the seller, the company and any buyer. These disclosure requirements will apply unless you can rely on one of the <\/span><a href=\"https:\/\/legalvision.co.nz\/corporations\/disclosure-exemptions-new-shareholders\/\"><span style=\"font-weight: 400\">exclusions<\/span><\/a><span style=\"font-weight: 400\"> in Schedule 1 of the FMCA.\u00a0<\/span><\/p>\n<p>\u00a0<\/p>\n<p><span style=\"font-weight: 400\">In particular, some exclusions regarding small or private sales may apply to your sale. It is essential to work through these exclusions carefully to determine whether you can rely on them. Complying with the disclosure requirements can come at a significant cost to the company, so most companies will seek to rely on one of the disclosure exemptions. Importantly, even when an exclusion applies, you may still need to comply with some limited disclosure requirements. Given the complexity of the disclosure requirements and how they and any exclusions may apply to your sale, it is vital to discuss your disclosure obligations with your legal advisor before proceeding with any sale.<\/span><\/p>\n<p>\u00a0<\/p>\n\n<a href=\"#content-next\"\n   class=\"block p-4 mt-10 text-xl font-bold text-center text-white no-underline bg-gray-800 rounded-t-xl\">\n    Continue reading this article below the form\n    <i class=\"text-xl fa-regular fa-arrow-down\"><\/i>\n<\/a>\n<div class=\"px-6 pt-10 pb-12 mb-10 text-center bg-gray-100 rounded-b-xl sm:px-12 test\">\n    <div class=\"mb-8 text-2xl font-bold text-orange\">\n        Need legal advice?\n        <br>\n        <span class=\"text-lg not-prose\">\n                            Call <a href=\"tel:+64800005570\" class=\"not-prose\">0800 005 570<\/a> for urgent assistance.\n                <br>\n                Otherwise, complete this form, and we will contact you within one business day.\n                    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Obtaining advice from an accountant on the value of the shares is important in this process.\u00a0\u00a0<\/span><\/p>\n<p>\u00a0<\/p>\n<p><span style=\"font-weight: 400\">For most companies, the constitution or shareholders\u2019 agreement will specify the sales process you must follow. It may also detail how you should value your shares, particularly in a dispute over that value. Having a formal, predetermined process usually helps minimise disagreements between shareholders. If no valuation method is specified, the value of the shares is a matter of commercial negotiation between the relevant parties. It may be that you engage a third-party expert to value those shares if an agreement cannot be reached.\u00a0<\/span><\/p>\n<p>\u00a0<\/p>\n<h2><span style=\"font-weight: 400\">Sale Agreement\u00a0<\/span><\/h2>\n<p><span style=\"font-weight: 400\">The seller and buyer both benefit from a written agreement that records the key terms of the share transaction. If the pre-emptive process applies and the sale is between the existing shareholders, the agreement will be more straightforward as the selling shareholder and buying shareholders know the business well.\u00a0<\/span><\/p>\n<p>\u00a0<\/p>\n<p><span style=\"font-weight: 400\">However, if the pre-emptive process has been followed and the existing shareholders do not wish to buy the shares, they may be offered to a different buyer. A buyer with little knowledge of the business may require a more thorough examination of the records of the business and seek warranties from the seller before going ahead with the sale. The company will also want to make sure that the buying shareholder has been approved by the board and that the selling shareholder keeps the information they have obtained as a shareholder confidential after exiting.<\/span><\/p>\n    <div class=\"my-7 lg:my-10 border-y-2 border-gray-100 py-7 lg:py-10 flex flex-col sm:flex-row items-start gap-10\">\n                    <img decoding=\"async\" class=\"w-52 mx-auto my-0! rounded\" src=\"https:\/\/img.legalvision.com.au\/wp-content\/uploads\/sites\/2\/2021\/12\/08180607\/GeneralCounselToolKit560x792-wp.jpg\" alt=\"Front page of publication\"\n                 loading=\"lazy\" width=\"208\" height=\"298\">\n                <section>\n            <div class=\"text-2xl font-bold\">NZ General Counsel Toolkit<\/div>\n            <div class=\"body-text\">\n                <p>You can transform your legal function with our free General Counsel Toolkit. Explore ways to streamline operations, reduce costs and drive efficiencies so your in-house team can focus on strategic priorities.<\/p>\n            <\/div>\n            \n\n<a href=\"https:\/\/go.legalvision.co.nz\/general-counsel-toolkit.html\" class=\" block px-5 py-3.5 max-w-fit bg-orange button__hover transition rounded text-white font-bold text-lg no-underline uppercase leading-tight text-center\" target=\"\" rel=\"\">Download Now<\/a>        <\/section>\n    <\/div>\n\n<p>\u00a0<\/p>\n<h2><span style=\"font-weight: 400\">Key Takeaways<\/span><\/h2>\n<p><span style=\"font-weight: 400\">There are some key things to consider when selling your shares in a private company. Typically, the company\u2019s constitution or shareholders agreement will set out the process for share sales. Likewise, it will usually outline how you should value shares. A pre-determined formula is a useful way of arriving at an agreed fair value. If there is no formula, getting expert third-party assistance is a typical step in the process. You should check whether other shareholders at the company have pre-emptive rights and keep in mind any disclosure requirements that may apply to a sale to third parties.<\/span><\/p>\n<p><span style=\"font-weight: 400\">If you want to know more about selling your shares in a private company<\/span>, our experienced <a href=\"https:\/\/legalvision.co.nz\/corporate-lawyers-lp\">corporate lawyers<\/a> can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on <a href=\"tel:+64800005570\" class=\"AVANSERnumber dynamic-number\">0800 005 570<\/a> or visit our <a href=\"https:\/\/legalvision.co.nz\/membership\/\">membership page<\/a>.<\/p>\n<p>\u00a0<\/p>\n<h2><span style=\"font-weight: 400\">Frequently Asked Questions<\/span><\/h2>\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1673384401655\"><strong class=\"schema-faq-question\">What are pre-emptive rights?<\/strong> <p class=\"schema-faq-answer\">Pre-emptive rights give a company\u2019s shareholders the right to buy shares that another shareholder is selling before making an offer to unrelated third parties. The idea behind pre-emptive rights is to maintain the proportionate holdings of existing shareholders and give them some control over shares to unrelated non-shareholders.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1673384410767\"><strong class=\"schema-faq-question\">How does the price of the shares get decided?<\/strong> <p class=\"schema-faq-answer\">Usually, the company\u2019s constitution or shareholders\u2019 agreement will set out the sales process you must follow when selling shares and how to value your shares.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1673384417485\"><strong class=\"schema-faq-question\">What are the disclosure requirements if you are selling shares in a private company?<\/strong> <p class=\"schema-faq-answer\">These are specific to the particular circumstances of your sale and the identity of the buyer.\u00a0 We recommend you seek legal advice to ensure that you comply with any disclosure obligations that may apply to your sale.<\/p> <\/div> <\/div>\n<div class=\"not-prose m-feedback-prompt\">\n    <!-- Thumbs up\/down bar -->\n    <div class=\"m-feedback-prompt__main\">\n        <div class=\"m-feedback-prompt__title\">Was this article helpful?<\/div>\n        <div>\n            <!--span class=\"m-feedback-prompt__button--text\">Thanks!<\/span-->\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--yes\"\n                    data-analytics-link=\"feedback-prompt:yes\" aria-label=\"Agree\">\n                <i class=\"fa-regular fa-thumbs-up fa-3x\"><\/i>\n            <\/button>\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--no\"\n                    data-analytics-link=\"feedback-prompt:no\" aria-label=\"Disagree\">\n                <i class=\"fa-regular fa-thumbs-down fa-3x\"><\/i>\n            <\/button>\n        <\/div>\n    <\/div>\n\n    <!-- Feedback form -->\n    <div class=\"m-feedback-prompt__form\">\n        <div class=\"m-feedback-prompt__form--thanks \">\n            <div>Thanks!<\/div>\n            <p>\n                We appreciate your feedback \u2013 your submission has been successfully received.            <\/p>\n        <\/div>\n        <form id=\"contact-form\" class=\"m-feedback-prompt__form--form\" action=\"\" method=\"post\">\n            <input type=\"hidden\" id=\"authenticity_token\" name=\"authenticity_token\" value=\"ed19fd34f0\" \/><input type=\"hidden\" name=\"_wp_http_referer\" value=\"\/api\/wp\/v2\/posts\/219744\" \/>            <input value=\"https:\/\/legalvision.co.nz\/corporations\/selling-shares-in-a-private-company\/\" type=\"hidden\" name=\"currenturl\"\n                   id=\"currenturl\">\n            <input value=\"Selling Shares in a Private Company in New Zealand\" type=\"hidden\" name=\"currenttitle\"\n                   id=\"currenttitle\">\n            <label>\n                <!-- display on thumbs-up -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--yes\">\n                    Can you tell us <span class=\"font-semibold\">why<\/span> you found it helpful?\n                <\/span>\n\n                <!-- display on thumbs-down -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--no text-lg\">\n                    How can we better improve this article?\n                <\/span>\n                <textarea name=\"feedbackmessage\" id=\"feedbackmessage\" required><\/textarea>\n            <\/label>\n\n            <div class=\"m-feedback-prompt__form--error\" id=\"form-submit-error\"><\/div>\n            <button id=\"submit-contact-form-button\" type=\"submit\" name=\"commit\" class=\"m-feedback-prompt__form--submit\"\n                    data-analytics-link=\"feedback-prompt:submit\">\n                Submit            <\/button>\n        <\/form>\n    <\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>As businesses grow, shareholders may want to realise some or all of their investment by selling shares in the company. Reasons for selling shares in the company might include a shareholder dispute, loss of faith in the business, or retirement. Regardless of the reasons for selling your shares in a private company, some essential elements<a href=\"https:\/\/legalvision.co.nz\/corporations\/selling-shares-in-a-private-company\/\">Continue reading <span class=\"sr-only\">&#8220;Selling Shares in a Private Company in New Zealand&#8221;<\/span><\/a><\/p>\n","protected":false},"author":13343,"featured_media":215440,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"218513,218084,205035,206318,203493,207539","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[14],"tags":[34,54,592,1696],"class_list":["post-219744","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-corporations","tag-share-sale","tag-medium-business","tag-pre-emptive-rights","tag-share-transfer"],"acf":[],"yoast_head":"<!-- This site is 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He graduated from the University of Auckland where he obtained his Bachelor of Laws.","sameAs":["https:\/\/x.com\/teresa.nurdi@legalvision.com.au"],"url":"https:\/\/legalvision.co.nz\/author\/dankim\/"},{"@type":"Question","@id":"https:\/\/legalvision.co.nz\/corporations\/selling-shares-in-a-private-company\/#faq-question-1673384401655","name":"What are pre-emptive rights?","acceptedAnswer":{"@type":"Answer","text":"Pre-emptive rights give a company\u2019s shareholders the right to buy shares that another shareholder is selling before making an offer to unrelated third parties. The idea behind pre-emptive rights is to maintain the proportionate holdings of existing shareholders and give them some control over shares to unrelated non-shareholders.","inLanguage":"en-NZ"},"inLanguage":"en-NZ"},{"@type":"Question","@id":"https:\/\/legalvision.co.nz\/corporations\/selling-shares-in-a-private-company\/#faq-question-1673384410767","name":"How does the price of the shares get decided?","acceptedAnswer":{"@type":"Answer","text":"Usually, the company\u2019s constitution or shareholders\u2019 agreement will set out the sales process you must follow when selling shares and how to value your shares.","inLanguage":"en-NZ"},"inLanguage":"en-NZ"},{"@type":"Question","@id":"https:\/\/legalvision.co.nz\/corporations\/selling-shares-in-a-private-company\/#faq-question-1673384417485","name":"What are the disclosure requirements if you are selling shares in a private company?","acceptedAnswer":{"@type":"Answer","text":"These are specific to the particular circumstances of your sale and the identity of the buyer.\u00a0 We recommend you seek legal advice to ensure that you comply with any disclosure obligations that may apply to your sale.","inLanguage":"en-NZ"},"inLanguage":"en-NZ"}]}},"_links":{"self":[{"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/posts\/219744","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/users\/13343"}],"replies":[{"embeddable":true,"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/comments?post=219744"}],"version-history":[{"count":4,"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/posts\/219744\/revisions"}],"predecessor-version":[{"id":222904,"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/posts\/219744\/revisions\/222904"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/media\/215440"}],"wp:attachment":[{"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/media?parent=219744"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/categories?post=219744"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/tags?post=219744"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}