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Your company may issue shares to raise share capital to grow the company or fund new projects and infrastructures. Share issues consist of creating new shares and passing them onto new or existing shareholders. You can issue your company’s shares to anyone, and these could be an ordinary or preferential share. This article will run through issuing shares in a new and existing company, legal documents, and how a private company may issue shares.

Issuing Shares in a New Company 

Issuing shares in a new company is simple enough. However, there are specific steps that you will need to follow for the process to be legally compliant.

When forming the company, the proposed shareholders will need to apply for incorporation on the New Zealand Companies Office website. Your application will need to state the:

  • number of company shares to be issued on incorporation;
  • name of each proposed shareholder and director; and
  • number of shares a shareholder has in their share allocation.

A share allocation is how your company’s shares are arranged and who holds them. Your company can issue one or more share allocations, and each allocation can have one or more shareholders.

Issuing More Shares

Your company constitution, shareholders agreement, and the Companies Act will govern your right to issue shares. Notably, it is not a requirement for your company to have a constitution or shareholders agreement.

Before your company can issue more shares, you must check the company constitution and shareholders agreement (if any) to see if there is a process to issue new shares. If not, your company must undertake the process according to requirements of the Companies Act.

Typically, a board resolution and director’s certificate will be required to approve the issue of new shares. You may also need to seek approval of the company shareholders or a waiver of their pre-emptive rights to those shares. Pre-emptive rights are where new shares are offered to existing shareholders first to ensure they have the right to participate and not be diluted. Again, you will need to check the company’s constitution and shareholders agreement (as well as the Companies Act) to determine the required approvals.

After you issue shares in the company, the directors may issue a formal demand or call for shareholders to pay for their shares. This is the case if your company issues shares on an unpaid (or partly unpaid) basis.

Subject to compliance with the company constitution and shareholders agreement, and the Companies Act, directors can offer new or existing shareholders the opportunity to subscribe for additional shares at an agreed price. Once you have issued new shares, your company must update its share register (as evidence of ownership of those shares). Next, it must notify the Companies Office within 10 working days of the increase in shares. 

Additionally, that notification requires you to give details of the:

  • number of shares issued;
  • class of shares issued; and
  • the shareholder(s) details.

Disclosure Requirements

You will need to ensure compliance with the Financial Markets Conduct Act disclosure requirements. Before issuing shares, ensure you understand all your legal and corporate obligations.

Legal Documents to Consider

Firstly, a share subscription agreement is helpful as it confirms the terms of the issue of shares. Typically, your company will use a subscription agreement when issuing shares to a new investor. Likewise, this document sets out details like the:

  • number of shares you are issuing;
  • issue price per share;
  • class of shares you are issuing;
  • mechanics for the investment (issue and payment); and
  • warranties given by, and to protect both, the investor and the company.

Secondly, you might ask a new shareholder to sign a shareholders agreement or deed of accession. This is where an investor agrees to be bound by the shareholders agreement (if the company has one in place, or is putting a shareholders agreement in place as a result of the share issue). 

Importantly, the shareholders agreement is a confidential contract between the shareholders and regulates how shareholders should operate. The agreement may include:

  • shareholder obligations;
  • capital and funding policies;
  • restrictions around the transfer and issue of shares;
  • exit strategies; and
  • dispute resolution processes.

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Key Takeaways

If your company is new and wants to issue shares, you must first incorporate the company on the Companies Register. As part of your incorporation application, shares will be issued to the shareholders named in the application. 

Suppose your company is already established and wants to issue new shares. In that case, you need to look at your company’s governing documents and the Companies Act. Next, you can determine what process you need to take and what approvals you need before issuing shares. Finally, once you issue new shares, you will need to update the Companies Office and the company’s share register. 

Whenever issuing new shares, a company need to be careful to ensure control issues are managed. If you need legal assistance in matters concerning the issue of shares, our experienced business lawyers 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 0800 005 570 or visit our membership page.

Frequently Asked Questions

How can I find out the process for issuing shares in my company?

Firstly check if your company has a shareholders agreement or a company constitution. If so, check the clauses to see if there is a written process for issuing shares. If there is no constitution or agreement, then the Companies Act will govern the process of issuing shares.

I want to issue shares. Are there any legal documents that I need?

In addition to the resolutions required to issue new shares in your company, you may want to draft up a share subscription agreement. This document will confirm the agreement between the parties about the issue of new shares. If you have a shareholders agreement, you should ensure any new shareholders sign a deed of accession to ensure their rights and obligations as a shareholder are clear.

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