In Aotearoa, many companies start with good intentions, a handshake, a Companies Office registration, and nothing more. For a lot of founders, especially younger entrepreneurs, whānau owned businesses, and small business owners, the focus is on getting the business off the ground. Governance documents, formal processes, and legal protections often feel secondary. However, as soon as there is more than one shareholder, the relationship between parties becomes a commercial partnership and legal relationship whether it has been formalised or not.
A shareholders’ agreement is the document that sets out the rules of that relationship. It addresses difficult questions that are often overlooked at the outset and provides clear mechanisms to manage situations if things do not go as planned. While enthusiasm and trust are high in the early days, failing to put agreements in place can lead to significant tension and costly disputes down the line.
The Value of Good Governance
Shareholder disputes arise not only because parties disagree about the business itself, but often because there was no agreement in place from the start. While shareholders’ agreements are usually viewed as being mainly about money, their true value lies in providing clarity. They establish who has authority to make decisions, how conflicts will be resolved, and how the business can continue to function effectively as it grows or changes. Without this framework, businesses are exposed to a number of risks, including:
- Deadlock: 50/50 ownership can create impasses with no mechanism to resolve disagreements.
- Disputes over roles and responsibilities: As businesses evolve, expectations shift, creating friction if not documented.
- Unplanned ownership changes: Shares may be sold, gifted, or affected by personal circumstances (for example, relationship property claims), leaving the company exposed.
- Investor uncertainty: Potential investors often seek certainty regarding governance and dispute resolution before committing capital.
- Misaligned expectations: Differences over dividends, salaries, or management authority can escalate into broader conflicts.
Other issues can also arise depending on the nature of the business, the shareholders involved, or unforeseen circumstances. While the Companies Act 1993 provides a general legal framework for shareholder rights, its default provisions are not always suitable for every company and often fail to reflect the practical realities of running a business. A shareholders’ agreement fills these gaps with tailored agreements, providing greater certainty, protecting both the business and its owners.
Core Components of a Shareholders Agreement
An agreement aims to resolve problems before they arise. It can be tailored to the specific needs of the company and its owners, or drafted more generally to provide broad guidance, allowing flexibility depending on the parties and company’s unique needs. A well-drafted agreement sets out key governance and ownership matters, such as:
- the structure of the company;
- how the company is governed;
- board meetings, when they occur and who must attend;
- shareholders’ voting rights, whether votes are equal or differentiated;
- how the company will raise capital;
- distribution policy: including dividends and profit allocation; and
- when shares can be issued or transferred.
Why a Shareholders’ Agreement Matters
While everything feels straightforward when the company is new and everyone is aligned, a shareholders’ agreement is essential for long-term stability. By addressing these issues upfront, it offers certainty, protects shareholder interests, and helps ensure the business can continue to operate effectively through periods of growth, transition, or disagreement.
Good governance is not reserved for only large and complex organisations. For any business with more than one owner, a carefully considered shareholders’ agreement is one of the most valuable tools available. providing a clear framework that supports both the commercial objectives of the company and the relationships between its owners.
Whether you are setting up a new venture or refining the governance of an existing one, our Commercial Team can assist with preparing a shareholders’ agreement that is tailored to your company’s structure, priorities, and long-term goals.
