Preference Shares Agreement Template for New Zealand

A Preference Shares Agreement is a specialized contract that allows your company to raise capital by issuing shares with preferential rights to dividends and capital returns. Unlike ordinary shares, preference shares typically provide limited or no voting rights while offering priority over ordinary shareholders in dividend distributions and asset liquidation. This structure enables you to attract investment while maintaining existing management control and ownership structures.

When do you need this document?

You need a Preference Shares Agreement when seeking capital investment without diluting management control. Growth-stage companies often use preference shares to attract venture capital or private equity funding while preserving founder authority. Companies undergoing restructuring may issue preference shares to existing creditors as part of debt-to-equity conversions. Strategic partnerships frequently involve preference share arrangements where corporate investors gain preferential financial rights without operational control. Family businesses transitioning between generations may use preference shares to provide income streams to retiring family members while transferring voting control to successors.

Key legal considerations

Your agreement must clearly define dividend rates, payment schedules, and cumulative versus non-cumulative dividend rights. Capital preferences determine the order of payment if your company is wound up, typically granting preference shareholders priority over ordinary shareholders. Voting rights provisions should specify when preference shareholders can vote, often limited to matters directly affecting their class rights or during dividend arrears. Conversion and redemption clauses allow flexibility for both parties, enabling preference shares to convert to ordinary shares or be redeemed under specified conditions. Transfer restrictions protect existing shareholders by controlling who can acquire preference shares and under what circumstances.

Legal requirements in New Zealand

Under the Companies Act 1993, your company constitution must authorize the creation of different share classes before issuing preference shares. You must comply with Financial Markets Conduct Act 2013 disclosure requirements if the offering constitutes a regulated financial product. The Income Tax Act 2007 affects dividend imputation and tax treatment, requiring careful structuring to optimize tax efficiency for both company and investors. If foreign investors are involved, you may need Overseas Investment Office approval under the Overseas Investment Act 2005. Directors must follow statutory procedures for share allotment, including board resolutions and updated share registers. The agreement must also address Financial Reporting Act 2013 obligations regarding disclosure of share capital changes and related party transactions.