Disclosure obligations when issuing shares in NZ

• Law Firm: LegalVision
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Compliance, Shareholders
• Author: Ms Nina Vanderlaan
• Published date: 19 July 2023

If your startup is at the stage where it is looking to grow and needs capital, you will typically want to issue new shares to raise those funds. In New Zealand, the issue of shares (and other securities) to members of the public is a heavily regulated area subject to extensive disclosure obligations unless your investors (or offer) fall within certain exclusions. These disclosure obligations and exclusions will impact both whether you can raise capital and how you can do so.

This article will summarise the disclosure obligations framework, followed by a discussion of the more common exclusions available and how your startup can take advantage of them when raising capital.

How Do Disclosure Obligations Affect My Startup?

Many startup founders raise capital to help fund their startup's operations and grow their business. If you are a company issuing shares (or other securities) to raise capital, the general rule is that you must comply with disclosure obligations under financial markets conduct laws. This includes preparing and issuing a disclosure document in relation to your share offer (called a product disclosure statement).

The purpose of the disclosure requirements is to protect unsophisticated investors. It does so by requiring that companies provide the following information:

• sufficient information about the company;
• the company's financial position and relevant financial reports; and
• details of the proposed offer.

The reason for disclosure is so that unsophisticated investors understand the risk they are taking when investing in the company.

The legal requirements for the content of a disclosure document are prescriptive and extensive. As a result, the full disclosure process required is time-consuming and expensive. It can even be a barrier to small companies looking to raise capital. Fortunately, to support the growth of smaller companies, there is a framework of exclusions available that startups can take advantage of. If one or more of these exclusions apply, you may not need to issue a disclosure document.

Exclusions to the Disclosure Obligations

Wholesale Investors

The main disclosure exclusion is for wholesale investors. An offer of shares or other securities to wholesale investors in New Zealand will not be considered a regulated offer. As such, your startup will not need to prepare a disclosure document in these circumstances.

A wholesale investor is an investor who falls within any one of certain defined categories, including:

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