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Companies Act 1993

Shares and debentures - Issue of shares

49: Consideration in relation to issue of options and convertible financial products

You could also call this:

“Rules for issuing share options and convertible products”

When a company wants to offer special financial products that can be changed into shares or give people the option to buy shares, the company’s board needs to make some important decisions. They need to decide how much these products or options will cost and what the rules for getting them will be. If people are going to pay for shares with something other than money, the board has to figure out how much that thing is worth in cash.

The board must agree that the price and rules for these products or options (and the shares they can become) are fair for the company and all its current shareholders. If people are paying with something other than money, the board must agree that what they’re offering is worth at least as much as the shares they’ll get.

After making these decisions, the directors who agreed must write and sign a special document. This document needs to explain what the products or options cost, what the rules are, and describe what people are offering instead of money (if that’s the case). The directors also need to write down that they think everything is fair and, if needed, that what people are offering is worth enough.

The board must send a copy of this document to the Registrar within 10 working days. If shares are part of a deal where property or services are being swapped along with some money, those shares are treated as if they’re being paid for with the property or services, not the money.

If a director doesn’t sign the document when they should, they can get in trouble with the law. The same goes for the whole board if they don’t send the document to the Registrar on time. You can find out more about the penalties for not following these rules in section 373(1) and section 374(2) of this law.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM320166.

Topics:
Business > Industry rules
Business > Fair trading
Money and consumer rights > Banking and loans
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Part 6 Shares and debentures
Issue of shares

49Consideration in relation to issue of options and convertible financial products

  1. Before the board of a company issues any financial products that are convertible into shares in the company or any options to acquire shares in the company, the board must—

  2. decide the consideration for which the convertible financial products or options, and, in either case, the shares will be issued and the terms on which they will be issued; and
    1. if the shares are to be issued other than for cash, determine the reasonable present cash value of the consideration for the issue; and
      1. resolve that, in its opinion, the consideration for and terms of the issue of the convertible financial products or options, and, in either case, the shares are fair and reasonable to the company and to all existing shareholders; and
        1. if the shares are to be issued other than for cash, resolve that, in its opinion, the present cash value of the consideration to be provided is not less than the amount to be credited for the issue of the shares.

          1. The directors who vote in favour of a resolution required by subsection (1) must sign a certificate—

          2. stating the consideration for, and the terms of, the issue of the convertible financial products or options, and, in either case, the shares; and
            1. describing the consideration in sufficient detail to identify it; and
              1. where a present cash value has been determined in accordance with subsection (1)(b), stating that value and the basis for assessing it; and
                1. stating that, in their opinion, the consideration for and terms of issue of the convertible financial products or options, and, in either case, the shares are fair and reasonable to the company and to all existing shareholders; and
                  1. if the shares are to be issued other than for cash, stating that, in their opinion, the present cash value of the consideration to be provided is not less than the amount to be credited for the issue of the shares.

                    1. The board must deliver a copy of a certificate that complies with subsection (2) to the Registrar for registration within 10 working days after it is given.

                    2. For the purposes of this section, shares that are to be credited as paid up, whether wholly or partly, as part of an arrangement that involves the transfer of property or the provision of services and an exchange of cash or cheques or other negotiable instruments, whether simultaneously or not, must be treated as paid up other than in cash to the value of the property or services.

                    3. A director who fails to comply with subsection (2) commits an offence and is liable on conviction to the penalty set out in section 373(1).

                    4. If the board of a company fails to comply with subsection (3), every director of the company commits an offence and is liable on conviction to the penalty set out in section 374(2).

                    Notes
                    • Section 49 heading: amended, on , by section 150 of the Financial Markets (Repeals and Amendments) Act 2013 (2013 No 70).
                    • Section 49(1): amended, on , by section 150 of the Financial Markets (Repeals and Amendments) Act 2013 (2013 No 70).
                    • Section 49(1)(a): amended, on , by section 150 of the Financial Markets (Repeals and Amendments) Act 2013 (2013 No 70).
                    • Section 49(1)(c): amended, on , by section 150 of the Financial Markets (Repeals and Amendments) Act 2013 (2013 No 70).
                    • Section 49(2)(a): amended, on , by section 150 of the Financial Markets (Repeals and Amendments) Act 2013 (2013 No 70).
                    • Section 49(2)(d): amended, on , by section 150 of the Financial Markets (Repeals and Amendments) Act 2013 (2013 No 70).