Too often, as lawyers, we find ourselves engaged in a business sale where the parties, or their advisers, have neglected to consider the implications of the Financial Markets Conduct Act 2013 (Act).
If you’re thinking about selling your business shares, or looking to put in place an exit strategy by offering buy in rights to employees, then call us first. We’ll help identify which of the below exemptions you can fit into, avoiding significant costs and the risk of fines.
The Act regulates any offer to issue or sell financial products, which includes shares held in public and private companies. It’s an ‘all in unless you’re out’ regime. Anyone selling shares must ensure they fit within an exemption set out in the Act to avoid being caught by its provisions.
What are the exemptions? The Act provides a large number of potential exemptions which will need to be considered in your personal circumstances. That said, for closely held companies, where there are a small number of shareholders who typically act as the company’s directors, there are 2 exemptions that are often relied upon:
The first exemption is the ‘close business associate’ exemption. This permits an offer without full disclosure when it is made to a certain person, such as a director, someone who holds 5% or more of the company shares, a spouse, a parent or a child. It also includes a person with a close professional or business relationship with the company who is able to:
A ‘close business associate’ must be more than just an employee of the company- i.e. they should have regular contact with the directors, access to financial information or an intricate knowledge of the business and performance of the company – all conditions which are unlikely to apply to employees below a senior management level.
The second exemption is the ‘small offers’ exemption. This is where the offer of shares is limited to no more than 20 people, who contribute no more than $2m in any 12 month period, and who are likely to be interested in the offer because of:
However, this exemption comes with additional requirements:
What if you are caught? The Act provides that, if you offer shares to any person or entity and don’t meet an exemption, you must also produce a Product Disclosure Statement and register key information on The Disclose Register of the Companies Office (www.companiesoffice.govt.nz/disclose)
Note: ‘offer’ is deemed to include inviting applications to purchase, such as a conversation around whether a staff member might be interested in buying in. If you fail to adhere to the Act then you could be liable to a fine of up to $500,000 and a term of imprisonment of up to 5 years.
Still got questions? Want some help? Get in touch: firstname.lastname@example.org or phone 04 970 3600.