When you are taking on additional investors, they will need to become a party to any existing shareholders agreement. Shareholders agreements are typically structured to allow additional parties to be added after the fact by way of those additional parties signing a deed of accession. Shareholders agreements will often schedule (attach) a template document which the company can use as deeds of accession. A deed of accession (also sometimes known as a deed of adherence) is a deed that binds a person to an existing shareholders agreement. This article explains what a deed of accession is, why companies use them and sets out the circumstances when it is necessary to use a deed of accession.
What is a Deed of Accession?
When you and your fellow founders set up your company, or when you took on your first investors, you likely entered into a shareholders agreement. The shareholders agreement defines the relationship between the shareholders and the company, and between the shareholders themselves. The shareholders agreement also outlines:
- the roles and responsibilities of the directors, the shareholders and the key people involved in the company;
- how you should hold board and shareholder meetings;
- directors’ and shareholders’ voting rights;
- how you should issue and sell shares (including any pre-emptive rights);
- how to resolve board deadlocks; and
- tag-along and drag-along rights.
If you start taking on additional investors through issuing shares, these new investors will become shareholders in your company. Your existing shareholders agreement only binds the shareholders who agree to it and sign it. This is different from the company’s constitution, which automatically binds all new and existing shareholders.
A deed of accession is a document that will bind any new shareholders to your existing shareholders agreement. Ideally, the new shareholder should sign the deed of accession as soon as they become a shareholder. Signing a deed of accession also ensures the new shareholder receives the benefit of the rights given to shareholders under the shareholders agreement.
Advantages of Including a Deed of Accession in a Shareholders Agreement
There are several advantages to using a deed of accession. One key advantage is that it is a simple way of ensuring the original shareholders agreement is binding on all shareholders, old and new.
Deeds of accession also save everyone time and money. For example, you will not have to pay to redraft an entire shareholders agreement with the new shareholders.
Continue reading this article below the formWhat Does a Deed of Accession Include?
The deed of accession is a relatively simple document. Sometimes, the deed of accession will be in the form of a deed poll, so that only the new shareholder needs to sign it. At other times, the company may also need to sign the deed.
The basic terms are that the new shareholder will:
- agree to comply with the obligations in the existing shareholders agreement; and
- obtain the benefit of enforcing the terms of the shareholders agreement against all the other parties.
Remember that the form of the document itself will vary depending on the structure and form of the shareholders agreement. For example, a deed of accession often requires the new shareholder to nominate their notice details so that the company and other shareholders know how to get in touch with them.
What Next?
When you onboard new investors, you should ensure that one of the conditions of the investment is that investors must each sign a deed of accession. This is an important requirement that the investors will have to fulfil at the same time as they sign any other documents required to subscribe for shares, such as a share subscription agreement that sets out the number of shares, price, and other details.
If you are a company director, complying with directors’ duties are core to adhering to corporate governance laws.
This guide will help you understand the directors’ duties that apply to you within the Australian corporate law framework.
Key Takeaways
The deed of accession is a document that, when signed, binds new shareholders to any pre-existing shareholders agreement. Having a deed of accession saves considerable time and money because it removes the need to redraft the shareholders agreement each time a new shareholder joins. Provided your existing shareholders agreement was properly drafted, it will likely permit new shareholders to join the agreement via a deed of accession. It may also contain a template deed of accession that can be adopted for the new shareholders to sign.
If you need assistance creating a deed of accession or have questions about shareholders agreements, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
A shareholders agreement is a document that sets out the relationship between the shareholders and the directors of a company. Companies will most often refer to it when they are making important decisions about the company. It creates a separate, contractual set of obligations between and among the parties to the agreement. These obligations are separate from any owed under the Companies Act.
Anytime someone new obtains shares in the company, they are automatically bound by the company’s constitution. However, if there is an existing shareholders agreement in place, because this is a separate contract from the company’s constitution, it does not automatically bind new shareholders. A deed of accession is a document that binds new shareholders to any pre-existing shareholders agreement.
Yes. For minor amendments, your shareholders agreement might allow for a deed of amendment to make specific changes to your existing agreement. You should check the amendment provisions in your shareholders agreement, but the standard threshold is that amendments will require the consent of all existing signatories. If you are progressing to a larger capital raise, such as a series A, lead investors such as venture capital firms might insist on negotiating a new shareholders agreement.
If your shareholders agreement allows for additional shareholders to become a party by executing a deed of accession, your shareholders agreement will often require you to use a deed of accession that is in the same form as the template deed of accession scheduled to your shareholders agreement.
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