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Shareholders agreements often attach a document called a deed 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 the original shareholders set up a company, they often enter 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 general meetings;
  • director’s and shareholder’s 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.

When new people invest in a company, the company issues them with shares and they become shareholders. The shareholders agreement is only binding to (i.e. mandatory to be complied with) the people who agree to it and sign it. This is different from the company’s constitution, which is automatically binding on all shareholders, new and existing.

The deed of accession binds the new investors to the existing shareholders agreement. A new shareholder (who is not a party to the shareholder agreement) can sign a deed of accession to the shareholders agreement. Upon signing this, the new shareholder must comply with the shareholders agreement’s provisions. 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 are also beneficial in saving everyone time and money. For example, it removes the need to draft lengthy shareholders agreements each time new shareholders choose to invest in the company. Instead, you can arrange for the deed of accession to be signed by each new shareholder.

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What 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
  • be able to enforce the terms of the shareholders agreement against the company’s existing shareholders.

Remember that the form of the document itself will vary, depending on the structure and form of the shareholders agreement.

What Next?

When you bring on new investors, they should sign a deed of accession as one of the first steps. However, you should also send the investors a share subscription letter or deed which sets out the number of shares, price, and other details.

After these crucial steps are completed, the next step is to have investors sign and pay. This means they should:

  • pay subscription money to the company’s bank account; or
  • pay money into an escrow account where it is held until an agreed date; or
  • raise an agreed amount of money.

Once this has been completed, the investor should send back the signed share subscription letter or deed, as well as the deed of accession if they have not already done so.

Finally, your company should engage in the closing steps of taking on new investors. This includes, but is not limited to the company:

  • approving each new investor;
  • issuing shares and sending share certificates;
  • updating ASIC records; and
  • updating shareholders.

Key Takeaways

The deed of accession is a document used to bind new investors to your company’s existing shareholders agreement. It is usually a relatively simple document and may be attached to the 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.

If you need assistance creating a deed of accession or have questions about shareholders agreements, LegalVision’s commercial contract lawyers can help. Contact them on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What is a shareholders agreement?

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.

What is a deed of accession?

A deed of accession is a document that binds new people to a shareholders agreement that already exists at a company. When a new person becomes a shareholder they are automatically bound to the company constitution, but a deed of accession means they are also agreeing to the shareholders agreement.

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