Can You Accept Investment Before Your Shareholders Agreement Is Ready?

An investor is ready to transfer the money, but your Shareholders Agreement is still being finalised. Rather than delaying the investment - and potentially slowing down funding your business could really use - you might be tempted to accept the money now and sort out the final documents afterwards.

Can you do that?

Potentially, yes. Your Shareholders Agreement does not always need to be finalised before an investment can move forward. However, that doesn’t mean you should simply accept the money with nothing else in place.

The documents you need will depend on how the investment is structured, particularly whether the investor is receiving shares now or has a right to receive shares later.

What Actually Needs To Be Agreed Before You Take The Money?

All shareholders hold equity in a company, but not every investor necessarily becomes a shareholder as soon as they invest.

For example, an investor subscribing for new shares will become a shareholder once the relevant steps for the issue have been completed and they have been entered in the company’s register of members. Other investment structures can involve the investor providing money now, with shares being issued at a later stage.

This distinction matters because a Shareholders Agreement is only one part of documenting an investment.

Before money changes hands, the company and investor should be clear about the key terms of the deal. Depending on the investment, this could include how much is being invested, what the investor receives in return, the number and class of any shares, the subscription price or valuation being used, when the investment will complete and any conditions that need to be satisfied first.

If the investment will convert into equity later, the parties will also need to agree on how and when that conversion takes place.

These terms do not necessarily all belong in the Shareholders Agreement. Some may instead be recorded in a Share Subscription Agreement, Advanced Subscription Agreement, convertible loan note or another document suited to the particular transaction.

Getting these terms clear before accepting the funds can help avoid a much harder question later: what exactly did the investor pay for?

A Term Sheet Is Not The Same As The Final Investment Documents

Perhaps you already have a Term Sheet setting out the proposed investment. Does that mean you are ready to take the money?

Not necessarily.

A term sheet is commonly used to record the main commercial points the parties have agreed on while the final investment documents are being prepared. For example, it might cover the investment amount, proposed valuation, shareholding, investor rights and any major conditions attached to the deal.

However, a term sheet does not automatically replace the final investment documents.

Some term sheets are intended to be largely non-binding, with only particular provisions - such as confidentiality or exclusivity - intended to have immediate legal effect. This depends on how the document has been drafted and what the parties have actually agreed.

Before treating a term sheet as the basis for accepting funds, check what it actually says. Agreeing on the headline numbers does not necessarily mean all of the legal terms required to complete the investment have been settled.

What If The Investor Is Receiving Shares Immediately?

If an investor is putting money into your company in return for new shares now, the investment itself should be properly documented even if the final Shareholders Agreement is still being worked on.

A Share Subscription Agreement can document the investment transaction. It can cover matters such as how many shares the investor is subscribing for, what class they will receive, the subscription price and what needs to happen before the investment completes.

This serves a different purpose from a Shareholders Agreement.

The subscription agreement deals with the investment and issue of shares. The Shareholders Agreement deals more broadly with the ongoing relationship between the shareholders, including matters such as voting, management, share transfers, exits and other shareholder rights.

For some investments, these matters can also be dealt with together through a Subscription and Shareholders Agreement.

Whichever approach is used, issuing shares involves more than simply receiving the investor’s payment.

Does The Company Have Authority To Allot The Shares?

Before promising an investor new shares, the company needs to check that its directors have the authority to allot them.

Under the Companies Act 2006, the rules depend partly on the company’s existing share structure and Articles of Association.

For certain private companies with only one class of shares, section 550 of the Companies Act 2006 can give the directors authority to allot further shares of that class unless the company’s Articles restrict that power. In other circumstances, the directors may need authority under the company’s Articles or a shareholder resolution under section 551.

This is why the company’s Articles of Association should be checked as part of the investment process rather than assuming that an agreement with the new investor is enough.

If the investment involves creating a new class of shares or giving the investor particular rights, the Articles may also need to be amended.

What About Existing Shareholders?

A new investment can also affect the people who already own shares in the company.

Under the Companies Act 2006, statutory pre-emption rights can apply where certain equity securities are being allotted for cash. Broadly, these rights can give existing shareholders an opportunity to subscribe for new shares before those shares are offered elsewhere, helping them protect their proportionate ownership of the company.

However, the position depends on the company and the particular allotment. The statutory rights can be excluded or disapplied in certain circumstances, and a private company’s Articles can also exclude statutory pre-emption requirements.

The company should also check any existing Shareholders Agreement, as it may contain its own pre-emption provisions, investor consent requirements or other restrictions on issuing new shares.

So, before agreeing that a new investor will receive a particular percentage of the company, it is important to understand what rights the existing shareholders already have.

What Other Steps Are Involved In Issuing The Shares?

Once the commercial terms have been agreed, the company still needs to properly approve and record the share issue.

Depending on the company’s Articles, existing agreements and the investment itself, this can involve director resolutions, shareholder resolutions, dealing with pre-emption rights and making any required changes to the Articles.

Directors making these decisions also need to comply with their statutory duties under the Companies Act 2006, including exercising their powers for proper purposes and acting in good faith to promote the success of the company.

This can be particularly relevant where issuing new shares will dilute existing shareholders or change who has control of the company.

Once the shares are allotted, the company also needs to deal with its corporate records and Companies House filings.

A limited company must generally deliver a return of allotment on form SH01 to Companies House within one month of the allotment and provide an updated statement of capital. The new shareholder also needs to be properly recorded in the company’s register of members.

In other words, accepting the investment and issuing the shares should be treated as parts of the same transaction rather than something the company can piece together later.

What If The Investor Becomes A Person With Significant Control?

A significant investment can also affect the company’s People with Significant Control (PSC) information.

For example, an individual investor may become a PSC if they hold more than 25% of the company’s shares or voting rights. There are other ways someone can qualify as a PSC too, such as having the right to appoint or remove a majority of the board or otherwise exercising significant influence or control.

Where the investor is another company or legal entity, different rules can apply to identifying and registering the relevant legal entity in the company’s PSC information.

If the investment creates or changes PSC information, the company needs to make sure Companies House is updated. Where PSC information changes, Companies House generally needs to be told within 14 days after the company confirms the change.

This is another reason it is useful to consider the company’s ownership and governance position before the investment completes, rather than just focusing on the money coming in.

Do UK Fundraising Rules Matter?

They can.

Raising investment is not only about company law and issuing shares. Businesses also need to consider the UK’s rules around how investments are promoted.

Under section 21 of the Financial Services and Markets Act 2000, restrictions can apply to communications made in the course of business that invite or encourage someone to engage in investment activity.

A financial promotion can take many forms, including emails, websites, marketing documents, social media posts and other communications used to attract investment. Unless the relevant requirements or an exemption are satisfied, an unauthorised business may be restricted from communicating that promotion.

Separate rules can also apply where securities are being offered to the public. The UK’s Public Offers and Admissions to Trading Regulations 2024 regime came into force on 19 January 2026, replacing the previous UK Prospectus Regulation framework.

You do not necessarily need to become an expert in financial services regulation before speaking to an investor. However, companies should check that the way they are approaching investors and structuring a raise falls within the rules that apply to them.

What If The Investor Isn’t Becoming A Shareholder Yet?

Not every investment involves issuing shares immediately.

Early-stage companies sometimes use an investment structure where an investor provides funds now and receives shares later.

In the UK, one example is an Advanced Subscription Agreement (ASA).

Under an ASA, the investor pays subscription funds to the company before the shares are actually issued, with the agreement setting out when and how those funds will convert into shares.

HMRC recognises ASAs as a way of providing subscription funds at an early stage where shares will be issued later. They are also sometimes used where SEIS or EIS relief is relevant, although specific requirements must be met for an investment to qualify.

Depending on the investment, other structures such as convertible loan notes may also be considered. These do not all work in the same way. For example, an ASA involves an advance subscription for future shares, while a convertible loan note generally begins as debt that can later convert into equity under agreed conditions.

If SEIS or EIS treatment is important to the investor or company, separate tax advice should be obtained about eligibility.

Most importantly, using an ASA or another structure where shares will be issued later does not mean the investment can remain undocumented.

The agreement should clearly deal with matters such as how much is being invested, when shares will be issued, how the number or price of those shares will be determined and what happens if the expected conversion or share issue does not occur.

You may be able to postpone issuing the shares. You should not postpone agreeing on what happens to the investor’s money.

Can You Make The Investment Conditional On The Final Documents?

Another option is to agree to the investment without completing it immediately.

For example, a Share Subscription Agreement can provide that completion will only take place once certain conditions have been satisfied.

Depending on the investment, these could include obtaining the required director or shareholder approvals, dealing with applicable pre-emption rights, adopting amended Articles of Association or finalising and signing the Shareholders Agreement.

This can give both the company and investor greater certainty around the proposed deal while still making sure the necessary legal steps are completed before the shares are issued and the transaction is treated as complete.

If the Shareholders Agreement is nearly finalised, making its execution a condition of completion can sometimes be much cleaner than accepting the investment first and trying to agree on the remaining shareholder arrangements afterwards.

What If The Investor Has Already Transferred The Money?

Sometimes the money arrives before the paperwork catches up.

Perhaps the investor transferred the funds following a handshake agreement. Maybe there is a term sheet, but the subscription documents were never signed. Or perhaps everyone assumed the Shareholders Agreement could simply be dealt with later.

If this happens, it is important to establish exactly what has already occurred.

Have shares actually been allotted or issued, or has the company only received the investor’s money? What did everyone agree the payment was for? Are there emails, a term sheet or other documents recording the arrangement? What number and class of shares were promised? Were any conditions attached to the investment?

The company should then check its Articles of Association, any existing Shareholders Agreement, pre-emption rights and the approvals and corporate records relevant to the transaction.

If shares have already been allotted or issued, the company should also check that the register of members, Companies House filings and any relevant PSC information have been dealt with correctly.

What you generally want to avoid is leaving the investment in an uncertain position while the company and investor operate on different assumptions about what rights the investor actually has.

Why Not Just Finish The Shareholders Agreement Later?

It may be possible to progress an investment before the final Shareholders Agreement is signed. That does not necessarily mean leaving it until later is a good idea.

A Shareholders Agreement can deal with some of the most important questions that arise once a new shareholder joins the company.

Who makes major decisions? Does the investor have a right to appoint a director? Are there decisions that require particular shareholder approval? What information can shareholders access? Can founders freely sell their shares? What happens if the company itself is sold?

These matters can be much easier to agree before everyone is already locked into the relationship.

Importantly, becoming a shareholder does not automatically make someone a party to a Shareholders Agreement.

A Shareholders Agreement operates as a private contractual arrangement between the parties to it. If an investor has already received shares, the company cannot simply decide afterwards what contractual obligations that shareholder will have.

Where an agreement is already in place, the new investor may instead be required to sign a Deed of Adherence so they formally agree to be bound by it.

It is also important to make sure the Shareholders Agreement works properly with the company’s Articles of Association.

The Articles form part of the company’s constitutional framework and can deal with matters such as share rights, decision-making and transfers. Where an investor is receiving a new class of shares or particular rights attached to those shares, amendments to the Articles may therefore also form part of the investment.

This is one reason it can be much cleaner to deal with the ongoing shareholder arrangements as part of the investment process rather than assuming everything can be sorted out after the investor joins.

So, Can You Accept Investment Before The Shareholders Agreement Is Ready?

Potentially, yes.

A pending Shareholders Agreement does not necessarily mean an investment has to come to a complete stop.

What matters is having the right legal framework in place for the investment you are actually accepting.

If the investor is receiving shares now, the investment may need to be documented through a Share Subscription Agreement or similar agreement, alongside the necessary allotment authority, pre-emption process, company approvals, Articles and Companies House requirements.

If the investor is providing money now for shares to be issued later, an Advanced Subscription Agreement or another appropriate investment structure may be more suitable.

Alternatively, the company and investor may agree to the investment now but make completion conditional on the final Shareholders Agreement and other required documents being signed.

What you generally want to avoid is taking a significant investment first and leaving everyone to work out what the investor actually receives afterwards.

Getting Your Investment Documents In Place

An investment can involve several legal documents, and they do not all serve the same purpose.

A Share Subscription Agreement can document an investor subscribing for new shares. A Shareholders Agreement can establish the rules governing the ongoing relationship between shareholders once the investor is on board.

Depending on the raise, both elements can also be dealt with through a Subscription and Shareholders Agreement.

Where the investor is providing money before the shares will be issued, an Advanced Subscription Agreement may be more suitable.

The company’s Articles of Association may also need to be reviewed or amended so the company’s constitutional documents work properly with the investment and shareholder arrangements.

The right approach depends on your company, its existing Articles and shareholders, the investor and exactly what has been agreed.

Getting advice from a legal expert before the money or shares change hands can help make sure the investment documents, company approvals and shareholder arrangements all work together - rather than trying to fill in the gaps once the investor is already on board.

If you would like a consultation on getting the right legal agreements sorted before accepting investments, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.