Should You Use A Deed Of Accession For New Investors?

Amira runs a growing software company in Manchester. She set up the company with two co-founders, put a shareholders agreement in place early, and now an angel investor wants to come on board.

The investment itself feels exciting. But then someone asks: has the investor signed a deed of accession? Suddenly, a simple share issue starts to feel more complicated than it needs to be.

The good news is that a deed of accession is usually a fairly straightforward document. Its job is to make sure a new shareholder or investor is properly bound by the existing shareholder arrangements, rather than sitting outside them.

If you're bringing in a new investor, issuing shares or transferring shares to someone new, this is one of those small legal steps that can save a lot of confusion later.

What Is A Deed Of Accession?

A deed of accession is a legal document that brings a new person into an existing agreement, usually a shareholders agreement.

In this context, it means the new investor agrees to be bound by the shareholders agreement as if they had signed it when it was first made. You'll sometimes hear it called an investor accession deed, deed of adherence or accession deed.

Most shareholders agreements are signed by the original founders or shareholders. But when someone new joins later, they aren't automatically a party to that private contract just because they receive shares.

A deed of accession closes that gap. It usually says the new investor:

• agrees to comply with the shareholders agreement
• gets the rights given to shareholders under that agreement, if the agreement says they should
• accepts restrictions on selling or transferring shares
• agrees to confidentiality obligations
• may be subject to drag along, tag along, non-compete or non-solicit obligations, depending on the agreement

For example, if your shareholders agreement says no shareholder can sell shares to a third party without first offering them to the existing shareholders, the new investor needs to be bound by that rule too. Otherwise, you may find it much harder to enforce it against them.

Do You Need A Deed Of Accession For A New Investor?

Yes, you'll usually need a deed of accession if your company already has a shareholders agreement and a new investor is becoming a shareholder.

The exact answer depends on what your shareholders agreement says. Many shareholders agreements include a clause requiring any new shareholder to sign an accession deed before they receive shares. This is common in UK startups, family companies and investor-backed SMEs.

You may need one when:

• you issue new shares to an investor as part of a fundraising round
• an existing shareholder transfers shares to a new person
• a co-founder leaves and sells their shares to someone else
• an employee, adviser or consultant receives shares
• a corporate investor or family trust becomes a shareholder
• you restructure ownership and bring in a new holding company or investor vehicle

If there's no shareholders agreement, there may be nothing for the new investor to accede to. In that case, you might instead need a new shareholders agreement, updated articles of association, a subscription or investment agreement, or a mix of these documents.

If your shareholders agreement is old, or your company has changed a lot since it was signed, it's worth reviewing your shareholders agreement to check whether a simple accession deed is enough. Sometimes bringing in a new investor is the right moment to refresh the shareholder documents properly.

How Does A Deed Of Accession Work With A Shareholders Agreement?

A deed of accession works by making the new investor a party to the existing shareholders agreement.

Your shareholders agreement is a private contract between the people who signed it. It usually deals with practical and commercial matters that don't appear in the company's public filings, such as:

• how major decisions are approved
• what happens if a founder leaves
• rights of first refusal if someone wants to sell shares
• drag along and tag along rights on a sale
• dividend policy
• restrictions on competing with the company
• confidentiality and intellectual property obligations
• deadlock processes if shareholders can't agree

When a new investor signs the deed of accession, they usually promise to observe and perform the shareholders agreement from the date they become a shareholder.

The deed may also confirm whether the investor is joining in a specific capacity. For example, they might join as an ordinary shareholder, preference shareholder, minority investor or founder shareholder. This matters because different classes of shareholders can have different rights.

Say Mike and Priya own a design agency through a limited company. Their shareholders agreement says any shareholder with more than 25% of the shares must approve large borrowing, hiring a managing director and selling key IP. If a new investor buys 30% of the company but doesn't sign the shareholders agreement or a deed of accession, Mike and Priya may struggle to rely on those consent rights against them.

That's why the accession deed is usually signed before, or at the same time as, the share issue or transfer completes.

Does A New Shareholder Agreement Replace A Deed Of Accession?

Sometimes, but not always. A new shareholders agreement may replace a deed of accession if everyone is signing a fresh agreement that deals with the new ownership structure.

There are usually two main options when a new shareholder joins your UK company.

Option 1: Keep The Existing Shareholders Agreement

If the current shareholders agreement still works well, the new investor can usually sign a deed of accession. This is often simpler and cheaper than rewriting the full agreement.

This option can work well where:

• the new investor is a minority shareholder
• the investment terms are straightforward
• the existing agreement already allows new shareholders to join
• you aren't changing decision-making rights or share classes

Option 2: Sign A New Shareholders Agreement

If the investment changes the way the company is run, a new shareholders agreement may be a better fit.

You may need a new agreement where:

• the investor wants board appointment rights, veto rights or other investor rights
• you're creating preference shares or different share classes
• the old agreement doesn't match the current business
• founder vesting, leaver rules or exit provisions need updating
• the investor has negotiated detailed information rights
• there are multiple new investors joining at once

In a larger fundraising round, the documents may include a subscription agreement or investment agreement, updated articles of association, a new shareholders agreement and Companies House filings. In a smaller round, an accession deed and share issue paperwork may be enough.

Templates can be tempting here, but they often miss how the documents need to fit together. A small mismatch between your shareholders agreement, articles and share paperwork can create a headache later.

How Does An Accession Deed Work With Articles Of Association?

An accession deed doesn't replace your articles of association. It works alongside them.

Your articles of association are the company's constitutional rules. Under the Companies Act 2006, the articles bind the company and its members in relation to their rights and obligations as members. They're filed at Companies House and are publicly available.

A shareholders agreement is different. It's a private contract and usually contains more detailed commercial terms between the shareholders.

Both documents matter, but they do different jobs.

What The Articles Usually Cover

• share rights attached to each class of shares
• how directors are appointed and removed
• how board and shareholder meetings are called
• rules for issuing and transferring shares
• dividend mechanics
• company administration and governance

What The Shareholders Agreement Usually Covers

• founder obligations and leaver provisions
• investor consent rights
• confidentiality
• non-compete and non-solicit restrictions
• exit arrangements
• deadlock processes
• extra controls over share transfers

If the articles and shareholders agreement conflict, the position can get messy. For example, your shareholders agreement might say an investor must approve new share issues, but your articles may allow the directors to issue shares more freely. That kind of inconsistency can lead to disputes about what approvals were actually needed.

Before a new investor joins, it's sensible to check whether the articles need to be updated as well. If you change the articles, you'll usually need a special resolution of shareholders and a filing at Companies House.

What Should An Investor Accession Deed Include?

An investor accession deed should clearly identify the new investor, the company, the existing shareholders agreement and the obligations the investor is accepting.

The details will depend on your deal, but a well-drafted deed of accession usually includes:

• Company details: the company name, company number and registered office.
• New investor details: the investor's name and address, or company details if the investor is a corporate entity.
• Existing agreement details: the date and parties to the shareholders agreement being joined.
• Accession wording: a clear statement that the investor agrees to be bound by the shareholders agreement.
• Rights of the investor: whether the investor receives the same rights as all other shareholders or only certain investor rights.
• Share details: the number and class of shares being issued or transferred.
• Effective date: when the obligations start.
• Confidentiality: confirmation that the investor must keep company and shareholder information confidential.
• Execution clauses: signing blocks that work for individuals, companies or LLPs.

A deed has particular signing requirements. For example, an individual usually signs in the presence of a witness. A UK company can commonly execute through two authorised signatories, or by one director signing in the presence of a witness.

This matters because a deed that isn't signed correctly can be harder to rely on. If your investor is overseas, a company, a fund or a nominee, check the execution process carefully.

How Do You Bring A New Investor Into The Company?

You bring a new investor into the company by lining up the commercial deal, shareholder approvals, accession deed, share issue or transfer documents and Companies House filings.

The exact steps depend on whether the investor is receiving new shares from the company or buying existing shares from another shareholder.

If The Company Is Issuing New Shares

A share issue, also called an allotment, means the company creates and issues new shares to the investor. This can dilute existing shareholders, so your approvals need to be checked carefully.

The usual steps include:

1. Check the articles and shareholders agreement for pre-emption rights, investor consent rights and director authority to allot shares.
2. Agree the investment terms, including price per share, share class, completion date and any special rights.
3. Get the required board and shareholder approvals.
4. Have the investor sign the deed of accession, usually before completion.
5. Issue the shares and update the company's register of members.
6. Give the investor a share certificate. Under the Companies Act 2006, this is generally within two months of allotment.
7. File form SH01 at Companies House. This must generally be done within one month of the allotment.
8. Check whether the PSC information on the Companies House register needs updating.

If the investor will own or control more than 25% of the shares or voting rights, or otherwise has significant control, you may need to update the persons with significant control information. If the investor becomes a PSC, the company will usually need to provide the updated PSC information to Companies House within 14 days of having confirmation of the change.

If Shares Are Being Transferred

A share transfer means an existing shareholder sells or transfers their shares to the investor. The company isn't creating new shares, but the ownership changes.

The usual steps include:

1. Check the articles and shareholders agreement for transfer restrictions and pre-emption rights.
2. Prepare a stock transfer form and any sale agreement needed for the shares.
3. Check whether Stamp Duty applies. For UK shares, Stamp Duty is generally 0.5% of the consideration and usually applies where the consideration is more than £1,000.
4. Have the investor sign the deed of accession before the transfer is registered.
5. Approve the transfer at board level, if required.
6. Update the register of members once the transfer is accepted.
7. Issue a new share certificate, generally within two months after the transfer is lodged with the company.
8. Update PSC information at Companies House if the investor's level of control triggers the PSC rules.

Your annual confirmation statement will also need to reflect shareholder information, but don't wait until then if another Companies House filing is required sooner.

Common Mistakes To Avoid

The most common mistake is treating the share issue or transfer as the only legal step. The investor might receive shares, but still not be properly bound by the shareholder rules you rely on.

Watch out for these issues:

• Forgetting the deed of accession: this can leave the new shareholder outside key restrictions in the shareholders agreement.
• Signing too late: it's safer to have the investor sign before or at completion, not weeks after they become a shareholder.
• Ignoring the articles: your articles may contain transfer rules, pre-emption rights or share class provisions that affect the deal.
• Using the wrong share class: ordinary shares, preference shares and growth shares can carry very different rights.
• Missing Companies House filings: late or incorrect filings can create avoidable admin problems and confusion for future investors.
• Not checking founder and investor consents: your shareholders agreement may require specific approvals before issuing or transferring shares.
• Assuming all investors get the same rights: some investors may only receive limited rights, while lead investors may negotiate extra controls.

Also think about confidentiality and intellectual property. If your investor will receive sensitive business plans, customer information, financial data or product roadmaps, the shareholders agreement and accession deed should protect that information properly.

If your company owns valuable brands, software, designs or content, make sure the ownership position is clear. Trade marks are registered through the UK IPO, while copyright usually arises automatically in the UK. Either way, your investor documents should avoid any doubt about who owns the company's IP.

Key Takeaways

• A deed of accession helps make a new investor bound by your existing shareholders agreement.
• Receiving shares doesn't automatically make someone a party to a private shareholders agreement.
• Your accession deed should work neatly with your articles of association, share issue or transfer documents and Companies House filings.
• You may need a new shareholders agreement instead if the investment changes control, share rights or decision-making rules.
• If a new investor becomes a PSC, updated PSC information usually needs to be provided to Companies House within 14 days of confirmation.
• Getting the paperwork right at the start can make future fundraising, exits and shareholder changes much smoother.

If you'd like help with deed of accession, shareholders agreements, investor paperwork or share issue documents, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.