Most companies have multiple shareholders, and the number of shareholders often expands as the company grows. To make life easier, companies usually require new shareholders to sign a deed of accession, also known as a ‘deed of adherence’, to legally bind the party to the existing shareholder agreement. This saves time and money of having to re-draft and re-sign a new shareholder agreement every time a new shareholder joins. Legal Kitz have put together this handy blog post to help explain to you this concept!
What is a deed of accession?
When someone wishes to become a new, registered shareholder in a business, they are often required to sign a deed of accession. This ensures that the new shareholder is subject to the same rules, rights and commitments as the other existing shareholders. These rights and obligations are established in a shareholder agreement, of which is only binding for those who sign the agreement. By signing a deed of accession, new shareholders can be included and bound to the original shareholder agreement, thus ensuring their rights and obligations are enforceable. Deeds do not require the consideration of the other parties involved for courts to enforce them, thus proving advantageous in certain circumstances.
What is a shareholder agreement?
A shareholder agreement is usually far more extensive than the deed of accession, but they are directly connected. The agreement will outline how a company should be managed and operated, as well as stating the rights, obligations and liabilities of shareholders. This document aims to protect the rights of all the shareholders and uphold conduct standards of equity. A deed of accession simply upholds this agreement, and makes new shareholders identically accountable to the existing shareholders.
How are deeds of accession structured?
A deed of accession can be structured in a number of ways, depending on the company. Sometimes they require other shareholders of the company to also sign the deed, or it may be written as a deed poll, in which only the new-comer has to sign the deed. However it is structured, the purpose and nature of the deed remains the same; to ensure the new shareholder is legally bound to the obligations of the existing shareholders agreement, and they are also able to enforce the terms of the shareholders agreement.
Legal advice
Therefore, deeds of accession serve as a cost-savvy means of avoiding creating a new shareholder agreement every time a shareholder comes on board. Instead, signing a deed creates the same level of accountability, to ensure the original agreement is relevant. If you require any assistance in drafting a deed of accession, Legal Kitz is here to help! We offer FREE 30-minute consultations to assist you with any queries or concerns regarding deeds of accession. Book here now for your free consult. Additionally, our sister company, Business Kitz, have over 200 templates available for all of your employment, legal and commercial document needs. Take a look at their subscription plan to determine whether it suits your businesses needs!