Deed of adherence for a shareholders' agreement: what it is and when you need one

A shareholders' agreement is a contract, and a contract binds only the people who sign it. So what happens when someone new gets shares, whether a new co-founder, a family member or a buyer? The answer is a deed of adherence. For any shareholders' agreement, the deed of adherence is the small document that keeps the whole arrangement working as your shareholder list changes.

It is easy to forget. It is also one of the cheapest problems to avoid.

Deed of adherence: meaning in plain English

A deed of adherence is a short document in which a new shareholder agrees to be bound by an existing shareholders' agreement as if they had signed it on day one. They take on the same obligations and get the same rights as the original founders.

Without it, the newcomer is bound by the company's articles, because the articles bind the company and every member automatically (Companies Act 2006, section 33). But they are not bound by the shareholders' agreement. The leaver rules, the transfer restrictions, the reserved matters and the restrictive covenants would not apply to them. Our post on shareholders' agreement vs articles of association explains why that gap exists.

Deed of adherence vs deed of accession

You will see both terms. In practice they describe the same idea: a newcomer signing up to an existing agreement. "Deed of adherence" is the more common label for shareholders' agreements; "deed of accession" is often used for loan and security documents. What matters is what the document says, not its name. Check that it:

• names the agreement it relates to, by date;
• says the new shareholder agrees to be bound as if they were an original party;
• says from when (usually the date they acquire shares); and
• is signed and witnessed as a deed.

When a new shareholder must sign a deed of adherence to the shareholders' agreement

In the Founders & Shares agreement, the definition of "Shareholder" includes anyone who becomes a party by signing a Deed of Adherence, while they hold shares. The agreement then requires one at each point where someone new can come in:

• New shares. If the company issues shares and the existing founders do not take them all up, they can go to someone else, but only if that person signs a Deed of Adherence first (clause 11).
• A sale to an outsider. If a founder offers their shares to the others and they do not buy, the founder can sell to the named outside buyer only once that buyer signs a Deed of Adherence (clause 12.7).
• A family transfer. A founder can transfer shares to a spouse, civil partner, parent, sibling or child. The transfer must not complete until the family member has signed a Deed of Adherence (clause 12.8). Transfers to companies or trusts are not allowed at all.
• A nominated buyer for a leaver's shares. If a leaver's shares are not taken up, the remaining founders can nominate a buyer, who must sign a Deed of Adherence first (clause 13.5).

The timing matters. Sign before the shares change hands, not afterwards. Once someone is on the register of members they are a member (section 112), and it is much harder to get a signature from someone who already has what they wanted.

The Cross-Option Deed paragraph

The Founders & Shares pack includes a Cross-Option Deed, which deals with a founder's shares if they die. It is a separate document between the founders personally, so a newcomer needs to sign up to it as well.

The Deed of Adherence in Schedule 3 of the agreement has a bracketed paragraph that does both at once. Keep it if you have signed the Cross-Option Deed. The new shareholder then grants and receives the same options as everyone else, and agrees to apply for life cover under the Cross-Option Deed. For a family transfer, the Cross-Option Deed adherence can only be skipped if all the founders agree in writing, and the transferred shares then fall outside the death arrangement. The Cross-Option Deed has its own stand-alone deed of adherence (Schedule 4) too.

When someone joins, review the agreed value and the life cover. Our post on why your shareholders' agreement isn't enough if a founder dies explains why that matters.

How to sign a deed of adherence

It is a deed, so the formalities are stricter than for an ordinary contract:

• It must say it is a deed. A document is a deed only if it makes clear on its face that it is intended to be one (Law of Property (Miscellaneous Provisions) Act 1989, section 1(2)). The words "EXECUTED AS A DEED" and "Signed as a deed" do this. Do not delete them.
• It must be witnessed. An individual must sign in the presence of a witness who attests the signature (section 1(3)).
• The witness must be physically there. The Law Commission's 2019 report on electronic execution states that a deed must be signed in the physical presence of a witness, even where both use electronic signatures. Do not witness over video.
• It must be delivered as a deed (section 1(3)). In practice: date it once it is signed and you intend it to take effect.

The pack's guidance is to use an independent adult witness: not a founder, not a family member, and not anyone who benefits under the documents. That is best practice rather than a statutory rule, but the witness may one day need to confirm what happened.

After it is signed

Keep the signed original with the company's records alongside the shareholders' agreement. Then deal with the company law steps for the shares themselves. For a transfer, the company must register it, or tell the buyer it refuses and why, within two months of the transfer being lodged (section 771). For new shares, there are filings at Companies House. The pack's Signing-Day Pack has a checklist for these steps, but you file everything yourselves.

Any issue or transfer of shares can have tax consequences, including stamp duty on a transfer. Take advice from an accountant.

If a newcomer arrives because a founder is leaving, read good leaver and bad leaver clauses first.

What a template can and cannot do

The Founders & Shares pack includes a ready-made Deed of Adherence form in Schedule 3 of the agreement, so you do not need a separate template. It is designed for a newcomer who is an individual holding ordinary shares for themselves.

Speak to a solicitor if the new shareholder is an investor with their own terms, a company, a trust or a nominee, or if they want to change the agreement as a condition of joining. Any change to the agreement itself needs to be in writing and signed by all the parties, including the company (clause 21.3). See our shareholders' agreement FAQs for more.

This is general information, not legal advice on your situation.

The Founders & Shares shareholders' agreement pack includes the Deed of Adherence, the Cross-Option Deed and a Signing-Day Pack with witness checklists.

Sources

• Companies Act 2006, s 33 (effect of company's constitution)
• Companies Act 2006, s 112 (the members of a company)
• Companies Act 2006, s 771 (procedure on transfer being lodged)
• Law of Property (Miscellaneous Provisions) Act 1989, s 1 (deeds and their execution)
• Law Commission: Electronic execution of documents (report, 2019)