A startup's guide to the deed of accession
So what exactly is a deed of accession ?
In short, it’s a legal document that binds someone to an existing agreement.
For this purpose of this post, we are referring to a deed of accession that binds a new shareholder to an existing shareholder agreement.
And why have one ? for one thing, cost savings are a big factor. Read on to learn more.
So how can you get cost savings from a deed of accession ?
In sum, instead of re-drafting your shareholder agreement when you have a new shareholder joining, you can re-use your existing one.
And how can you do this ?
Basically, your new party shareholder agrees to be bound by the terms of the existing shareholder agreement in the deed itself; read on to learn more.
Below is a sample clause you can include in the shareholder agreement that allows you to make the deed of accession requirement for new shareholders:
"Before any share registration (whether an allotment or transfer), a prospective shareholder must enter a deed of accession if they are not already a party to this shareholder agreement.
By executing a deed of accession, that shareholder is taken to be a party to this shareholder agreement.
Another key benefit of a deed of accession is to provide certainty for existing shareholders.
So certainty for existing shareholders will usually mean their original shareholder terms will not change even with the new party shareholder on board.
Read on to learn what's typically included in the deed.
Below are the usual key terms:
First up, the parties to the agreement:
New party - this is the new shareholder.
Transferor - shareholder that is transferring shares (if there is a transferrer and this is not an allotment).
Company details - the company in which the new shareholder is buying shares.
Following the parties section, you usually have a 'background' or 'recitals' clause - here's a tip - they mean the same thing.
So the background gives context to the legal agreement.
E.g. how the shares will transfer to the new party - transfer by another shareholder etc.
And a consent clause states that the existing shareholders agree for the new party to become a shareholder.
Importantly, representations are true statements about existing facts like the ones below.
If the new party is a corporation - that there has been valid registration of that company;
For a partnership - that the partnership has been setup properly; and
Authorisation - that the new party is legally able to enter into the deed and shareholder agreement.
Additionally, costs are an important factor. Read on to learn more.
Like many other agreements, there is usually a costs clause like the one below.
And if the other party wants you to pay their costs, you should negotiate this because you want to keep your costs lean. See the sample costs clause below.
"Each party will bear its own costs for the negotiation, preparation and execution of this Deed."
Following costs, duties are another factor to consider.
Duties are typically borne by the new party in a clause like the one below:
"All duty including but not limited to stamp duty and interest will be borne by the new party."
Finally, you want to clarify the law that applies, below is an example:
"The laws of New South Wales apply to this Deed. Each of the parties submits to the non-exclusive jurisdiction of the courts of that state."
This is a checklist of key Deed of Accession terms.