Deed of Adherence (A193)

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This Deed of Adherence is a short document for use where an individual becomes a shareholder in a company. The deed is required to become a party to a shareholders’ agreement, entered into before he can obtain his shares.

It is quite common for a shareholders’ agreement to contain a condition that if a shareholder transfers his shares in the company to someone who is not already a shareholder, by sale or gift, the transferee should become a party to the shareholders’ agreement in his place.

This Deed of Adherence is for use in those circumstances and commits the new shareholder to become bound by the terms of the shareholders agreement. The wording also allows for the document to apply when the new shareholder, instead of acquiring his shares from an existing shareholder, subscribes for new shares in the company and is required to become a party to the shareholders agreement.

The Introduction sets out the particular circumstances of the new shareholder’s acquisition of the shares – so one of the two versions of Paragraph A should be deleted.

As this document does not involve any ‘consideration’ under English law it needs to be in the form of a deed to ensure that it is legally enforceable. A consequence of using a deed is that the manner in which it is signed (or ‘executed’) is important: an individual is required to sign the deed in the presence of an independent witness and we recommend the full name and address of the witness are written into the document as indicated. More information on signing documents can be found at signing contracts.

There are, apart from the Introduction, three short clauses:

Clause 1 sets out the basic commitment of the new shareholder, namely that he becomes bound by the terms of the shareholders’ agreement from the date he becomes a shareholder in the company. It also makes it clear that he has been provided with a copy of the shareholders’ agreement, so he knows what he is committing himself to.

Clause 2 applies where the new shareholder received his shares from an existing shareholder: it clarifies the fact that the outgoing shareholder is not relieved of any liability he had before ceasing to be a shareholder. If the new shareholder is issued with shares by the company instead of getting existing shares, this clause should be deleted.

Clause 3 specifies that English law and the jurisdiction of the English courts apply to the deed.

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