Meaning
Short legal documents ensure that new parties joining a company become bound by the terms of the existing shareholders agreement. Execution of deeds of adherence is a mandatory step whenever a new investor buys shares or an employee exercises stock options. This instrument creates a direct contractual link between the new holder and the original signatories.
Accession Instrument
Binding a newcomer to previous promises prevents the need to renegotiate the entire governing document every time a transfer occurs. Because deeds of adherence are usually attached as an exhibit to the main agreement, their form is fixed from the start. The document is signed by the new shareholder and often by the company on behalf of the other members.
Contractual Binding
Newcomers accept the burdens of the agreement along with the benefits of ownership.
Transfer Utility
Efficiency in the secondary market depends on a clear process for adding participants. Since deeds of adherence are concise and standardized, they allow for rapid closing of investment rounds. A failure to sign this document can result in a transfer being invalid or the new owner being denied voting rights.
This administrative step maintains the integrity of the private contract that governs the internal life of the business.
