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Agreeing terms for a new share investment

Once you have found a potential investor for your A private company limited by shares incorporated and registered in England and Wales. 's Shares in the capital of a company (sometimes also referred to as stock, for example in relation to US companies). Shares in a company give to the holders, known as shareholders, rights in relation to that company such as to vote, to receive dividends and to a return of capital. Holders of shares in a company own that company and the company, not its shareholders, owns the company's assets. , you will need to agree the conditions on which they will invest. Agreeing on these conditions can take some time and will involve negotiation. This section will help you to understand the legal agreements you are likely to sign, why each agreement is needed, and the key legal issues you should look out for during negotiations. It also explains the steps you should take after you have reached agreement with the investor.

financing-a-business

Common types of legal agreement for a new share investment

  1. 1.What legal agreements will I come across if my company issues shares to a new investor?
  2. 2.Who prepares the legal agreements if my company issues shares to a new investor?
  3. 3.Why is a term sheet and exclusivity agreement important if my company wishes to issue shares to a new investor?
  4. 4.Why is a shareholders' agreement important if my company issues shares to a new investor?
  5. 5.What terms should be included in a shareholders' agreement?
  6. 6.Why is a disclosure letter important if warranties are given to a new investor?
  7. 7.Will I need to change the articles of association if my company issues shares to a new investor?
  8. 8.Why will a new share investor sometimes require new or changed contracts of employment for senior managers?
  9. 9.Why will a new share investor sometimes need a loan agreement?

A new share investor's conditions

  1. 10.What conditions will a new share investor want to be satisfied before investing in my company?

Number of shares to be issued to the new investor

  1. 11.How many shares should the new investor receive?

Pre-emption rights

  1. 12.What are pre-emption rights and why are they important?

How a company is run

  1. 13.Will the way my company is run change once a new investor becomes a shareholder?

Information provided to a new share investor

  1. 14.What information will I need to provide to a share new investor?

Warranties

  1. 15.What are warranties?
  2. 16.What is the purpose of warranties?
  3. 17.How should I approach the giving of warranties requested by a new investor?
  4. 18.What is disclosure and why is it so important?
  5. 19.Limitations of liability for warranties

Veto rights

  1. 20.Why will a new share investor usually ask for veto rights?

Transfers of shares – voluntary and involuntary

  1. 21.Will the new share investor and other shareholders be able to transfer their shares as they please?
  2. 22.What are 'leaver provisions' and why might a new share investor want them?
  3. 23.Which shareholders will be subject to 'leaver provisions'?
  4. 24.What are the different types of 'leaver' and what price will they receive for their shares?
  5. 25.What is a drag along right and why is it important?
  6. 26.What is a tag along right and why is it important?
  7. 27.Why is it important to include restrictions on a former shareholder's ability to compete with my business?

Fees

  1. 28.What fees will I need to pay if my company issues shares to a new investor?

Selling your company

  1. 29.What will a shareholders' agreement with a new investor typically say about a sale of my company?

Steps to take before agreeing terms with a new share investor

  1. 30.What do I need to do before signing a shareholders' agreement and issuing shares to a new investor?
  2. 31.What board and shareholder approvals will I need?

Steps to take after agreeing terms with a new share investor

  1. 32.What do I need to do after issuing shares to a new investor?
  2. 33.What do I need to keep under review?

Written board resolution approving shareholders' agreement and new articles

Use this written board resolution approving shareholders’ agreement and new articles in your company’s process when it signs off on the use of our shareholders’ agreement. It is not sufficient for your shareholders to simply sign the Shareholders’ agreement . You must adopt the Articles of association for shareholders’ agreement that are designed to work with it, and make sure that your board and shareholders approve everything: use this simple written board resolution to approve the shareholders’ agreement and new articles; and get your shareholders’ approval of the new articles. This written board resolution is simple to create and easy to use – just get the signatures of your board members to pass it. If you would prefer to have your board approve everything in an actual board meeting, you can use Board minutes approving shareholders’ agreement and new articles instead of this written resolution. If you only have one company director, use the special Sole director resolution approving shareholders’ agreement and new articles for the job instead. You can also purchase this document as part of the Shareholders' agreement toolkit , which will guide you through the full process.
£20 + VAT

Filing copy of shareholder written resolution approving share issue and new articles

Use this template to generate a copy of a shareholder written resolution, suitable for filing at Companies House, if your company: issues shares to a new shareholder without offering them first to existing shareholders; and at the same time adopts new articles. You are legally required to file a copy of the shareholders’ resolution at Companies House within 15 days of it being passed. By using this template you fulfil this legal requirement and minimise the risk of fines or complaints against your company. It is assumed that your company will be entering into a shareholders’ agreement and adopting new articles in the forms which you will find in, respectively, the templates Shareholders’ agreement (new share investor) and Articles of association (new share investor) .
£20 + VAT
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