If you’re actively reading this after completing an investment round, and you’re ready to bring on more capital, then give yourself a pat on the back. That isn’t easy.
If you’re reading this for information before your investment round, then hopefully it gives you a good target to reach towards if raising investment is one of your business goals.
How to add new investors
Once you already have a set of investors, who are now shareholders in your business, and are party to your investment and shareholders agreement (which you can create here with Legal Sidekick if you haven’t already done so), if you want to add more then you should go through this process:
STEP 1 – DEALING WITH EXISTING SHAREHOLDERS’ RIGHTS
- Pre-emption Rights or Rights of First Refusal
Your existing investors will more than likely have a right to participate in any future equity investments in your company, in an amount proportionate to the shares they currently hold. If you created your documents on Legal Sidekick then this will be the case. That right is called a pre-emption right (i.e. a right to ‘pre-empt’ the next investment).
You need to give your investors a chance to exercise their pre-emption right.
For example: If an investor holds 1% of your company, and you are taking on £100,000 of new investment from a new investor, then the original investor will have a right to invest 1% of it (£1000) at the agreed price.
You can give them that right by sending them a simple letter, giving them the option to take up their pre-emption rights and invest, also giving them a time limit of 21 days within which to accept the offer or not. Download a template for that letter here.
- Alternatively – ask shareholders to waive their right to invest
Rather than giving shareholders the option to invest in the new round, you can ask them to just ‘waive’ their right to do so, so that you do not need to go through the above process.
You can send them a shareholder written resolution (template in link), which they can sign and send back to you (including with e-signing) to confirm that the original investment can go ahead without any interference from existing investors.
You need 75% approval from the existing shareholders’ for this resolution to be accepted, and for the new investment to go ahead as planned.
STEP 2 – ADDING NEW INVESTORS TO THE DOCUMENTS
To add new investors to your shareholder documents, you can either:
- have them sign a one page document called a Deed of Adherence, which ‘adheres’ them to the existing shareholder documents, or
- create updated shareholder documents, which covers the new investment.
Use the Deed of Adherence where all existing documents are staying the same – e.g. adding one new angel investor.
Where can I find the Deed of Adherence? The template of it should be in one of the Schedules to your original investment and shareholder agreement. You can just copy and paste it into a new document, and ask all shareholders to sign it.
Use option 2 (i.e. new documents) when new shareholder(s) want to renegotiate the existing documents. Ideally, you use the existing investment and shareholder agreement as a base, and ask the new investors to make changes where needed.
STEP 3 – CONCLUDE THE INVESTMENT FORMALITIES
After concluding the legal documents, you go through the usual process of
(1) issuing shares via an SH01 form (see worked example in the link),
(2) issuing share certificates (see template in link), and
(3) updating your company shareholder register (see template in link).
If you have questions then feel free to get in touch with the Legal Sidekick team.
This Step by Step Guide was written by Legal Sidekick. Legal Sidekick is the legal platform for startups. We offer automated contracts and loads of startup legal resources and guides. For queries on fundraising, investments, company shares, or legal matters generally, contact us directly.