Investment Agreements and Shareholder Agreements for SMEs

Clear, practical legal advice on the documents that govern investment and ownership.

Investment agreements and shareholder agreements sit at the heart of most equity investments, whether involving private equity, growth capital, or strategic investors. These documents determine how value is shared, how decisions are made, and how risk is allocated, both during the life of the investment and on exit.

Jonathan Lea Network advises SME businesses, founders, and management teams on the negotiation and implementation of investment agreements and shareholder agreements across growth capital, private equity, and strategic investment transactions. Our role is to ensure these documents reflect commercial reality, protect our clients’ interests, and support long-term growth rather than creating unnecessary restriction or risk.

As a growing UK corporate and M&A law firm with a strong transactional practice, we combine technical expertise with a clear, plain-English approach that enables clients to make informed decisions with confidence.

Who We Act For on Investment and Shareholder Matters

Advising founders, management, and investee companies: We typically act for the business and its existing shareholders rather than incoming investors. This includes advising on negotiations with institutional and strategic investors, whose documentation is often heavily weighted in their favour at the outset.

We regularly advise:

• Founder-led and owner-managed businesses
  We help founders understand how investment documents affect control, value, and exit outcomes, including how different share classes and preference structures operate on exit.
  
• Management teams acquiring or receiving equity
  We advise management on shareholder rights, restrictions, and how equity arrangements interact with employment terms and incentive structures.
  
• SMEs receiving private equity or growth capital investment
  We act for companies negotiating with experienced, well advised investors in the SME and lower mid-market space.

Understanding Investment Agreements

What an investment agreement actually does.

An investment agreement records the commercial terms on which new capital is invested into a company. It is legally binding and often builds on a term sheet or heads of terms agreed earlier in the process.

• Commercial terms and investment mechanics
  We advise on valuation, subscription price, funding mechanics, tranching of funds, and conditions precedent, ensuring the agreement reflects what was agreed in principle.
  
• Warranties and representations
  We help founders and companies understand the scope of warranties being given, how risk is allocated, and how disclosure can limit future warranty claims.
  
• Investor protections
  We advise on information rights, veto rights, consent matters, anti-dilution protections, and restrictions on further funding rounds, explaining what is market standard and what is negotiable.

Heads of Terms and Early-Stage Negotiation

Why early legal input matters.

Many of the most important legal and commercial terms are introduced at term sheet or heads of terms stage. Early legal advice can materially improve outcomes and reduce downstream friction.

• Reviewing and negotiating heads of terms
  We advise on liquidation preferences, control rights, anti-dilution provisions, vesting and leaver concepts, and exit mechanics that are often embedded at this stage.
  
• Avoiding hidden risks
  We identify provisions such as overly broad veto rights or aggressive preference stacks that can significantly affect future value and control.
  
• Aligning expectations
  We ensure founders, management, and investors have a shared understanding of how the investment will operate in practice, not just in theory.

Shareholder Agreements Explained

How shareholder agreements govern life after investment.

A shareholder agreement regulates the ongoing relationship between shareholders and the company and typically operates alongside the articles of association.

• Governance and decision-making
  We advise on board composition, committee structures where relevant, voting thresholds, reserved matters, and consent rights to maintain effective governance.
  
• Economic rights and distributions
  We explain dividend policy, liquidation preferences, return waterfalls, and how different share classes affect economic outcomes.
  
• Transfer restrictions
  We advise on pre-emption rights, permitted transfers, and restrictions designed to balance shareholder liquidity with business stability.

Drag, Tag, and Exit Provisions

Planning for exit from the outset.

Exit provisions are among the most critical clauses in shareholder agreements, particularly where private equity or institutional investors are involved.

• Drag-along rights
  We advise on when shareholders can be forced to sell, including thresholds and minimum price protections where appropriate.
  
• Tag-along rights
  We ensure minority shareholders are protected and able to participate if a majority shareholder sells.
  
• Exit mechanics
  We advise on time horizons, valuation thresholds, and exit routes, including trade sales, secondary buy-outs, IPOs, and continuation or secondary fund transactions.

Protecting Founder Control and Influence

Balancing investment with autonomy.

Loss of control is a key concern for founders following investment. We help clients strike a pragmatic balance between investor oversight and operational autonomy.

• Reserved matters and veto rights
  We negotiate which decisions require investor consent and which remain within management control, distinguishing between operational and structural decisions.
  
• Board representation
  We advise on board seats, observer rights, and chairmanship or casting vote arrangements to support effective decision-making.
  
• Deadlock provisions
  We negotiate dispute resolution mechanisms such as escalation procedures and buy-sell arrangements to avoid value-destructive conflict.

Management and Employee Shareholdings

Ensuring equity arrangements work together.

Investment and shareholder agreements often interact closely with management incentive plans and employee equity arrangements.

• Alignment with MIPs and option schemes
  We ensure shareholder documents align with growth shares, EMI options, and other incentive structures.
  
• Leaver provisions
  We advise on good leaver and bad leaver mechanics, including differing treatment for management and non-management shareholders.
  
• Employment interaction
  We help management understand how equity rights are affected by resignation, dismissal, retirement, or changes in role.

Risk Allocation and Liability Management

Limiting exposure for founders and shareholders.

Investment documentation can create significant personal and corporate risk if not managed carefully.

• Warranty limitations
  We negotiate caps, baskets, de minimis thresholds, and time limits on claims.
  
• Disclosure protection
  We manage disclosure letters and disclosure bundles carefully to reduce the risk of future warranty claims.
  
• Ongoing obligations
  We advise on restrictive covenants, non-compete and non-poaching provisions, and confidentiality obligations linked to shareholdings.

Amendments, Variations, and Future Investment Rounds

Keeping documents fit for purpose as the business grows.

Shareholder arrangements often need to evolve as the company develops.

• Follow-on investments
  We advise on amending documentation for further funding rounds, including re-setting preference structures and ownership percentages.
  
• Shareholder changes
  We assist with variations following exits, buy-backs, reorganisations, or internal transfers.
  
• Future-proofing
  We draft agreements with flexibility to support acquisitions, scenario planning for future exits, and potential down-rounds.

Why Jonathan Lea Network for Investment and Shareholder Agreements?

Clear advice on complex and high-impact documents.

Jonathan Lea Network is trusted by founders and SMEs to deliver investment documentation that is robust without being unnecessarily restrictive.

• Partner-led drafting and negotiation
  Clients work directly with experienced corporate lawyers throughout the process.
  
• Focused on SME and lower mid-market investments
  We understand what is market standard for growing businesses and when it is appropriate to push back.
  
• Plain-English explanations
  We explain complex legal provisions clearly so clients can make informed decisions.
  
• Commercial and cost-conscious
  We prioritise efficiency and value for money.
  
• Experienced counterparties
  We regularly act opposite institutional investors and strategic corporates.

Speak to Our Investment Agreement and Shareholder Agreement Lawyers

Protecting your business, your equity, and your future.

If you are negotiating an investment, reviewing shareholder arrangements, or planning for future funding or exit, Jonathan Lea Network can help. Ideally, involve us before term sheets or documents are finalised so we can help shape key terms from the outset. We are happy to have an initial exploratory discussion before any commitment is made. 

Call us on 01444 708640 or email wewillhelp@jonathanlea.net to arrange an initial consultation about your private equity transaction and discuss how we can support your next stage of growth.

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