Share Subscription Agreement - A Complete Guide

Share Subscription Agreement – A Complete Guide

Aspiring start-ups and early-stage companies often look for ways to fund their growth. One way is to have investors subscribe to their companies by purchasing shares. The share subscription agreement, a formal document that outlines the agreement between a company and a subscriber who intends to buy the shares of the company at an agreed-upon price, becomes essential.

 

In this article, we will explore the features and significance of a share subscription agreement, as well as guide you through our template which is tailored to your business needs. 

 

What is a Share Subscription Agreement?

A share subscription agreement is a document that formalizes the arrangements between a company (usually one at an early state of business and development) and a subscriber who intends to buy the shares of that company. 

 

Although share subscription agreements are usually not mandatory, parties find them helpful in keeping track of share subscription and ownership, i.e. who owns what and how much, as well as prevent potential legal disputes in the future regarding share payout. When, unfortunately, legal disputes regarding the share subscription arise in the future, the agreement can be used as evidence or reference for dispute resolution purposes. 

 

 

What is the Purpose of a Share Subscription Agreement?

Share subscription agreements are popular among companies who are at an early stage and who would like to be funded by private investors, i.e. they have not yet attracted venture capital or investment banks to invest in their businesses. Generally, share subscription agreements carry the following advantages:

 

• Protection of Legal Rights and Interests: Within the share subscription agreement, a company and a subscriber can set out clear terms and expectations for the transaction. This can protect their respective interests and rights, and reduce the risk of disputes or misunderstandings in the future.
• Increase of Company Credibility and Reliability: For start-ups and companies at earlier stages, it is important to gain and secure investor confidence. A well-structured and well-organized share subscription agreement will serve perfect for such a purpose. Investors or subscribers are more willing to invest in a company or a start-up with a legally binding contract protecting their interests. 
• Attraction of Funds: Accumulating funds from private investors is a popular option for many start-ups and young companies. A share subscription agreement can serve as a mechanism for raising capital, by offering shares to subscribers, to support a company’s or a start-up’s growth in business. 
• Compliance with Regulations in the Business: Having a share subscription agreement ensures that relevant securities laws and other regulations on the issuance of shares to investors are being complied with. As such, any potential legal consequences or repercussions can be prevented. 

 

Here are some frequently asked questions about Share Subscription Agreement:

 

Q. Is a subscription agreement legally binding?

Yes, a share subscription agreement is a legally binding contractual document between a company and an investor or a subscriber to the company who intends to buy their shares.

 

Q: What is the difference between a shareholder agreement and a subscription agreement?

No. A subscription agreement is a formal document outlining the details of the shares sale and purchase transaction between a company and a potential investor. It focuses mainly on the issuance of new shares in the company and usually comes into play only when a new investor desires to buy shares from the company, or when an existing shareholder subscribed to purchase additional shares. 

 

On the other hand, a shareholder agreement is a foundational document that outlines the rights, responsibilities and relationships among the shareholders of a company. Matters covered in such an agreement include decision-making protocols, voting rights of shareholders, transfer of shares, governance structures and dispute resolution mechanisms. 

 

Q: What category of contract does a subscription agreement fall into?

A share subscription agreement relates to an investor’s application to join a limited partnership. It serves as a two-way guarantee between a company selling shares and a new investor/shareholder/subscriber. 

 

Q: What is the different between a share sale agreement and a subscription agreement?

A share subscription agreement is used by companies who would like to issues new shares, typically for the purpose of raising money from new investors/subscribers. On the other hand, a share sale/purchase agreement involves the purchase of existing shares from one shareholder to another, resulting in a change in the ownership of company shares. 

 

It is important to note that both agreements serve different purposes and address different unique aspects of share transactions.  

 

 

 

Here at DocPro

At DocPro, we aim to serve your ongoing business needs. To ensure that your share subscription transaction proceeds smoothly, we provide the Share Subscription Agreement template for easy download and use. Before you use our template, be sure to have the following information:

• Default currency of the share subscription 
• Detailed particulars of the Subscriber and Company, including (i) name (ii) contact person (iii) email (iv) address, including zip code if necessary (v) country/jurisdiction and (vi) the state/region 
• Subscription details, including (i) name and address for share subscription (ii) amount of subscription (iii) name and address of the financial institution (iv) account number of the financial institution for remitting payment for Subscriber’s account (v) payment date (vi) number of beneficial owners represented by the Subscriber if the Subscriber is acting in any sort of nominee or fiduciary capacity and (vii) whether the Subscriber or an affiliate of the Subscriber is a pension profit-sharing, annuity or employee benefit plan (private, government or charitable)
• Enlist name and address of the authorised signatories
• Standing wire instructions, including (i) bank name and address (ii) ABA or CHIPS number (iii) account name and number and (iv) reference
• Specific subscription price for shares
• Specific deadline for submitting the application for the issuance of shares on a particular subscription day
• Minimum net worth requirement for an individual subscriber
• Specific minimum investment and holding amount for subscription
• Specific date of acceptance of the application by the Company, i.e. date of signing

Key Takeaways: A share subscription agreement is a document that formalizes the arrangements between a company (usually one at an early state of business and development) and a subscriber who intends to buy the shares of that company.  Having a share subscription agreement helps protect parties’ legal rights and interests, increase the share-issuing company’s credibility and reliability, attract funds and make sure the share subscription transaction complies with relevant regulations in business. To ensure a share subscription agreement is effective in protecting parties’ rights and interests, certain key components have to be included, such as subscription information, subscriber representations and warranties, subscriber indemnification and government law and jurisdiction. At DocPro, our Share Subscription Agreement template is tailored to your business needs. Simply input the information required and create your own document for smooth and effective transaction!