Subscription Agreement
/səbˈskrɪpʃən əˈɡriːmənt/
A subscription agreement is a contract between a company and an investor that outlines the terms under which the investor will purchase shares or other securities in the company.
A subscription agreement is a contract between a company and an investor that outlines the terms under which the investor will purchase shares or other securities in the company.
A subscription agreement formalises the investment process by documenting exactly what the investor is buying, how much they're paying, and what rights they'll receive.
It serves as the legal foundation for transferring money in exchange for equity or other securities in your company.
The subscription agreement works by creating binding commitments from both parties - the investor commits to providing the agreed funding, whilst you commit to issuing the specified securities.
Once signed, it typically triggers a completion process where money and shares are formally exchanged.
A subscription agreement contains the number and type of securities being purchased, the price per share, payment terms, and any specific conditions that must be met before completion.
It also includes representations and warranties from both the company and investor about their legal capacity to enter the agreement.
You typically sign a subscription agreement after agreeing terms with an investor but before they actually transfer the money to your company.
It often follows the signing of a term sheet or heads of terms, which outlines the commercial deal in principle.
After signing a subscription agreement, you'll usually need to satisfy any conditions precedent (such as board resolutions or regulatory approvals) before completion occurs.
Once conditions are met, the investor transfers funds and you issue the agreed securities, typically updating your company's share register with the relevant company registry.
A subscription agreement differs from a shareholders' agreement (which governs ongoing relationships between shareholders) or articles of association (which set company rules) by focusing specifically on the investment transaction itself.
It's purely about the mechanics of buying and selling securities rather than long-term governance arrangements.
