Share Subscription Agreement

By: Miguel Ortega from Wardenclyffe, Inc.

A share subscription agreement is a legal document between a subscriber, potential shareholder, or investor and a private company, that sets the price and term of a purchase of shares in the company. The subscriber makes payments of funds to the company in return for the company to issue a certain number of shares. From this definition, we can imply that the share subscription agreement must include the numbers of shares the company agrees to issue, the price of each share, and the order and timing by which the subscriber will make the payment(s). This agreement is specifically useful when a company wants to solidify the promise of the investor’s intention to buy the shares offered by the company

Private companies usually use share subscription agreements when they want to raise the company’s capital from private investors through a private placement memorandum which is less expensive and time-consuming than the prospectus of public companies. A private placement memorandum is a sale of shares to a limited number of pre-selected investors who meet the requirements established by the company, for example, investment assets, experience net worth, etc. Along with the agreement, companies have to attach disclose financial documents and other information such as currents projects the company has in progress and business plans for the future.

Some of the advantages of the subscription agreement are that it is a way for private companies to raise capital, from start-ups to big corporations. Also, a company can sell stock without registering securities with the Securities and Exchange Commission (SEC), in comparison with the prospectus for which this is an obligation. As it has been mentioned before, unlike the prospectus, a subscription agreement through a private placement memorandum is less expensive and time-consuming. When investing in a private company through this agreement investors can have access to the general partner(s) management team in order to know more about the business of the company and the company itself.

After the parties have signed the agreement the process outlined in the legal document must be followed. Usually, the process is carried out as follows: first, the company or board should pass a resolution to issue the shares; the investor should make the payment of funds; issue a shares certificate to the investor; the company should update its register of shareholders.

If you like more information, please email us at info@wardenclyffefirm.com.