What is Subscription Agreement & its components?

Key Highlights

A subscription agreement is a legal contract between a company and an investor, outlining the investor’s commitment to purchase newly issued shares or securities from the company at a predetermined price.
It’s often used by startups or private companies to raise money without going public.

What is Subscription Agreement?

A subscription agreement is a legal contract between a company and an investor, outlining the investor’s commitment to purchase newly issued shares or securities from the company at a predetermined price. It’s often used by startups or private companies to raise money without going public.

Key Components

Investor Details: Who the investor is (name, contact info, etc.).
Investment Terms: How many shares, what kind, the price per share, and the total cost.
Promises: Both sides make guarantees, like the company saying it can legally issue shares and the investor confirming they’re qualified to invest.
Obligations: What each side must do to keep the deal on track.
Risk Warnings: Details about the risks of investing.
Protections: Rules to cover losses if someone doesn’t follow through.
Ending the Deal: How the agreement can be canceled and how to handle disagreements.

Why it matters?

Helps companies (especially startups) raise money without a public stock offering.
Keeps things clear about who owns what shares, avoiding legal headaches.
Spells out everyone’s rights and responsibilities.

Advantages

Investors get a shot at early, high-growth opportunities.
Usually a one-time investment, not ongoing payments.
Investors typically have limited risk (they’re not on the hook for the company’s debts).
May give investors a say in how the company runs.

How it’s different from a Purchase Agreement?

A subscription agreement is about buying new shares directly from the company, adding to its capital. A purchase agreement is usually about buying existing shares from someone else.