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A share subscription agreement is a legal document that works as a contract between a company and an investor. If you have found yourself in this situation and don't know how to write up one of these agreements, we have put together a guide to help you out.
What's in this guide?
- What is a share subscription agreement?
- When should I use a share subscription agreement?
- Share subscription agreement vs shareholders agreement
- What does a share subscription agreement include and not include?
- How effective is a share subscription agreement?
- Do I need a lawyer for a share subscription agreement?
- Get access to customisable share subscription agreement templates online
- How do I write a share subscription agreement?
- Where to get free legal documents and templates like a share subscription agreement
What is a share subscription agreement?
A share subscription agreement is an agreement between a company and its investors to sell shares at a fixed price. The aim of this legal document is to detail the rights and responsibilities associated with purchasing the shares.
This legal document will also set out the responsibilities of both parties. These representations seek to confirm that both parties have the authority to enter into the agreement and are doing so legally.
Download this template at Lawpath
When should I use a share subscription agreement?
A share subscription agreement is used by companies to raise capital from investors. This type of legal document is typically used when a private company is going through a round of capital raising. You can organise the agreement as the buyer or the seller.
Share subscription agreement vs shareholders agreement
One of the main differences between a share subscription agreement and shareholders Agreement is that the shareholders agreement contains more detail. A share subscription agreement is usually straightforward and much simpler.
A share subscription agreement is obliged to include the number of shares the company agrees to issue to the shareholder and by when the payment must be made. A shareholders' subscription agreement defines the relationship between the shareholders. It also sets out the terms and conditions for a shareholding of the company but has no direct relation to the investment process yourself.
What does a share subscription agreement include and not include?
- Title, date, parties, recitals
- Definitions of the business
- Details of the conditions that need to be satisfied before investment can be made
- Setting out how completion takes place and the timescale
- Representations, warranties and undertakings
- Notices and notice methods
- Costs and expenses
- Contact details
- Overcomplicated words
- Vague terms that could be misread
- Casual language
How effective is a share subscription agreement?
An effective share subscription agreement spells out the details on a transaction, including prices and timescales. If you're an investor you can protect yourself against last-minute
term changes. If you're selling shares, it will stop an investor changing their mind and their conditions last minute.
Do I need a lawyer for a share subscription agreement?
Whether you're the company selling shares or an investor buying, it is recommended that you have a lawyer look over your share subscription agreement. If you wish to draft one up yourself, there are many different templates online to make it easier.
Get access to customisable share subscription agreement templates online
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How do I write a share subscription agreement?
A share subscription agreement establishes the elements of the investment and how it will work. You will need to include various details including the amount of shares being issued, if the shares are subject to any conditions, the subscription price and the date of issue.
The agreement also needs to include information about the company issuing shares. Details of the founder can also be included. Make sure to detail any representations or warranties to allow the investor to know the risks of their investment. For example, the document may clarify that the company has all required IP rights.
Some common elements of a share subscription agreement also include:
- Conditions precedent. This describes events that must happen before the agreement comes into force.
- Confidentiality. A clause that requires both parties to keep all enclosed information confidential.
- No shop. This requires the company to limit its search for further capital or search for it in a certain way.
- Restraint against the competition. Stops parties engaging in business or an activity with a competitor.
- Tranches. The money that must be paid to the business by the subscriber in exchange for an agreed number of shares within a certain time period.
Where to get free legal documents and templates like a share subscription agreement
You can find plenty of online free legal templates that can help you when putting together a share subscription agreement. While many of these templates are free to view, a small fee may be required to customise and download them.
- Lawpath. Lawpath is an online legal resource aimed at helping small businesses and entrepreneurs find templates. The website lists a selection of templates for free but you must sign up to a monthly plan to customise any documents.
- Wonder.Legal. Browse more than 140 legal templates with Wonder.Legal, all of which can be purchased and customised for a small one-time fee.
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