Overview of Subscription Agreement
What is this document?
A share subscription agreement is the purchase agreement between a company and an investor when the company issues shares to the investor. It is a promise by the corporation to issue a certain number of shares/securities to an investor at a certain price.
When would I use this document?
Subscription agreements are used only when the issuer of the shares (the corporation) is selling (issuing) its own shares. Share purchase agreements are used for all other situations when shares are sold.
Who signs this document?
This document is signed by the company and the individual who is receiving the shares.
More details about this document
This document is be used whenever a company offers its own shares to an investor. It stipulates the price of the shares, how many shares are being offered, and the class of shares. Subscription agreements can also outline any restrictions on the shares, and any special shareholder rights.
Subscription agreements are often filed in the corporation’s minute book as they are important documents that affect the share holdings in the corporation, and can affect the relationship among shareholders.
Subscription agreements can vary in length. Complex agreements may include numerous representations and warranties by both the investor and the corporation.
If the shares are issued pursuant to an exemption from the prospectus requirements under the applicable securities legislation, the subscription agreement will include a shareholder declaration that the exemption is applicable to that investor. The declaration will specify exactly which exemption applies to the investor.
What are the core elements of this document?
The core elements of a Subscription Agreement include Issued Shares, Price Per Share, Payment, Securities Exemption, Evaluation of Risk, and Independent Legal Advice.
Other additional clauses can include No Brokers, No General Solicitation, Dispute Resolution, Governing Law, and Further Assurances.
Shareholders’ Resolution – in privately held companies a resolution of the shareholders approving the sale of the shares might be required
Directors’ Resolution – the share issuance will need to be ratified by the directors of the corporation
Minute Book – this is where the corporate records are kept. A copy of the share purchase agreement can be kept in the minute book of the corporation that issued the shares sold under the agreement
Shareholders’ Agreement – an agreement among shareholders dealing with how the corporation will be governed, shareholder rights etc. The share purchase agreement will usually require the purchaser of the shares to sign the shareholders’ agreement (if there is one).