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Overview of Subscription Agreement

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.

 

Related Documents

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).

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Closing Conditions Require Compliance With All Applicable Securities Legislation

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Parties to a subscription agreement need to be aware of the regulatory approvals required for the shares to be issued or transferred. They should pay particularly close attention to the applicable securities laws that apply to the transaction. This article discusses Whirlpool Corporation, which received written approval from the China Securities Regulatory Commission (CSRC) to acquire a 51 percent stake in Hefei Rongshida Sanyo Electric Co., Ltd. This was the final key regulatory approval required in the acquisition.

Read the article here.

Take away:

  • Before completing the issuance or transfer of shares via a subscription agreement, ensure you have complied with all applicable securities laws.

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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Closing Conditions May Include the Acquisition of Assets

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Parties may wish to add closing conditions to a share purchase where part of the value of the shares/securities that are being purchased results from an action yet to be taken by the company for example, the company’s purchase of specified assets.

Emera Inc. announced it has entered into a subscription agreement with Algonquin Power & Utilities Corp. (“Algonquin”) under which Emera has subscribed for 7,865,170 subscription receipts (“Odell Subscription Receipts”) at a price of $8.90 per subscription receipt, for an aggregate subscription price of $70 million. Each subscription receipt represents a right to one common share of Algonquin. Under the subscription agreement, the Odell Subscription Receipts will become convertible into common shares of Algonquin following the closing of Algonquin’s acquisition of Odell. The purchase of Odell is an example of a closing condition that would have to be satisfied before the conversion to common shares.

Read the article here.

Take away:

  • If you are participating in a share purchase, ensure that your closing conditions include all assets that you expect the company to purchase prior to the closing of the share purchase.

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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Anti-Dilution Clause May Prevent Company from Issuing Additional Shares

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The representation that the company may issue additional shares in the future means that the company may dilute the shares of the subscriber at will. A subscriber who does not wish to give the issuer the ability to dilute their shareholding may require that anti-dilution provisions to be included in the subscription agreement.

The largest shareholder (Caitlyn Limited) of Azumah Resources holding 13% of the shares reinvested $2.1 million. As part of the investment, the subscription agreement contained an anti-dilution clause where the shareholder was to maintain its 13% equity holding for 12 months.

Read the article here.

Take away:

  • When subscribing to shares of a company, consider negotiating an anti-dilution provision in your subscription agreement to avoid having your equity holding in the company significantly diluted.

 

–  –  –

This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

What you don't know can hurt you! Subscribe to stay informed.

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Purchase Price May Be Satisfied by Cash or Securities

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If the subscriber under a subscription agreement is a corporate body, they may satisfy the purchase price with a mix of cash and equity/debt securities.

According to this article Keppel REIT (Keppel) will purchase a one-third stake in Marina Bay Financial Centre (MBFC) Tower 3 from its sponsor, Keppel Land, valued at S$1.25 billion. The estimated purchase consideration was S$710.1 million, which was to be fulfilled with a combination of cash and Keppel REIT units.

Read the article here.

Take away:

  • If your corporation is entering into a subscription agreement to purchase units of a company, consider negotiating a purchase price to be paid in cash and securities

 

–  –  –

This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

What you don't know can hurt you! Subscribe to stay informed.

Sign up now and receive an email when we publish new content.

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Read more...

Additional Rent Announcements API Approval of Terms Asset Purchase Agreement Background Intellectual Property Board of Directors Business Case Law CASL Clausehound Collaboration Commercial Lease Confidential Information Confidentiality Consulting Agreement Contract Drafting Contract Negotiations Corporation Costs and Expenses CPD Definition of Intellectual Property Dispute Resolution Distribution Agreement Employee Employment Employment Agreement ESOP Events Farming Law Generally Used Clauses Grant of Licence Handling of Confidential Information Indemnity Independent Contractor Independent Legal Advice Informal Discussions Intellectual Property Intellectual Property Transfer Investor Journey Licence Restrictions Limitation of Liability Long Form Marriage Contract Master Services Agreement NDA Non-competition Not for Profit Articles of Incorporation Notice of Arbitration No Waiver Obligations Ownership of Intellectual Property Ownership of Work Product Parties Partnership Privacy Policy Product Sales Agreement Purpose Representations and Warranties Restrictive Covenants Safeguarding Requirements Settlement Agreement Shareholder Agreement Software Development Start-up Subscription Agreement Technology Termination Term Sheet Terms of Use Trademark Registration Transfer of Intellectual Property Waivers and Releases Website Terms of Use
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