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Share Subscription Agreements

A share subscription agreement is a promise by a potential shareholder, also know as a subscriber, to make payment of funds to a company in an agreed number of “tranches” in return for the company issuing and allotting a certain number of shares at a certain price such that the subscriber becomes a shareholder. A share subscription agreement must include the number of shares that will be issued to the shareholder, and the order and timing by which funds will be advanced.

The primary objective of share subscription agreements is to document the mechanics of the subscriber’s investment in the company and to compel both parties to complete the investment procedure without any ambiguity.

Key Components of a Share Subscription Agreement

Share subscription agreements can vary depending on the needs of the parties and the types of shares being subscribed for, however, common clauses include:

1. Conditions precedent: acts which must occur before the agreement is to come into force, for example, the directors of the company may have to pass certain resolutions in order to sign the subscription agreement;

2. Tranches: the amount to be paid by the subscriber to the company at a prescribed time, including the timing of payment and any instalment schedules, in exchange for an agreed amount of shares;

3. Restraint: the subscriber may be restrained from engaging in business or activity that would be in competition with the business of the company;

4. Confidentiality: both the subscriber and the company may be obligated to keep information relating to the subscription agreement confidential;

5. Warranty and indemnity: the subscriber may warrant that they are willing and able to meet their obligations under the subscription agreement and indemnify the company against certain claims and losses; and

6. Conditions subsequent: acts which must occur after the date the subscriber has paid the subscription price to the company, for example, the company must issue the shares and provide a share certificate to the subscriber.