Subscription Agreement

What is a Subscription Agreement?

A subscription Agreement is a contract between a company and an investor that outlines the terms and conditions under which the investor can purchase shares of the company's stock.

It specifies details such as the number of shares the investor can buy, the price per share, and the representations and warranties of both parties.

What are the benefits to creating a Subscription Agreement?

1. Raise Capital for Businesses: Subscription agreements are a primary tool used by businesses, particularly startups, to raise capital for growth and expansion. They allow businesses to sell shares to accredited investors, which helps in injecting new capital into the business.
2. Investment Opportunities for Individuals: For individual investors, subscription agreements provide an opportunity to invest in a company that they believe has potential. They can benefit from the growth of the company and the subsequent increase in the value of their shares.
3. Due Diligence: The subscription agreement typically contains detailed information about the company, allowing investors to conduct due diligence before deciding to invest. It assures the investor about the credibility and potential of the company.
4. Legal Protection: Subscription agreements outline the terms and conditions of the investment and the rights and obligations of each party, offering legal protection to both the investor and the company. In case of a disagreement or dispute, the agreement serves as a reference point.
5. Regulatory Compliance: Subscription agreements help ensure compliance with securities laws. They stipulate that the investor meets the criteria for an accredited investor as defined by the Securities and Exchange Commission (SEC), ensuring the investor understands the risks involved.
6. Control Over Ownership: For businesses, subscription agreements allow them to control who becomes a shareholder and maintain a strategic balance of ownership. This can help avoid potential conflicts among shareholders and keep the business aligned with its long-term goals.

In conclusion, subscription agreements offer a win-win situation for both businesses and investors. They help businesses raise the necessary capital and provide investors with the opportunity for potential returns, all while offering legal protection to both parties.