Subscription agreement is a formal agreement between the company and the investor to purchase shares at an agreed price. This agreement specifies all the details. It is a two-way guarantee between the company and the new shareholder.
Common types of investors who accept a subscription agreement include:
- friends and family investors;
- startup investors;
- business colleagues.
Startups typically offer subscription agreements at the early stages of investment. A well-written subscription agreement can help an organization stand out from the crowd and protect legal rights with more experienced parties.
How do such Contracts Work?
Subscription agreements are divided by the company to which they apply. They are also divided by reason. Very often they contain information about a certain rate of profit on the new shareholder’s initial investment in the company. This would be a percentage of income after the company has gone through all the financial steps.
There are several steps that describe how written agreements work:
- It is decided to put it in writing.
- The client makes sure that the agreements are simple.
- Identification of all parties of the agreement.
- Key elements of the transaction are written down.
- Obligations for reimbursement are secured.
- Safeguards are worked out in case a party requests termination of the agreement.
- Steps are defined to resolve any disputes that arise with investors.
- Negotiations and contracts are kept confidential.
- Lawyers are hired to draft signature agreements.
Some companies try to save money by using standard online contracts. But a poorly written contract will cost more in the long run.
What Are the Benefits of Subscription Agreements?
Сontract sample is an effective tool for general partners. It guarantees that the company receives adequate funds. Meanwhile, the private investor can make a profit on the invested amount. The advantages of the contract are:
- limited liability – if the company goes bankrupt, limited liability partners will not be responsible for repayment to creditors or others;
- lump-sum investment – partners are required to invest a certain amount as a lump-sum investment without offering payments over time as venture capital contributions;
- a growth investment – such an agreement allows shareholders to invest in the company at the early stages of its development;
- easy way to finance – general partners use signed agreements to raise funds without the need to offer shares to more parties.
Subscription agreements are governed by certain rules and regulations. Such provisions determine the method of making the offering and the amount of information that the organization must show to investors.
What is Included in the Subscription Agreement?
The main parts of the subscription agreement include:
- outstanding shares;
- payment terms;
- ownership shares;
- investor’s decision;
- permission of the head of the company;
- books of minutes;
- warranty and compensation;
- non-competition agreement;
- preliminary terms and conditions;
- privacy clause.
This may also include regulations that are specific to a particular company.
What Program Can Be Used to Create Such Agreements?
To avoid wasting time drafting contracts yourself, it’s better to use the PandaDoc program. You can quickly create the necessary documents with the help of a number of useful tools. The site has been popular in many European countries for a long time due to its convenient and clear interface.
There you can easily find an agreement template and use it to enter the key points of your own agreement. Confidentiality of user information is provided. All documents will be saved in the cloud storage with strong encryption.
To get more tools for work you can buy a special package – the range of possibilities will be expanded.