Glossary - Subscription Agreement
A Subscription Agreement is a promise by a company to sell a certain number of shares at a specific price to a private investor. It is used in private transactions not open to the public market. This agreement outlines the terms and conditions of the investment, including the rights and obligations of both parties. It serves as a legal documentation of the investor's purchase of shares in a private company.
Also known as
- Investment Subscription Agreement
- Share Subscription Agreement
Use cases examples
- Private Placement Memorandum: Within the Private Placement Memorandum, the Subscription Agreement section specifies the commitment from the investor to buy $500,000 worth of shares at $5 per share.
- Venture Capital Financing Rounds: In the Series B financing document, the Subscription Agreement outlines that the venture capital firm will invest $2 million in exchange for a 10% ownership stake in the startup.
Considerations for investors
- Review the company's financials and projections to ensure the investment aligns with risk and return expectations.
- Consider the rights attached to the shares being purchased, including voting rights, preference in dividends, and liquidation preferences.
Considerations for founders
- Understand the investment terms, such as valuation and share price, to ensure they align with the company's capital raising goals.
- Ensure compliance with applicable laws and regulations, especially regarding securities, to avoid legal issues.
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