A subscription agreement is a formal contract between a company and an investor (often called the “subscriber”) in which the investor agrees to buy a specified number of privately held shares at an agreed-upon price. This agreement sets forth the terms and conditions under which the shares will be purchased and the responsibilities of both parties.

The capital sum invested by the investor or subscriber is used by the company to carry out a range of commercial activities, and in return, the company agrees to share the profits with each subscriber.

For example, if an investor, referred to as the "subscriber," decides to invest in a startup company, they will enter into a subscription agreement. This document will outline the number of shares the subscriber agrees to purchase, the price per share, and any other terms necessary to finalize the investment. The subscription agreement ensures that the transaction is binding and that the investor acknowledges their obligations and rights.

In a subscription agreement, an investor can buy or subscribe for shares of a company with limited partnerships (LP). A limited partnership is a specific legal structure in which two types of partners are involved: general partners and limited partners. 

The general partners manage the business operations and are personally liable for the debts and obligations of the partnership. Herein, the company is the general partner. On the other hand, limited partners contribute capital to the partnership but have limited liability, meaning their liability is typically restricted to the amount of their investment.

How does a subscription agreement help the involved parties?

A subscription agreement plays a crucial role in formalizing the investment process in a company. They help to:

• Track the number of shares sold 
• Keep details of who owns what shares and how much
• Establish terms and conditions regarding the transaction
• Define requirements regarding capital contribution
• Protect parties by outlining their respective rights, responsibilities, and remedies in case of breach or dispute
• Disclose the risks associated with the investment, providing transparency to the investor about potential financial and operational risks

What are the benefits of having an investment in the company?

When a company wants financial backing but doesn’t want to list itself as a public enterprise, it can seek the help of private investors with the help of a subscription agreement. Both the subscriber and the company reap benefits from a subscription agreement. Some of the advantages are: 

For the company:

• Raising funds for your company is easier.
• The subscribers act as silent partners and have limited involvement in running the company on a daily basis.

For the subscriber:

• The subscriber who has an investment in the company is not held responsible if the company runs into a loss or goes bankrupt.
• It asserts that the “subscriber hereby agrees” to make a one-time investment in the company by purchasing shares at a predetermined price. This is a fantastic investment opportunity for the subscriber wherein they can invest a flat sum and get huge profit returns as the company grows.

What information must be included in a subscription agreement?

To avoid any future legal disputes, it is necessary to have an all-inclusive agreement document by your side. How will you know whether the agreements created from a sample subscription agreement have all the elements required in the agreement?

Hence, it is essential to know the key elements that should be there in a subscription agreement. A well-drafted subscription agreement includes several key components, such as:

1. Introduction

Start your agreement with a brief introduction. Include details such as:

• Company name and address whose shares are on sale
• Subscriber name and address who is willing to purchase the shares
• The agreed-upon date or effective date from which the agreement shall be active or valid

2. Terms and conditions

This section includes all the nitty-gritty details and obligations that each party is required to follow.

2.1. Subscription 

Herein you need to provide details about how many shares a subscriber has bought and at what price they’ve purchased them. 

2.2. Terms of subscription

This part outlines all the terms and conditions to be followed by the subscriber and the involved company/business. Either party should acknowledge the purchase of shares and mention the mode of payment and all other general obligations each party should diligently follow. 

2.3. Representations and warranties

The information contained in the "representations and warranties" clause refers to statements made by the parties involved regarding certain facts, conditions, or circumstances related to the investment and the company. These statements are like assurances about the accuracy and completeness of the information provided.

2.4. Power of attorney

An individual/agent is given the authority by a subscriber to act on their behalf through the use of a power of attorney (POA). In this part, the subscriber should mention who they’re nominating as their power of attorney. 

Hereof, the subscriber should also explain whether the appointed attorney will have limited or unrestricted authority on the agreement. The subscriber can revoke the power of attorney at any time, and if the subscriber dies, goes bankrupt, or becomes physically or mentally challenged, the attorney will lose their rights to it.  

2.5. Indemnification

In general, indemnification is a party's promise to hold another party legally blameless—or not accountable—for a possible breach in an agreement. So in this section, you shall mention in detail exactly what kind of breach or losses are not liable in the contract.

Hereby, the subscriber acknowledges and understands the legal consequences and agrees that the involved company/business is not accountable for any losses, expenses, damages, and liabilities caused. 

2.6. Arbitration

Arbitration is like an out-of-court dispute resolution where an impartial third party, known as an arbitrator, hears evidence and provides a binding ruling. Any disputes between the parties resulting from or connected to the subscription policy are resolved in accordance with this provision. In this section, you’ve to provide the details of the arbitrators involved. If both parties agree, even a law firm can act as an arbitrator. 

2.7. Termination

This section explains under what conditions a company or a subscriber can terminate the agreement. Some of the termination clauses that could be executed are: 

A company can terminate the agreement anytime in writing and shall proceed with it when:

• Representations or warranties are found to be false or inaccurate prior to the company's acceptance of the agreement.
• When a subscriber makes payment defaults, i.e., when a subscriber fails to pay on the agreed-upon time or doesn’t pay even after the due date. 
• Confidential data breaches 

A subscriber can terminate the agreement in writing when:

• The company displays wrong profit projections 
• Provides tampered business success stories etc.

2.8. Assignability

This clause specifies whether the subscriber has the right to transfer or assign their rights and obligations under the agreement to another party. This section includes conditions and restrictions on such assignments to maintain control over the subscription process.

2.9. Notices

This part details how communications between the company and the subscriber shall be done. Whether it’ll be in writing and sent to the registered address provided or via email.

2.10. Force majeure

This clause protects both the company and the subscriber from obligations if unforeseen events occur that are beyond their control, such as natural disasters or other outlined disruptions. It ensures that neither party is held liable under such circumstances.

2.11. Modification

This section outlines the conditions under which the subscription agreement can be modified. It ensures that any changes to the agreement are mutually agreed upon in writing, maintaining transparency and fairness between the company and the subscriber.

2.12. Severability

This part ensures that if any provision of the agreement is found to be invalid or unenforceable under applicable laws, the remaining provisions shall continue in full force and effect.

2.13. Governing law and jurisdiction

The governing law section specifies which state’s laws will be used to interpret and enforce the agreement. It ensures that any legal disputes are resolved according to the laws of state, providing clarity and consistency in legal proceedings.

2.14. Legal and binding agreement

The clause confirms that the subscription agreement, once executed, is a legally enforceable document.

2.15. Entire agreement

This section states that the document constitutes the complete and final agreement between the parties, replacing all prior agreements, representations, and understandings, whether written or oral.

3. Acceptance and signatures

Here, the subscriber acknowledges the terms of the contract by signing the agreement document. However, legal weightage comes only when all parties involved in the contract have accepted and signed it. 

Use LegalZoom’s subscription agreement template to create your agreements

A subscription agreement is an important legal document as it is key to getting financial support from an investor. It gives a fair idea about the sale of a company’s share, the price involved, the terms and conditions of owning the private share, etc. 

Whether an investor is eager to start an investment in your business/company depends on how well your agreement is written. And, to draft stunning agreements from scratch means extensive research and effort, which can be daunting. You can overcome such challenges with LegalZoom’s professional agreement sample.

• It simplifies the agreement creation process as there are set guidelines for arranging your information exactly where it is needed. You can create your subscription agreement document by simply filling in the details wherever needed, completing the form, and downloading the document for free in PDF.
• It ensures uniformity and consistency in your messaging.
• No more information gaps as templates remind you to include all the key details in your agreements.
• Our templates can also be customized when you choose our subscription plans.

If you want to take advantage of all these benefits when drafting your subscription agreement, you can readily scroll to the top of the page and use our template provided there. 

Take legal advice on your subscription agreement

Use the expertise of our legal professional network to get legal validation from experts. Consult a lawyer to ensure compliance with the securities law and safeguard your agreement’s long-term viability.

Frequently asked questions

What is a company subscription agreement?

A company subscription agreement is a legal document wherein a subscriber agrees to purchase a specific number of shares in a company. The agreement shall include terms and conditions set forth by the company, detailing the number of shares, the price per share, and the obligations of the subscriber. It typically includes a signature page where the parties execute the agreement, making it legally binding upon both parties and acknowledging the receipt of shares.

Is a subscription agreement a contract?

Yes, a subscription agreement is a contract. It is a binding document wherein the subscriber agrees to purchase shares of a company, and the company agrees to sell those shares under the agreed terms.