Share subscription agreement
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About this document
This agreement allows a current or prospective shareholder to subscribe for new shares in a private limited company.
The company may be in any industry and of any size.
The deal is that cash is paid in return for the shares, some immediately, and some after the next set of annual accounts. The total price paid is calculated on the financial performance in that period under a formula that you decide. The advantage for the subscriber is that price is capped, and reduced if the company's profits are not as promised by the directors or other shareholders.
Warranties provide the same protection to the subscriber as if the whole company were being bought outright. There are 140 of them to choose from. A number will not be appropriate for your circumstances. However, there will be others of which you have not thought that will reduce your risk.
Because some existing shareholders, such as minority ones, might not want to warrant information about the state of the company, we also include an option for one or more to be trustees. A trustee cannot give a warranty and is therefore protected.
It is reasonably common for a new subscriber to lend money to the company as well as buy equity. This agreement can reference any loan. However, the terms of that loan should be covered in a separate loan agreement.
A warranty is a promise that something is as it is described, and which, if untrue, can allow the side relying on that information to seek compensation.
Warranties are used wherever one party has imperfect information about the situation, and wants to reduce the risk that state of something is not as it is.
In this application, they protect the new subscriber, who does not have the same information that the directors and other shareholders have about the performance, value and risks in the company.
They can also be used to improve the subscriber’s position. Because it is normal practice to demand warranties, shareholders often give them without being sure about whether the situation is as warranted.
While you will want to maintain a good relationship with other shareholders, warranties allow you to gain advantage if you ask for more than needed to reduce your risk in particular areas that concern you. If things elsewhere are not as warranted, you have a bargaining tool, if needed, because you have the right to seek compensation for those that turn out to be false.
This agreement differs from many other templates available from our competitors in the number of warranties included. We have attempted to provide every one that you might reasonably need.
We provide a very full set, in plain English so it is easy to choose whether you want each to be given or not. If you are an existing shareholder, you will obviously want to limit the warranties given.
The law relating to this agreement
The framework of the deal is the 2006 Companies Act. Within that framework, there are no special requirements as to what your deal should be.
This agreement is for situations where new shares are issued - the buyer does not purchase the shares owned by someone else.
If there is no new issue and the buyer purchases the shares of an existing shareholder, a share sale and purchase agreement is more suitable.
Sometimes, you may want to change relative ownership proportions at the same time as the sale by subscribing to newly issued shares. For example, you may buy the shares of a departing shareholder and then invest additional equity to obtain a majority shareholding. In that case, you will need a subscription agreement for shares.
We also sell a subscription agreement for a straightforward deal, for transactions that don’t require the warranties that the other documents have.
You may also need other documents, including:
- a shareholders agreement
- administration or secretarial documents for formalising approval of every aspect of the deal
- service contracts for each director
- Definitions and interpretation
- Agreement for the subscription of the shares
- Calculation of minimum profit - the basis of the price to be paid
- Completion of the deal
- Legal provisions commonly used in a document of this type
- Warranties - a choice of over 140, set out by category
This document was written by a solicitor for Net Lawman. It complies with current English law.
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