Share subscription agreement
This is a subscription agreement for new shares to bring in a new shareholder or increase the shareholding of an existing one. It gives the buyer a high level of protection through use of warranties and a formula for the final subscription price to be based on the future performance of the company - a retention against poor performance. It is suitable for a company in any industry.
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About this document
This is a comprehensive agreement for a new shareholder - an individual or another company - to subscribe for new shares in a private limited company. The company may be in any industry and of any size.
The document assumes the subscriber pays in cash but holds back an agreed sum until after the next set of accounts. If the accounting profit is not as promised, then the final balancing payment is reduced.
This agreement provides the same protection to the subscriber as you would expect if the whole company were being bought outright. You have the benefit of 140 warranties (less what you decide to edit out). The penalty reduction of balance due by you is calculated by reference to a simple, flexible formula.
There is an option for one of the selling shareholders to be a trustee (as a trustee, he cannot give warranties).
The subscriber may also make a loan to the company, though this is covered in a separate document and merely referenced in this agreement.
This document enables you to decide how tough you want to be and who you want to bind. As drawn, the document binds all the shareholders to the warranties, but you could decide that only shareholder-directors should be at risk.
Simply put, 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.
This document differs from many other templates in the number of warranties included.
Warranties are commonly used in purchases of businesses or shares. We explain more here, but in summary, there are two good reasons:
The first is that they protect the new subscriber, who does not have the same information as the directors and other shareholders about the state (and value) of the company.
The second is that they can improve the subscriber’s position. Because it is normal practice for subscribers to demand warranties, shareholders often give them without being sure about whether the situation is as warranted. New subscribers can take advantage by asking for more warranties than they might need, and later seeking compensation for those that turn out to be false.
We provide a very full set, in plain English so it is easy to choose whether you want each to be given or not. Existing shareholders 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 document 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 subscription
- Calculation of minimum profit
- Completion of the deal and delivery of documents
- Various legal provisions usual in a document of this type
- Warranties - select from 140, in neat, sensible categories for you to choose and use.
This document was written by a solicitor for Net Lawman. It complies with current English law.
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