Share Subscription Agreement


Template: Share Subscription Agreement

This is what Net Lawman says about this template:

"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.

This is a simple subscription agreement for new shares where the subscriber does not need warranties about the state of the company.

It is intended for smaller and uncomplicated transactions: the subscriber may already be familiar with the company (for example, he or she may be a director or a shareholder), or may trust the shareholders, or the transaction might be low risk.

The subscription is for cash, with payments in two stages. The final price to be paid is dependent on the profit of the company in the next set of accounts. If the profit is not as promised, the subscriber can deduct an amount from the final payment. The penalty reduction of balance is calculated by reference to a simple, flexible formula.

Examples of use:

  • for the introduction of a family member into a company
  • a senior employee or director buy-in
  • the appointment of a new non-executive board member who requires only a nominal shareholding
  • for an existing shareholder to invest additional equity
  • in any case where a low price reduces the risks significantly

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.

Features

Warranties

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."


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