What is Investment Subscription Agreement Drafting?
An investment subscription agreement is a legal contract between a company and an investor for the purpose of the investor purchasing recently issued shares at a specific price. This provides the company with fresh capital.
If you need to draft an investment subscription agreement, you might wonder how to navigate the process. Here’s what to know about key terms to include in the contract, how to draft it, and why you should consider hiring a qualified lawyer for assistance.
What are Core Components in an Investment Subscription Agreement?
An investment subscription agreement usually contains the following key terms and information:
- Investor information. Specify the investor’s full legal name, tax status, address and banking details.
- Qualified status. Make sure to confirm that the investor meets accredited or qualified status, such as regarding their income and professional requirements.
- Investment amount. State the exact number of shares being bought and at what price per share.
- Payments. Outline if funds will be paid in a lump sum or provided to the company via capital calls.
- Conditions. These specify the requirements to be met before shares and money are exchanged between parties.
- Indemnification and liability. These clauses are important to protect parties, such as against legal claims or contract breaches.
What are Tips for Drafting an Investment Subscription Agreement?
When drafting an investment subscription agreement, there are important tips to bear in mind.
Detail the Investment Amount
You should clearly state the total subscription amount, the number and class of shares to be issued, and the price per share. All payment details must be included, such as the payment method and by when payments are made.
Include Clear Conditions Precedent
Before the transfer is completed, you should include all requirements that must be met. This can include board or shareholder approvals, compliance checks, and due diligence requirements. Your agreement must specify which party will be responsible for different conditions and by what deadlines.
Confirm Representations and Warranties
These are statements parties make to each other, such as the company stating that it has the capacity and authority to enter into the agreement and the investor stating that they have the capacity to pay the funds.
Explain the Completion Process
The agreement must specify what will happen when the investment closes. This can include the investor making the subscription amount payment, the company confirming that they have received the funds, and so on. Having a clear process will serve to provide clarity for both parties on what is required.
Outline the Risks
For transparency, include clauses that address risks for the parties involved, such as not having a guarantee of returns, restrictions on the resale or transfer of shares, and dilution.
Refer to Other Documents
When drafting your investment subscription agreement, you should refer to other company documents, such as shareholders’ agreements and investment term sheets, so that there’s no confusing or contradictory information.
Should a Lawyer Draft Your Investment Subscription Agreement?
It’s advisable to hire a qualified lawyer to draft your investment subscription agreement, especially if you’re dealing with complex investment terms.
A lawyer can conduct various activities during the drafting of your contract, such as the following:
- Legal compliance. A lawyer will assess if the proposed investment is compliant with all applicable laws, securities regulations, and legal requirements.
- Identifying parties. They’ll explore the parties’ rights and obligations, as well as their representations and warranties.
- Clarifying payment terms. They’ll check that all payment terms, such as payment deadlines, conditions precedent, and subscription prices are accurate.
- Preventing disputes. They’ll ensure that there are clear, specific terms in the agreement to prevent ambiguity that can result in disputes. They’ll also include a dispute-resolution method, such as mediation or arbitration, should disagreements arise.
- Conducting due diligence. They’ll specify the due diligence requirements that need to be satisfied prior to the investment being completed.
- Defining investor rights. They’ll address rights related to voting, future share issues, and exit arrangements for clarity.
- Considering data protection. They’ll protect confidential company information with data protection clauses.
- Reviewing the agreement. If you’ve already drafted the agreement, you can hire a lawyer to review it so that all its terms are balanced, clear, and specific.
Where to Find a Lawyer for an Investment Subscription Agreement
If you’d like to find a qualified lawyer to draft your investment subscription agreement, you don’t have to consult local law firms in your area. Instead, from the comfort of your home, you can use an online legal platform that makes it easy to hire a lawyer.
ContractsCounsel is one of the largest online legal marketplaces that connects clients to a curated network of lawyers who have been vetted.
Here are the steps to follow if you want to ask a qualified lawyer on ContractsCounsel to draft your investment subscription agreement.
- Visit the ContractsCounsel marketplace.
- Select ‘One-time project’ and ‘Create or update contract.’ If you’d prefer to hire a lawyer to review your agreement, you should choose ‘Contract review’ instead.
- Post your project. Include some details of the investment or your agreement to match with the most suitable lawyers.
- Wait for bids. After posting your project, you’ll receive multiple bids from lawyers directly on the platform who are ready to assist you.
- Review the platform’s lawyer data. This includes information such as the lawyers’ field of expertise, credentials, years of experience, location, and client ratings for previously published projects completed on the platform. It helps you to select a lawyer for your specific contract.
- Choose a lawyer. Hire them to draft or review your investment subscription agreement for a flat fee.
