YL TV: Share Subscription Agreement

This week on You Legal TV, we take a look at the structure of Share Subscription Agreement. Watch the episode here:

See below for complete transcript of this episode –

Welcome to You Legal TV.

You’ve wooed investors with your pitch, set out the Term Sheet and prepared the Share Offer document, but you may find that experienced venture capitalists will also expect a Share Subscription Agreement.

This Agreement will typically contain five types of clauses:

  1. Representations and warranties of the investor;
  2. and also of the company;
  3. Conditions precedent, which set out who needs to do what before the Agreement comes into force;
  4. Confidentiality; and
  5. The Tranches clause setting out the details of the deal found in the term sheet.

While the document contains clauses that benefit both parties, a Share Subscription Agreement is ultimately a document for the benefit of the investor.

Visit our blog for more information or contact us for advice on your legal obligations. We’re always happy to help.

The Anatomy of a Share Subscription Agreement

 

What Should I Do Next?

Contact us if you would like to have more information on drafting up a Share Subscription Agreement. Our lawyers at You Legal will be happy to assist you in whatever way we can.

* This blog is for general guidance only. Legal advice should be sought before taking action in relation to any specific issues.

The Anatomy of a Share Subscription Agreement

A Share Subscription Agreement will set out the who, how, what and when of a share issue, but more importantly, it will set out any warranties and representations made to an investor.

Representations and Warranties of the Purchaser/Investor

The Share Subscription Agreement will often contain various representations and warranties made by the investor. While the document contains clauses that benefit both parties, a Share Subscription Agreement is ultimately a document for the benefit of the purchaser. If your investor has not requested it, it is not necessary to volunteer it. You may however find that experienced venture capitalists will expect one.

Your legal advisor is best placed to make sure that your agreement contains the representations and warranties necessary for your individual deal, however the following are examples of a few of the most common clauses:

  • That the purchaser is not entering in the agreement with knowledge that has not been publicly disclosed (insider trading)
  • The purchaser has received all relevant copies of documents relating to the company such as any memorandum of offering
  • The purchaser may make a warranty to the effect that they are able to meet their financial commitment and fulfil their obligations under the agreement.

Share-Subscription-Agreement

Representations and Warranties of the Company

Your investor will, in all likelihood, make specific demands about what they want represented, none of which should come as a surprise following the negotiation and Term Sheet stage of the investment.

The warranties contained in a share subscription agreement can be broad such as a warranty that the company has the authority to enter into the agreement, that all relevant information has been provided to the investor, and that the directors or founders are not aware of any additional information that may affect the investment.

Warranties may also be very specific, such as a warranty that the company owns the relevant licenses and/or intellectual property necessary to conduct its business.

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