Subscription Agreement

November 1, 20212 min read
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A subscription agreement is a legal document that is signed by all investors who purchased a portion of a Special Purpose Vehicle (SPV). The agreement represents the SPV that has been created by an offering, and in most instances, each of the investors will own a pro-rata portion of the SPV.

In the fast-moving economy of startups and small businesses, subscription agreements are commonly used for startup investors, angel investors, or crowdfunding opportunities like those available on Yieldstreet.

A subscription agreement will contain the necessary information regarding shares and capital contributions from individual investors. The agreement can be used to protect an owners’ legal rights if disputes had to arise between the involved parties.

What’s included in a subscription agreement?

The Subscription Agreement Governance allows the use of these agreements for new and small businesses who require funding and investment from various parties. The Governance of this agreement relies heavily on SEC Rule 506(b) and 506(c) of Regulation D.

Under these conditions, important parts of the subscription should include, share ownership, director resolution, outstanding shares, non-compete and confidentiality clauses, and indemnity clauses. These are among some of the most important parts new business owners should always include in their newly drafted subscription agreements.

What are the advantages of a subscription agreement?

  • Limited Liability and Partnership for investors.
  • New investors can act as silent partners in the business or company.
  • Investors will only need to complete a once-off payment of investment.
  • This agreement has become an easier way to sell stock on the public market, sidestepping registration with the Securities and Exchange Commission (SEC).

Overall, subscription agreements have become a popular way for new and small businesses to find public investors. This allows them to potentially receive better financial backing while limiting the potential financial liability of their investors.