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 into 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.
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 licences and/or intellectual property necessary to conduct its business.
Conditions precedent
The conditions precedent will set out any terms either of the parties requires to be fulfilled prior to the agreement coming into force. This may include directors of the company passing the relevant resolutions, or perhaps actions on behalf of the purchaser necessary to become a member of the company.
Confidentiality
This clause speaks for itself. Both parties will generally agree to be bound by a mutual confidentiality clause.
Tranches
The Tranches clause will set out the details of the deal, which can usually be found in the Term Sheet:
- How many shares are being issued
- Subscription price
- Prescribed time limits
- Vesting conditions (if any).
Share Subscription Agreements will vary greatly depending on the individual terms and the type of shares being subscribed for. If your investor requests a Share Subscription Agreement, your lawyer can help you negotiate and navigate the terms.
