Last updated January 31, 2024
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What is a Share Subscription Agreement?
A Share Subscription Agreement is a document that is used when a purchaser (or subscriber) purchases new shares from a corporation. The agreement outlines the class, number, and unit price of the shares purchased.
In Canada, a corporation’s financial organization is regulated by the Canada Business Corporations Act. A Share Subscription Agreement is one of many valuable documents used in corporate governance.
A Share Subscription Agreement may also be referred to as a:
- Subscription agreement
- Stock subscription agreement
- Equity subscription agreement
- Investment agreement
- New share agreement
How does a Share Subscription Agreement work?
A Share Subscription Agreement is a two-way guarantee between the directors of a company and a new shareholder. This agreement is mutually beneficial to both parties.
For the corporation, a Share Subscription Agreement is a good opportunity to generate new revenue. For the purchaser, obtaining shares in a corporation can help to expand their investment portfolio.
The Share Subscription process often follows these five steps:
- New shares are issued by the corporation’s board of directors. This can happen when the business is incorporated or at a later date.
- New investors are invited to subscribe. Investors may choose to conduct due diligence at this point, which might include assessing the company’s financial health, market prospects, and other potential risks.
- Both the purchaser and seller sign the Share Subscription Agreement, once the terms have been finalized. Corporations may choose to include both the Share Subscription Agreement and the Shareholders Agreement in the same document.
- The purchaser pays the corporation the agreed amount. Accepted payments may be cash, assets, or a combination of the two.
- A Share Certificate is issued under the purchaser’s name. This certificate is then stored with the corporation’s records.
Who uses a Share Subscription Agreement?
A Share Subscription Agreement is used in a variety of business and investment scenarios. If you are looking to invest in a pioneering start-up or seeking to generate new revenue in your long-standing business, a Share Subscription Agreement is a useful tool.
Typically this document is used by:
- Individuals who are purchasing new shares of a corporation.
- Directors of the corporation who are preparing the subscription for a purchaser buying new shares.
Benefits of a Share Subscription Agreement
Share Subscription Agreements are valuable for a variety of reasons. Here’s why you should use a Share Subscription Agreement:
1. Clarity
A well-drafted Share Subscription Agreement allows both the purchaser and the seller to review the terms and conditions of the share sale in writing, thereby lessening the chance of any future misunderstandings. Putting everything on paper ensures that the finer details of the agreement (including price, quantity, and class) are clearly understood prior to signing.
2. Security
Having the terms and conditions of a business deal in writing is always a good idea. By jointly reviewing and signing this document, both parties are agreeing to a set of rights and responsibilities. As well, they have agreed to operate under the laws of the relevant legal jurisdiction.
When dealing with finances and investment, relying on a verbal agreement isn’t enough. If either party doesn’t hold up their end of the deal, a Share Subscription Agreement makes it much easier to take legal action.
3. Compliance
Corporations operating in Canada are subject to provincial or territorial securities regulations. Although these laws may differ from province to province, most jurisdictions require corporations to disclose their financial statements, shareholder meeting materials, and other information relating to the governance of their business.
Utilizing Share Subscription Agreements is a convenient way to keep an accurate and organized record of all the corporation’s subscribers. Then, when tax time rolls around, the corporation will have all relevant documents on hand and ready to file.
What is included in a Share Subscription Agreement?
A Share Subscription Agreement must include the following:
- Purchaser’s name and address
- Corporation’s name and address
- Information about the shares being purchased, including:
- Number of shares
- Class
- Unit price
- Any additional terms of agreement between the seller and the purchaser
Share Subscription Agreement versus Share Purchase Agreement
Although both these agreements are used to record the sale of shares in a corporation, a Share Subscription Agreement and a Share Purchase Agreement are two separate documents with distinct functions.
Here’s a couple differences to keep in mind:
| Share Subscription Agreement |
Share Purchase Agreement |
| New shares are issued |
Existing shares are sold and transferred |
| Between new purchaser and corporation |
Between existing shareholders |
| Helps to attract investment and generate new revenue |
Primarily used to transfer ownership of a corporation |
| Due diligence process is straightforward and quick. |
Due diligence process is extensive and thorough. |
