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Share Subscription Agreement (SSA) is a legal agreement between a company and a potential investor and is basically a promise by a potential investor to invest a pre specified capital amount, in the form of consideration to the Company against issuance of fresh shares at predetermined price. A share subscription agreement must include the number of shares that shall be issued and the order and manner in which the funds will be provided. Under Share Subscription Agreement (SSA) the company wants to issue fresh shares so that the existing shareholders do not dilute their stake in the company.
The subscription agreement presents a potential investor’s intentions to join a limited partnership in a company. Under the subscription agreement, the terms are specified for the company to sell a certain number of shares in return for a predetermined amount from the private investor. The liability of potential investors under the subscription agreement is limited to the investor capital amount.
Under the subscription agreement, the private investors’ liability is limited to the amount of capital investment. In the case of the company becoming bankrupt, the potential investor cannot be held liable to repay the lenders or any other entity from their personal wealth
The subscription agreement makes up for a great way to invest a lump sum amount and realise returns as the potential investors are required to invest a pre-specified amount as a one-time investment.
The subscription agreement allows investors to invest in companies at the early stage of their growth. As businesses may grow to be worth billions, the amount invested by the private investors can multiply by a huge margin with time, allowing them to get high returns on the investment.
Not every company wants to list on the stock exchange for raising funds as the issue may be unsuccessful based on the company’s present condition. Hence, general partners of the company utilise subscription agreements to raise funds without having to offer the shares to the general public.
Contents of Share Subscription Agreement
Major Clauses of Share Subscription Agreement
Any party willing to terminate the agreement on the ground of the clauses mentioned above shall issue a notice to the other party.
9. Indemnification: Indemnification clause provides for the limits of liability and the process for reimbursement of indemnity claims and is considered as the most scrutinized clause in case of disputes, therefore, attention has to be paid to ensure that the parties is adequately covered in case of issues relating to the transactions emerge. In this clause the parties to the agreement promise to indemnify the other parties against any losses, occurred because of wrong and malafide information in the warranties and representation clause.
10. Dispute Resolution and Arbitration: A share purchase agreement should set out the process for the resolution of any disputes between the parties to the shareholder’s agreement. This could be simply that disputes are referred to the courts under the respective jurisdiction. Alternatively, the Parties can also include the Arbitration Clause in this agreement. Under Arbitration, any dispute that arises between the parties will be referred to an Arbitrator appointed mutually by parties to the agreement. The decision of the Arbitrator will be final and binding on the parties to the Agreement.
Share Subscription Agreement is very critical document which defines the Terms of the Capital Investment between the Company and the potential investor, and have long term impact on business of the Company, hence the same need to be carefully drafted by the experts. Companies Next provide online platform to generate well curated Share Subscription Agreement in line with best industry practices, and also provide option to avail customized Share Subscription Agreement. Our team of experts consist of Chartered Accountants, Company Secretaries, and Lawyers who are having rich experience in the field.