• October 2018
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What kind of legal procedures are involved with receiving and giving funding for startups?

There is no “universal” way to purchase shares of a startup. However, a highly customizable legal document called a subscription agreement is often utilized for this purpose.

Just to preface, I’m currently helping 1000s of startups get all their legal stuff done with LawTrades.

Alright, now that we have the credibility out of the way, let’s get it on.

Unlike many other legal documents, there is no standard template for a subscription agreement since each situation is unique. However, these agreements often share common traits.

This agreement typically contains the names of the parties involves, the number of shares, the price, and the roles and responsibilities of the parties involved. This is the most popular method for funding a smaller business or a startup since they usually do not have the resources needed to public or have not satisfied the criteria that a VC firm would require.

Investors and businesses prefer this agreement because it imitates a limited partnership or a silent partner since the individual investor is not expected to provide any additional funding. This lowers the risk for the investor in exchange for them having no say in company decisions.

For the startup, it solidifies any verbal agreement made with the investor such as a percentage of net income or a lump sum payout on a particular date. Furthermore, subscription agreements often require a large amount of detailed information about the investor which helps establish credibility. The subscription agreement essentially serves as a screening process for the investor since it will reveal their financial status and history. This can be useful when gauging if the investor is capable of providing the funding amount that was agreed upon.

Although there are some templates floating around the Internet, it is highly advised that a lawyer be retained for such a complex and important process.

At LawTrades, we can connect you with an experienced and affordable startup lawyer that can assist with this process.

Here’s a pretty awesome infographic courtesy of Funders and Founders that puts the whole fundraising process into prospective: 

Good luck and don’t hesitate to reach out if you have any further questions 🙂

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