A subscription agreement is when a business promises to sell a number of shares to an investor at a certain price in exchange for an agreement by the investor to pay that price. This is the most popular method for funding smaller businesses as they typically do not have neither the resources needed to go public nor the criteria that a venture capital (“VC”) firm would require.
Investors (called subscribers) and businesses prefer this agreement because it imitates a limited partnership or a silent partner as the individual investor is not expected to provide any additional funding. This lowers the risk for the investor in exchange for them having no influence in company decisions. For the business, 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. With any type of funding arrangement, it’s smart to have an attorney draft or review your subscription agreement to assure its long lasting effectiveness. You can do that at. Our legal platform makes it painless & affordable for startups to do their legal stuff.