What is a share subscription agreement and when do I need one?

A share subscription agreement is a contract between a corporation and a person (or entity) who is agreeing to purchase a specified number of shares at a specified price. It sets out the terms of the share issuance, including the number and class of shares, the subscription price, the payment terms, and any representations and warranties the corporation makes to the investor (and sometimes vice versa).

You need one whenever shares are being issued to a new investor — or even to an existing shareholder in a new round — for any material amount. The subscription agreement creates a formal record of the transaction, documents the corporation's representations (for example, that the shares are validly authorized, that there are no undisclosed material liabilities), and may include conditions the investor requires before the money is advanced.

For smaller or simpler share issuances — for example, initial founder shares at nominal value — the documentation is sometimes simpler (a directors' resolution authorizing the issuance and a share certificate). But for any arm's-length investment, a subscription agreement is important. It protects both parties and is often required by investors. The subscription agreement may be accompanied by or incorporated into a broader investment agreement that also addresses shareholder rights and the terms of any updated shareholder agreement.