When it comes to business transactions, there are several legal agreements that you might come across. Two of the most common agreements are the Subscription Agreement and the Share Purchase Agreement. Both agreements are used to facilitate investments in a company, but they differ in their structure, purpose and details.
What is a Subscription Agreement?
A Subscription Agreement is a legal document that outlines the terms and conditions of an investment in a company. This agreement is usually signed between the company and an investor who wants to purchase shares in the company. The Subscription Agreement sets out the price, the number and class of shares, and the payment terms for the investment.
The Subscription Agreement is used when the investor wants to invest in a private company, as opposed to a public company. Private companies are not listed on a stock exchange, and so their shares cannot be bought or sold by the general public.
What is a Share Purchase Agreement?
A Share Purchase Agreement is a legal document that is used when an investor wants to buy shares in a company. Unlike a Subscription Agreement, the Share Purchase Agreement is signed between the investor and an existing shareholder(s) of the company. The agreement outlines the price, the number and class of shares, and any other terms and conditions that the parties agree on.
The Share Purchase Agreement is typically used when the investor wants to purchase the shares of an existing shareholder(s) in a public or private company. This agreement is more complex than the Subscription Agreement and requires a thorough understanding of the company`s financials and other details.
The Key Differences
The key difference between the Subscription Agreement and the Share Purchase Agreement is in the way the investment is made. In a Subscription Agreement, the investment is made directly in the company and the investor becomes a shareholder. In a Share Purchase Agreement, the investment is made in the existing shareholder(s), and the investor becomes a shareholder indirectly.
Another difference is that Subscription Agreements are typically used for private companies, while Share Purchase Agreements can be used for both public and private companies. Subscription Agreements are simpler and more straightforward, while Share Purchase Agreements are more complex and require more due diligence.
Which Agreement to Choose?
Whether you choose a Subscription Agreement or a Share Purchase Agreement depends on several factors such as the type of company, the investment amount, your investment goals, and the existing shareholders. Each agreement has its own benefits and drawbacks, and it`s important to consult with a legal professional before making any decisions.
In summary, Subscription Agreements and Share Purchase Agreements are two important legal documents used in investment transactions. Both agreements have their own structure, purpose, and details, and it`s important to understand the differences between them before making any decisions. As always, it`s important to consult with a legal professional before signing any agreements.