Subscription Agreement

A subscription agreement is a contract by an investor to purchase shares of a company. In most cases, the investor also will have to fill out a form evaluating the investor’s suitability for the investment in the company, along with occasionally having to complete an accredited investor questionnaire (depending on the type of stock offering) in connection with the subscription agreement. The subscription agreement only becomes a validly binding contract upon the company’s acceptance of the agreement – by having an officer at the company countersign it – and by the investor’s contribution to the company of the agreed upon consideration, which is most often cash. Subscription agreements usually have robust representations and warranties made by the investor, including that the investor is a resident of a particular state and has no intentions to move; the investor understands the high degree of risk of loss of making the investment; the investor understands that the investment is speculative, and that the investor likely will be unable to liquidate the investment because of substantial transfer restrictions associated with the shares and because no public market exists for the shares. In essence, the agreement ensures that the company can protect itself from later claims by the investor that he or she did not understand the type of equity that he or she was purchasing.