Shareholders Agreement Vs Subscription Agreement

Shareholders Agreement vs Subscription Agreement: What’s the Difference?

As a business owner or entrepreneur, it’s important to understand the legal agreements that govern your company. Two of the most important agreements you’ll encounter as you grow your business are shareholders agreement and subscription agreement. Both of these agreements are essential for raising capital and protecting the interests of your shareholders. But, what’s the difference between them? In this article, we’ll break down the key differences between shareholders agreement and subscription agreement.

What is a Shareholders Agreement?

A shareholders agreement is a legal agreement between the shareholders of a company. This agreement outlines the rights, responsibilities, and obligations of each shareholder. It also lays out the rules that govern how the company will be run, including how decisions are made and how profits are distributed. A shareholders agreement is a private agreement, and it’s not filed with any government agency.

A shareholders agreement typically covers the following areas:

– Shareholder rights: This section outlines the rights of each shareholder, such as the right to vote, the right to receive dividends, and the right to transfer shares.

– Management: This section defines the roles and responsibilities of the company’s management team, including the CEO, board of directors, and other officers.

– Decision-making: This section outlines how decisions are made within the company, including the process for resolving disputes between shareholders.

– Financing: This section covers how the company will raise capital, including the process for issuing new shares and the terms of any loans or other financing agreements.

What is a Subscription Agreement?

A subscription agreement is a legal agreement between a company and an investor. This agreement outlines the terms of the investment, including the amount of money being invested, the type of securities being issued, and the terms of the investment. A subscription agreement is a private agreement, and it’s not filed with any government agency.

A subscription agreement typically covers the following areas:

– Type of securities: This section specifies the type of securities being issued to the investor, such as common stock or preferred stock.

– Purchase price: This section outlines the purchase price of the securities being issued, as well as any other fees or expenses associated with the investment.

– Securities law disclosures: This section outlines any legal disclosures required by securities law.

– Representations and warranties: This section outlines the representations and warranties made by the company to the investor, such as the accuracy of the company’s financial statements.

– Closing conditions: This section outlines the conditions that must be met before the investment can be completed, such as the receipt of regulatory approvals.

Key Differences between Shareholders Agreement and Subscription Agreement

Now that we’ve covered the basics of shareholders agreement and subscription agreement, let’s take a look at some of the key differences between these two agreements:

1. Parties Involved

A shareholders agreement is a legal agreement between the shareholders of a company, while a subscription agreement is a legal agreement between a company and an investor.

2. Purpose

A shareholders agreement outlines the rights, responsibilities, and obligations of each shareholder and the rules for running the company, while a subscription agreement outlines the terms of an investment.

3. Filing Requirements

A shareholders agreement is a private agreement, and it’s not filed with any government agency. A subscription agreement is also a private agreement, but it may be required to be filed with securities regulators.

Conclusion

In summary, both shareholders agreement and subscription agreement are important legal agreements that play a critical role in raising capital and protecting the interests of your shareholders. While there are some similarities between these two agreements, there are also key differences that every business owner or entrepreneur should understand. If you’re unsure about which agreement is right for your business, it’s important to consult with an experienced attorney who can guide you through the process and help you make the right decision for your company.