When a company increases its capital by issuing shares, the company usually enters into the shareholders` agreement and share subscription contract with the company`s investors. Whenever a company wishes to raise its capital by selling the shares of the company`s current promoters, the company enters into a share purchase agreement in that case. Instead of receiving a prospectus, an investor participating in a private placement would receive a private placement memorandum. This document contains some of the same information, although the description of the investment is generally less complete than what would be made available to a member of the public. A subscription contract is often made available to qualified investors through the private placement memorandum. This agreement could define the return for the investor, e.B. whether the returns are paid in lump sums or as a percentage of the company`s net profit. If you`re wondering what the difference is between a stock purchase agreement and a stock purchase agreement, you may own a business or consider starting a business that would require one of these agreements. Understanding the differences between these two types of agreements can help you ensure that you are using the right version for your organization`s needs. This series #SHA101 aims to give founders the knowledge and awareness to conclude such final agreements in the future and to fully understand the impact of the different terms and clauses they sign in these documents. That agreement should also specify the dates on which those payments are made to the investor. By having all this information in writing, the investor understands the company and the payment structure.
The agreement should describe the priority structure of the order in which returns are paid to owners and founders. Now let`s see how this transfer of shares is legally held by a shareholder and what types of agreements a company and shareholders can enter into with the company to make this transfer of money and shares legally binding and enforceable. Although these agreements are not subject to any particular law, in most cases the terms of these agreements are mentioned in the articles of association of the companies. The AOA is essentially a document that defines the roles and responsibilities of directors, the type of business to be made, and the means by which shareholders exercise control over the board of directors. The main difference between a share purchase agreement and a share subscription agreement is that in a share purchase agreement, the consideration is credited to the account of the seller of the share (who is usually an investor or promoter of the company) who wishes to sell his stake in the company. In the case of a share subscription agreement, the consideration paid by the purchaser of the shares will be credited to the Company`s account because the Company issues additional shares at a predetermined price. A share purchase agreement is a faster way to acquire the stake in the company compared to the share subscription contract. The share purchase agreement also does not result in the dilution of the shares of the company`s existing shareholders. Before this agreement comes into force, it is very important that the outgoing partner has the written consent of the outgoing company or partner. The main purpose of a shareholders` agreement is to ensure that shareholders are treated fairly and that all the rights that the company has promised shareholders are respected. This agreement governs the sale of shares and the performance of the company. The main motive behind any investment is to maximize profits and minimize losses and constraints.
When an investor invests in a company, he will examine the performance of the company both before the investment and after the investment. And for this, the shareholders` agreement also describes how the company will operate and make a profit. Through a shareholders` agreement, shareholders determine the future shareholders of the company. From the preceding paragraphs, it can be concluded that any type of agreement, whether it is a share purchase agreement, a share subscription agreement or a shareholders` agreement, is concluded in order to protect the investor as well as the company from litigation. Each of these three agreements has its own specificities. It is not a golden rule to conclude an agreement to sell or buy shares, but in order to contain the problems that may arise in the future, it is always advantageous to give such transactions a written form, that is, to form an agreement. One of the differences between the share subscription agreement and the shareholders` agreement is that the shareholders` agreement is formulated in more detail. The share subscription agreement is usually simple and straightforward, but it can sometimes include detailed terms and conditions on shareholder guarantees and remuneration. Also known as a shareholders` agreement, the shareholders` agreement aims to protect the minority or majority of shareholders, depending on the type of drafting.
The purpose of this document is to create a fair relationship between shareholders. The agreement generally describes in detail the rights and obligations of each shareholder and the legitimate price of the shares. In this blog series, I intend to write a series of articles (#SHA101) on demystifying the different terms and clauses that are part of a typical shareholders` agreement (SHA) executed as part of investment cycles. SHA or other forms of definitive agreements are legally binding agreements signed between the parties that have multiple effects on the company and the founders they need to know. A share subscription contract is the purchase contract between a company and an investor when the company issues shares to the investor. It is a promise by the company to issue a certain number of shares/securities to an investor at a certain price. As we know, shareholders are the owners of the company or they get ownership of their investments in the company. Unlike share purchase agreements, the scope of the shareholders` agreement is much broader. Since share purchase agreements only provide for a lawful agreement between the parties on the transfer of shares, the shareholders` agreement sets out the rights and other obligations of the parties.
It defines the actual relationship of the parties to the rights generated by the purchase of shares of the Company. As part of the private placement process, the new shareholder will receive a private placement memorandum after meeting the requirements. This memorandum contains a description of the investment and is usually accompanied by a share subscription contract. It may be concluded from the preceding paragraph that any agreement concluded between the shareholders and the company is concluded with a view to protecting the interests of the investor and the company. In order to have the legal validity of all these agreements, it is always advisable that all these agreements be stamped and notarized. For an agreement to be legally binding, the first criterion must be offer and acceptance. For example, company A wants an investment and to this end, it invites investors to invest in the company. B an investor who wants to invest in company A brings 100 crores and in return company A B provides shares corresponding to the amount of the investment. As a result, B will retain ownership of Company A to some extent.
As we can see, there was an offer from A that was duly accepted by B, and this forms an agreement between these two. As a general rule, a share subscription agreement must include the number of shares that the corporation intends to issue to the shareholder, as well as the order and time the shareholder makes the payment. A share subscription contract varies considerably depending on the needs of each company, but some of the common clauses are confidentiality, execution of conditions precedent, tranches, guarantee and compensation. A share subscription agreement (SSA), as the name suggests, refers to the subscription of new shares of the Company by a group of existing or new shareholders. Points to note: To run a business, the most important thing is capital. Without adequate capital, no business can be properly operated and in order to ensure the proper functioning of a business, project promoters must provide the capital from time to time with the available funds. To this end, shares are issued to investors in exchange for the amount they invest. In general, the share subscription contract is the first document that a company issues and that plays an important role for any investor to invest in a company.
Through this agreement, an investor learns about their control, their role and the return on investment they will receive after the shares are allocated. That agreement should be drafted in such a way as to benefit both the undertaking and the investor, i.e. to reduce the risk of the investor and to preserve the powers and roles of the undertaking after the investment. .