Subscription Agreement

Subscription agreement is "the agreement to purchase a set number of shares of stock of the new corporation at a stated price". The explained contract is a deal, which will be performed after the corporation, currently being in the formation, has come to life. At that point in time, the shares of stock are issued to participants of the contract. These shares are going to be paid by those, who build construction of the corporate.

Legal regulations regarding the subscription agreement

The corporate laws of lots of states include a provision that the contract to purchase stock according to subscription agreement is irreversible for a fixed time period, such as six months. The subscription agreement is seen as an agreement within two parties, a company and future shareholder. When a subscriber failure to pay or to follow through with buying in accordance with the agreement, the company might take legal proceedings against endorser. According to the Section 6.20 of Model Business Corporation Act, in case when the subscriber failure to pay in accordance with a subscription agreement concluded earlier than incorporation, the company can assemble the amount owed like any other debt. In the further alternative, the company might revoke the contract and sale the shares to somebody else when the subscriber failure to pay,.

Basic information required for the subscription agreement

Subscription agreements can be used at any moment within the time of life of the corporation to include new shareholder to company and to report purchase of further shares by current shareholders. According to A. Schneeman, a checklist of issues that need to be taken into account during creating a subscription agreement before incorporation includes following points :

• Name and address of each subscriber.
• Name of corporation to be formed.
• Number and class of shares the corporation will be authorized to issue.
• Number and class of shares subscribed.
• Amount of cash or description of consideration paid for subscription.
• Conditions on subscription, if any.
• Date on or before which stock is to be issued and paid for.
• Identification of subscriber as incorporator or promoter, in appropriate case.
• Date of subscription agreement.

Footnotes

Subscription Agreement — recommended articles

Share certificate — Shareholder register — Reliance letter — Grant date — Incontestability clause — Dissenters Rights — Allotment letter — Mandatory disclosure — Adverse Action

References

• American Bar Association. Committee on Corporate Laws, (2008), Model Business Corporation Act: Official Text with Official Comment and Statutory Cross - References Revised through December 2007, American Bar Association, Business Law Section, Chicago, Illinois
• Bouchoux D. B., (2009), Business Organizations for Paralegals, Fifth Edition, Aspen Publishers, USA
• Cummins R. R., (1997), Basics of Legal Document Preparation, Delmar Publishers, New York
• Saliterman R. A., Magnuson R. J., (2011), Advising Minnesota Corporations and Other Business Organizations, Second Edition, Juris Publishing, Inc., USA
• Schneeman A., (2010), Law of Corporations and Other Business Organization, Delmar Cengage Learning, USA

Author: Faustyna Nowicka