Subscription for shares: Overview, definition, and example
What is subscription for shares?
Subscription for shares refers to the process where an investor agrees to purchase shares in a company at a specific price, often as part of a new issue of stock. When a company raises capital by issuing new shares, investors can subscribe (or sign up) to purchase those shares. This subscription is typically done before the shares are issued, and the investor commits to buying a certain number of shares at the agreed-upon price. The subscription agreement outlines the terms of the purchase, including the price, number of shares, and payment method.
In simpler terms, subscription for shares is when someone agrees to buy a company’s shares before they are officially issued.
Why is subscription for shares important?
Subscription for shares is important because it allows companies to raise capital by offering ownership stakes in the form of stock. By selling shares, companies can secure the funds needed for expansion, operations, or other business purposes. For investors, subscribing for shares gives them the opportunity to purchase ownership in a company, often at a set price, which could lead to financial returns if the company’s value increases.
For SMB owners, understanding how subscription for shares works is crucial when raising funds through the issuance of stock, either in a private offering or public offering.
Understanding subscription for shares through an example
Let’s say your business wants to raise capital to expand. You decide to issue 1,000 new shares of stock at $100 per share. An investor subscribes to purchase 100 shares for $10,000. Before the shares are issued, you and the investor agree on the terms of the subscription, including the purchase price and the number of shares. Once the subscription is completed, the investor has committed to purchasing those shares once they are issued by your company.
In this case, subscription for shares is the agreement to buy stock in the company as part of its capital-raising efforts.
Example of a subscription for shares clause
Here’s an example of what a subscription for shares clause might look like in a business agreement:
“The Subscriber agrees to purchase [X] number of shares of the Company at a price of $[Y] per share, for a total of $[Z]. The Subscription Agreement will be binding upon execution, and payment for the shares will be made by the Subscriber on or before [date]. The Company agrees to issue the shares once full payment is received and the Subscription Agreement is finalized.”
Conclusion
Subscription for shares is a key method by which companies raise capital, and it involves investors agreeing to purchase stock before the shares are issued. For SMB owners, understanding how subscription works is crucial when offering stock to raise funds or expand ownership. By structuring subscription agreements clearly, businesses can raise the necessary funds while ensuring that investors are fully aware of the terms of their investment.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.