Last Updated November 14, 2023
What is a Share Subscription Agreement?
A Share Subscription Agreement is a written document that is used whenever a purchaser (i.e. Subscriber) wants to purchase new shares from a corporation. When a person purchases shares (sometimes called stock) in a corporation, they become a shareholder (also known as a stockholder).
A Share Subscription is also known as a:
- Stock Subscription
- Share Subscription Agreement
- Stock Subscription Agreement
- Subscription Agreement
- Share Subscription Letter
What are shares in a corporation?
Shares are units of ownership that are divided among a corporation's shareholders. The percentage of total shares owned by a shareholder can sometimes demonstrate the percent they own in the corporation. For instance, if a shareholder holds 70 out of 100 available shares in a corporation, the shareholder owns 70% of the corporation.
There are several terms used to describe shares in a corporation: voting, non-voting, common, and preferred shares.
Whether a shareholder owns voting or non-voting shares determines whether or not they are eligible to vote on resolutions at shareholders' meetings. For instance, voting shareholders are able to elect directors to manage the corporation.
The terms common and preferred refer to the class of the shares and deal with the share's value. Shareholders who own preferred shares (as opposed to common shares) are given a priority in terms of receiving a portion of profits (known as dividends). They are also given priority in the event of liquidation (i.e. the process of closing a business and converting assets into money).
Common shares are the most frequently held share class in a company, and a Share Subscription Agreement will generally involve the purchase of common class shares instead of preferred shares. It’s also important to know that most corporations will have common shares, but not all will have preferred.
Who uses a Share Subscription?
Share Subscription forms are typically used by:
- A corporation that is preparing the share subscription for the purchaser purchasing new shares from the corporation
- Individuals or entities who want to purchase new shares of a corporation from that corporation
Do I need a Share Subscription Agreement?
Corporations, individuals, or entities interested in purchasing shares in a corporation should use a Share Subscription Agreement whenever they need to record a share subscription between a corporation and a purchaser. Using an agreement is also a good way to record all the subscribers in the corporation and how many shares are available to be issued in the future.
A Share Subscription Agreement generally includes:
- The name and address of the subscriber (the person, people, or entity purchasing the shares from the corporation)
- The name and address of the corporation (or corporations) selling the shares to the purchaser
- Details about the shares being sold (including the number of shares being sold, the class of share being sold, and the unit price for each share)
A separate Share Subscription Form should be used if more than one type of share is being sold. For instance, if you are selling 100 Class A Common Voting Shares as well as 400 Class B Common Non-Voting Shares, one Share Subscription should be used for the Class A shares and another for the Class B shares.
What is the difference between a Share Subscription and a Share Purchase Agreement?
Both a Share Subscription Agreement and Share Purchase Agreement (SPA) are used to record the sale of shares in a corporation. However, a Share Subscription Agreement is used to record the purchase of shares when a corporation is issuing its own shares as opposed to the shares being purchased from a shareholder, and a Share Purchase Agreement is used when shares are sold by a shareholder rather than from the corporation issuing its own shares.
In other words, a Share Subscription Agreement is a contract between an individual or entity and the issuing corporation, and a Share Purchase Agreement is a contract between an existing shareholder of the corporation and a buyer.
