What Is a Subscription Agreement?

A subscription agreement is an investor's application to join a limited partnership (LP). It is also a two-way gu꧑arantee between a company and a new shareholder (subscriber). The company agrees to sell a certain number of shares at a specific price and, in return, the subscriber promises to buy the shares at the predetermined price. 

Understanding Subscription Agreements

Broadly defined, a 澳洲幸运5官方开奖结果体彩网:partnership is a business agreement between two or more people who all have personal ownership in the business. The partnership entity does not pay taxes. Instead, the profits and losses flow through to each partner. Partners will pay taxes on their distributive share of the partnership's taxable income based on a partner agreement. Law firms and accounting firms&nbs💙p;are o𝕴ften formed as general partnerships.

In a LP, a general partner manages the partnership entity and brings in limited partners using a subscription agreement. Candidates subscribe to become limited partners. After meeting standard requirements, the general partner decides whether to accept the cand🔯idatℱe.

Limited partners act as silent partners by providing capital, usually a one-time investment, and have no material participation in the business's operations. As a result, partners typically have little to no voice in the day-to-day operations of the partnership and are exposed to less risk than full partners. 

Each limited partner's exposure to business losses is limited to that partner's original investment. The subscription agreement for joining the LP describes the investment experience, sophistication, and net worth of the potential limited partner.

How Subscription Agreements Are Regulated

Subscription agreements are generally covered by SEC Rules 506(b) and 506(c) of 澳洲幸运5官方开奖结果体彩网:Regulation D. These stipulations define the method of conducting an offe🅺ring and the amount of material information that companies are required to disclose to invesꦉtors.

As new limited partners are added to an offering, general partners obtain the consent of existing partners before amending the subscription agreement. Raisi꧂ng capital through a Reg D investment involves meeting significantly less onerous requirements than a public offering. This allows companies to save time and sell securities that they might not otherwise be able to issue in some cases.

Subscription Agreements With Private Placements

When a company wishes to raise capital, it will often issue shares of stock for purchase by either the general public or through a 澳洲幸运5官方开奖结果体彩网:private placement. The primary disclosure form for potential general public investors is a 澳洲幸运5官方开奖结果体彩网:prospectus. The prospectus ꧅is a disclosure document listing information about the business and its underlying s🍸ecurity.

A private placement is a sale of stock to a limited number of 澳洲幸运5官方开奖结果体彩网:accredited investors who meet specific criteria. The criteria for accredited status include having a particular level of investment experience, assets, and net worth. Investors will receive a private placement 澳洲幸运5官方开奖结果体彩网:memorandum as an alternative to the prospectus. The memorandum provides aಞ less comprehensive description ꦆof the investment.

In many cases, a subscription agreement accompanies the memorandum. Some agreements outline a specific rate of return that will be paid to the investor, such as a particular percentage of company 澳洲幸运5官方开奖结果体彩网:net income or lump sum payments.

Also, the agreement will define the payment dates for th♐ese returns. This structure gives priority to the investor, as they earn a rate of return on the investment before company founders or other minority owners.