Subscription Agreements
Subscription agreements are governed by the law of the U.S. state provided for in the agreement and any applicable rules and regulations arising under U.S. federal law. In Florida subscription agreements are enforceable and subject to applicable laws of the State of Florida regarding contract formation and interpretation. In addition, some provisions of the contract may be governed by U.S. federal law.
A subscription agreement is an application made by a private investor to join a company, regardless of whether the company is structured as a limited partnership, a limited liability company or a corporation. In the subscription agreement the company and the private investor exchange mutual promises – the company promises to sell a number of shares to the investor at a certain price and the investor, also known as the subscriber, promises to pay that price to the company.
Moreover, the subscription agreement documents the suitability of the investor for investing in the company and can include a description of the investor’s investment experience, sophistication and net worth. Oftentimes the investor fills out an investor suitability questionnaire separately.
Generally, subscription agreements rely on the guidelines and stipulations defined in the U.S. Securities and Exchange Commission (SEC) Rule 506(b) and 506(c) of Regulation D. The guidelines describe the method of conducting an offering of securities in a company and solicit private investors, the amount of information a company is required to disclose to investors and who is a suitable investor.
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Subscription agreements may be used, either before or after a company is formed, in order to bind a prospective investor or subscriber to purchase a specified amount of a company’s shares. In Florida there are very few restrictions on the form of a subscription agreement, so the agreement is flexible and can be structured according to the company’s needs.
In Florida, executed subscription agreements are irrevocable for six months, unless the contract provides otherwise, and all the subscribers agree to the revocation. However, if the subscription agreement is with an existing company, general contract law in the State of Florida applies. Subscription agreements must be in writing and signed by the investor.
Private companies use subscription agreements in the context of raising capital from private investors. Companies can use subscription agreements to issue and sell shares or ownership in the company or use a private placement to raise capital. For those companies that raise funds through private placement, including a subscription agreement is beneficial because it helps attract possible investors.
However, in Florida, subscription agreements are enforceable and defaults under subscription agreements can result in conflicts and oftentimes litigation. If an investor defaults on a subscription agreement, the company may collect the amount owed under the agreement, revoke the contract and sell the shares or pursue other remedies available under the law of the State of Florida.
We advise private companies on matters related to the sale of shares to suitable private investors, and enforceability and remedies under the subscription agreements. We successfully plan and execute subscription agreements and investor suitability questionnaires. Contact us, your Florida corporate attorney to help you with all your subscription agreement needs.
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