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.