What is an advance subscription agreement template?
The basics: This advance subscription agreement template sets out the terms under which an investor invests in the company by “pre-paying” for equity shares to be issued in the company in the future (when certain agreed events occur). Therefore, the agreement represents a right to subscribe for shares in the company.
What terms does the advance subscription agreement template include?
Key provisions: the advance subscription agreement template includes the option to include the following sections:
- Payment of advance subscription - the time period for the investor to pay the subscription amount;
- Right to subscribe for subscription shares - the investor is granted a right to subscribe for the subscription shares, at the subscription price;
- Further subscriptions - an acknowledgement that the company may enter into similar agreements for advance subscriptions with others within the subscription period (up to the aggregate subscription amount, if specified);
- Application of subscription amount - detailing how the subscription monies can be used by the company;
- Advance subscription not a loan - making it clear that the subscription monies are not a loan, that no interest will accrue or be payable in respect of the monies and that the monies will not be refunded by the company in any circumstances;
- Waivers and resolutions - obligations on the company to obtain all consents, waivers and resolutions necessary to enable the allotment and issue of the shares to the investors to proceed free of any rights of pre-emption or other restrictions;
- Eligibility for tax relief - an optional warranty from the company in relation to tax relief;
- Events triggering issue of the subscription shares - see more on trigger events below;
- Issue of the subscription shares - time periods for issuing share certificates and entering the investor on the register of members;
- Adherence to shareholders’ agreement - agreement by the investor to sign a deed of adherence to the company's shareholder agreement;
- Effect of issue of subscription shares - when the agreement will come to an end; and
- Investor’s status - a warranty from the investor that it falls within one of the approved categories of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005.
Trigger events: The advance subscription agreement template sets out the events which “trigger” the conversion of the investment into shares, for example:
- a “qualifying funding round” – which is where an amount equal to or more than a set “target” has been raised by the company (through further investment); or
- sale of the company or listing its shares on a public market (e.g. the LSE); or
- a “longstop date” being reached (agreed between the parties).
Subscription price: The price at which the amount of investment will convert to shares (i.e. the price per share) is usually the lower of:
- a “discount” (often of between 10-20%) on the price of the shares (this is established at the “qualifying fund round”); or
- “valuation cap” - an agreed “pre-money” valuation of the company’s shares (i.e. excluding the investment under the ASA). This is effectively a maximum price at which the amount invested will convert into shares.
Tax relief: If any subscribers wish to obtain “SEIS” or “EIS” tax relief, they will want to be assured that investing under an ASA will not compromise this. Therefore, companies should obtain specialist tax advice and often advance approval from HMRC.
Why use Docue's advance subscription agreement template?
Easy to use: With Docue, you can create a top-quality advance subscription agreement in just minutes. The advance subscription agreement template includes model clauses designed by business lawyers to help you draft the contract yourself and tailor it to your needs.
Full contract process: Signatures can be collected electronically, and all contracts you make are saved in your company's own contract account.
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