The subscription agreement targets private investors, angels, institutional investors also known as subscribers. A subscription agreement details the agreement between a subscriber and a Illinois business entity in which the subscriber wants to invest in. The subscription agreement establishes the promise by a company to sell a certain number of the company’s shares, membership units (or interest), partnership interest at a certain price, and the promise of the investor to buy that amount of equity and pay the price established by the agreement.
A subscription agreement is used to codify the details of an agreement to sell equity in a company. Subscription agreements are typically used by:
- Private companies, start-ups seeking to raise capital from certain investors by selling ownership or equity in the company (operating under state and federal securities exemptions (securities law);
- Individuals, entrepreneurs looking to induce investors with the protection of a Private Placement Memorandum and want to include a Subscription Agreement spelling out the proposed deal.
Individuals, private investors, or companies investing in other companies use subscription agreements to draw out the details, such as the price and agreed upon amount of shares, of a given transaction. An investor benefits from this agreement because it allows him or her protect to protect against the company changing the terms of the deal. A company owner benefits from a subscription agreement by locking down the terms of the sale and the amount of equity to be sold without fear that the investor will change his or her mind in the last minute. Essentially, it turns a promise to sell and buy into a real transaction.