A subscription agreement is a legal document used widely but not exclusively within the financial markets to document stock offerings and purchase. It is a long document which may be complex at times. It has sections which address some aspects of the transaction. Once completed and signed by both parties, a subscription agreement has the full force of the law behind it.
Identification
A subscription agreement is a binding document which defines the business relationship between two parties, and it could also apply to transactions between businesses and individuals. Businesses both big and small engage in some form of joint or cooperative ventures. These ventures have to have some legal basis. Often the best way to achieve this purpose is to document the business relationship in writing on paper. A subscription agreement form enables both parties to define the relationship, signed and dated.
Common Uses
When companies decide to go public, as a new Initial Public Offer (IPO) they may issue a certain number of stock shares for purchase by interested investors. A subscription agreement form may be used to document the sale and purchase of available stocks by sellers and buyers in line with the Securities and Exchange Commission guidelines. A subscription agreement form is used to describe all the details of the transactions between the seller and the purchaser. It serves as a legal covenant between the parties and is executed in good faith by the parties after which the document becomes binding and legal.
Recital Section of the Subscription Agreement
The recital section of a subscription agreement form of a stock purchase for example describes in detail the reason for the agreement. It may cite the Securities and Exchange Act Sec 4 (2) which relates to stock sale and purchase, and states the intent of the stock purchaser to acquire stocks from the said company. It generally includes legal language, and may refer to the agreement as a covenant between the two parties as well.
Subscription Agreement Purpose Section
The next section of a subscription agreement outlines the details of the agreement. In this example, the stock sale agreement will list the number of shares of the company being purchased, describing in detail the value of the stock per share. The subscription agreement document of a stock purchase may refer to the Securities and Exchange Act of 1933, which defines and authorizes such a stock purchase and sale.
Disclosure Statement
A subscription agreement documenting a stock purchase may also provide disclosure statement in line with the Securities and Exchange Commission requirement. The disclosure statement is in line with transparency requirement required by government regulators for transactions, such as stock sales. Security and Exchange Commission laws set the general principles and guidelines for stock sales and purchase. All companies and corporations must abide by these laws, and must furnish a full disclosure statement.
