Subscription Agreement

Document used as a promise by the LLC that owns the property to sell a specific number of shares to a limited partner at a specified price, and a promise by the limited partner to pay that price.

What is a subscription agreement?‍

The subscription agreement is a document that outlines the terms of an investment made by a limited partner in a limited partnership (LP). The LP is typically formed by a general partner (GP) who manages the business and makes investment decisions. In contrast, the limited partner (LP) provides capital to the LP and has limited liability.

The subscription agreement is a legally binding contract between the LP and the GP, which sets out the terms and conditions of the LP's investment in the partnership. It typically includes information about the number of partnership units (shares) that the LP will purchase, the price per unit, the payment terms and any restrictions on the transferability of the units.

Who needs a subscription agreement?‍

A subscription agreement is typically needed when a limited partner (LP) wishes to invest in the partnership by purchasing units (shares) of the partnership. The subscription agreement sets out the terms and conditions of the investment, including the number of units to be purchased, the price per unit, and the payment terms.

The subscription agreement is typically required by law. It is necessary to ensure that the LP's investment is appropriately documented and that the rights and obligations of the LP and the general partner (GP) are clearly defined. Additionally, the subscription agreement may be required by banks or other institutions that provide financing to the partnership as a condition of their investment.

What are the key terms typically included in a subscription agreement?‍

A subscription agreement includes descriptions of securities being offered, representations and warranties, subscription procedures, payment terms, transfer restrictions, conditions to closing, termination, and governing law and jurisdiction. 

It outlines the process for limited partners to subscribe for shares and sets payment terms and conditions to be met before the sale of shares can be completed. It may also include provisions that limit share transferability and specify circumstances that may lead to termination. The agreement also specifies the governing law and jurisdiction in disputes.

How does a subscription agreement differ from other types of contracts?‍

A subscription agreement is a contract used for selling securities by a private company to an investor. It involves two parties, the company or its representatives and the investor, and is subject to regulatory requirements related to the sale of securities. The agreement includes detailed disclosures and representations of the company's financial condition, business operations, and the risks associated with the investment. Additionally, it often contains provisions restricting the transferability of securities, such as a right of first refusal or board approval of transfers.

What happens if one party breaches the terms of the subscription agreement?‍

Breaches of subscription agreements can be classified as material or immaterial. If a party breaches a material term, the other party may have the right to terminate the agreement and seek damages. The other party may seek specific performance or injunctive relief for an immaterial breach. The agreement may also have particular remedies for breaches, such as liquidated damages, indemnification, or other forms of relief, which are agreed upon when the agreement is signed.

Conclusion‍

Subscription agreements are critical investment instruments that protect the interests of both the issuer and the investor. The agreement formalizes the relationship between the parties, provides essential information about the investment, and offers legal protections for investors. When investing in a private offering, it is essential to carefully review and understand the contents of the subscription agreement to make informed investment decisions.