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27 July 2021

What is a share subscription agreement?

A share subscription agreement sets out the terms on which an investor agrees to buy shares from a private company.  It is often used to formalise informal arrangements agreed between the parties in a terms sheet.

When is a subscription agreement used?

There are different ways a person can become a shareholder of a company.

One way is where an investor agrees to subscribe for (or buy) new shares from the company. This is where a subscription agreement is used.

Other ways that a person can become a shareholder include:

Subscription agreement vs shareholders agreement?

A share subscription agreement is essentially an agreement for the purchase of shares from a company. In contrast, a shareholders agreement contains terms that govern the ongoing relationship between shareholders. (Read more about shareholders agreements here.)

Subscription agreements are used in conjunction with shareholders agreements.

For example, a new shareholder will often be asked to sign:

  • a subscription agreement,
  • a shareholders agreement (or a deed of accession, under which the investor agrees to be bound by the shareholders agreement).

When do you need a subscription agreement?

Although a subscription agreement isn’t mandatory, it is a useful document as it will clearly record the terms on which a person (the subscriber) agrees to purchase shares from the company.  It can also be an important document to keep for tax purposes.

Some subscription agreements are relatively short and informal - for example, where someone is subscribing for shares in their own family's business.

More commonly however, and particularly where an arm's length investor is concerned, a more formal subscription agreement is used. 

Normally a share subscription agreement would not be entered until after the parties have signed a terms sheet and the investor has completed its due diligence investigations on the company.  Indeed, you should always undertake at least some level of due diligence before entering into a subscription agreement. Our due diligence guide explains the types of investigations that would normally be undertaken by a prudent investor, at least where a material amount of money is involved.

What does a subscription agreement cover?

At a minimum, a share subscription agreement will identify:

  • the company issuing the shares,

  • the investor subscribing for the shares,

  • the number of shares to be issued, 

  • the class of shares to be issued (eg ordinary shares, B class shares etc), and

  • the amount to be paid by the investor (called the 'subscription amount'), and the time by which the amount is to be paid.

Sometimes all of the subscription amount is required to be paid upfront. In other cases, the subscription agreement is required to be paid in tranches over time (and some of these payments may be subject to the company achieving certain goals).

Beyond these bare minimum terms, the content of a subscription agreement will vary depending on (1) the specific transaction concerned, (2) the level of sophistication of the parties (some investors will have more prescriptive requirements than others) and (3) whether there is a shareholders agreement (and if so, the contents of that agreement).

Examples of other provisions often included in share subscription agreements are set out below.



Most informed investors will seek warranties from the company. The purpose of warranties in a share subscription agreement is to give the investor certainty around what they are investing in.

The most basic warranties in a share subscription agreement relate to:

  • share capital – that the company’s share capital is as promised, and
  • accuracy of information – that the information given by the company to the investor is materially accurate.

In addition to these basic warranties, some investors will seek more detailed warranties relating to the business itself - for example, around the company's accounts, tax, assets, intellectual property, key contracts, past claims or disputes, or any other matters of potential concern that could materially affect the value of the shares being sold.

Although it is normal (and advisable) for an investor to seek warranties and indemnities from the company, it is also normal (and advisable) for the company to seek to qualify those warranties where appropriate.

Although there is no 'standard set' of warranties for a share subscription agreement, there are fairly well accepted boundaries around what is normal, and what is not.

For example, it would not be unusual for an investor to seek warranties that the accounts provided by the company are in fact the company's true accounts. 

However it would not be normal for a company to give warranties or assurances around its future performance (and in fact, it is not uncommon for share subscription agreements to contain express disclaimers about future performance.)

Companies need to consider the wording of warranties in a share subscription agreement carefully, to ensure they do not inadvertently expose themselves to future claims.

Anti-Dilution Provisions

When investing in a private company, investors should consider how they might be affected if the company issues more shares in the future.

Where a shareholder's holding is reduced as a result of the company issuing more shares, this is referred to as 'dilution'. (Where the company refers to its share register 'on a fully diluted basis' this means that all options and other rights capable of being converted into shares have been exercised.)

Anti-dilution provisions will often be contained in the shareholders agreement, so that all shareholders have the same protections. For example, the shareholders agreement may:

  • place limits on the number of shares that can be issued under an employee share scheme,
  • prohibit the company from issuing shares without offering shares to the existing shareholders first, in proportion to their existing holdings, or
  • contain some other mechanism that is designed to protect the shareholders from being unfairly diluted.

Where there is no shareholders agreement, or where the investor requires a specific arrangement to apply, this will often be contained in the subscription agreement.

Conditions Precedent

Some subscription agreements will contain conditions that must be satisfied before the subscription will be finalised. Mostly, these tend to be in favour of the investor.

For example, an investor may only be prepared to invest in the company if:

  • certain other documents are entered (for example, a shareholders agreement, or an agreement confirming that all intellectual property is held in a certain entity), 
  • the company achieves a certain milestone (for example, the company receiving subscriptions from other investors to a particular value, or the company achieving some important business milestone), or
  • the company completes a particular restructure.

Again, any conditions precedent will be a function of the specific transaction concerned. In many cases, there will not be any conditions at all - it will simply be a matter of the investor signing the agreement, paying the subscription amount and then the company issuing the shares.

Other Provisions

The extent to which a subscription agreement will contain other provisions will mostly depend on the content of the company's shareholder agreement, assuming there is one. 

For example, some subscription agreements contain:

  • restraints against competition with the company, poaching employees or attempting to divert customers away from the company, 
  • provisions dealing with confidentiality and/or protection of the company's intellectual property, and
  • prohibitions against the investor selling their shares or experiencing a change in control.

Keep in mind that, most of the time, the only parties to a subscription agreement are the company and the investor. The company's existing shareholders are not normally parties. The reason for this is that (1) it is the company who will be issuing the shares to the investor, not the other company, and (2) the arrangements that are intended to apply between shareholders are normally contained in the shareholders agreement.

Learn more

This article merely provides a high-level overview of subscription agreements. What should (and should not) be included in a subscription agreement will depend on the circumstances. 

If you'd like to learn more, or if you have any questions concerning a potential share subscription, we offer workshops for investors and workshops for companies looking to bring on new shareholders.  Please don't hesitate to contact us if you'd like to learn more.

SHA Guide

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About Turtons

Turtons is a commercial law firm in Sydney with specialist expertise in the construction and technology sectors.

We specialise in helping businesses:

  • improve their everyday contracting processes,
  • negotiate large commercial contracts and other deals that fall outside of "business as usual", and
  • undertake strategic initiatives, such as raising capital, buying businesses, implementing employee share schemes, designing and implementing exit strategies and selling businesses.
Greg Henry | Principal


Greg Henry | Principal


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Greg has supported clients through $3.5b+ in transactions in the construction and technology sectors. He assists medium sized businesses grow and realise capital value through strategic legal initiatives and business-changing transactions.

greg.henry@turtons.com | (02) 9229 2904