A private placement subscription agreement is the form which investors must fill out and sign in order to move forward with their investment. To proactively disclose all requirements of the investment and to encourage investors to move forward, the subscription agreement is included as part of the private placement memorandum, generally at the end of the document or in its appendices.
What is In the Subscription Agreement?
The subscription agreement gives the necessary information for a subscriber to move forward with investing in your private placement. This includes the price per share being acquired and the number of shares being acquired. Legal language explains necessary confidentiality provisions, which state governs the agreement, and the rights and requirements of the subscriber. The agreement also should require the subscriber to certify that he, she or it is accredited and has not been solicited so that the seller has a record that the proper procedures were followed.
Keep It Simple, But Complete
While you will be seeking to gather all of the necessary legal information with this agreement, still make an attempt to keep the subscription agreement as simple as possible. For example, rather than repeating or outlining any of the disclosures made in the private placement memorandum here, the agreement should simply repeat that the subscriber has read and understands the PPM in its entirety. Paraphrasing any of those disclosures here can lead to confusion. Clearly state and leave adequate space for the information needed from subscribers and give careful instructions as to where the agreement and checks should be sent or wire transfers made.
Seek Legal Counsel
Although there is a bit of leeway you can take to make the subscription agreement more attractive to potential subscribers, it is primarily a legal contract which must be carefully vetted by legal counsel. It should describe, for example, whether the funds will be kept in escrow until a critical mass of investment has been received. This is a common tactic which protects investors in the case that the needed funding is not raised by a certain point. If that is the case, the funds would be sent back to them rather than being released to the seller. Ask your legal counsel about whether this arrangement is needed for your offering.
Offer Further Communication
It is important to make sure potential subscribers are aware that they can contact your firm directly to ask questions about the private placement offering and to learn more for their own purposes of due diligence. Some federal exemption rules even require that the seller make him or herself available to answer questions of potential investors. Explain the best ways to contact your firm or its broker representative in the subscription agreement.
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