A Share Subscription Agreement is a contract for the issue of shares by a company to investor(s). This document outlines the terms and conditions of the sale of shares by the issuing company.
Shares are fixed identifiable units of capital that represents a member's stake in a company. Once a person holds shares in a company such party becomes a member of the company with the right to transfer and transmit the shares.
However, a Share Sale and Purchase Agreement is used if a shareholder of a company intends to sell its shares to another party. The Share Sale and Purchase Agreement is also available for sale.
There are different types of shares, however, the two most common shares that can be sold under this agreement are as follows:
- Private placement. This is a means of raising capital of the company thorough the sale of shares to relatively small selected investors. The method can be used by all companies. In particular, private companies use this method because it is not allowed to offer its shares to the members of the public.
- Public offer. This is a means of raising capital for the company by inviting the members of the public to subscribe to the shares of the company. Here the shares may be listed and traded on the Nigerian Stock Exchange (NSE). Only public companies are allowed to issue/sell its shares using this method.
The various classes of shares that can be sold under this agreement are as follows:
- Ordinary shares: This type of shares rank lower in priority than preference shares as ordinary share holders do not receive a fixed sum of money (to be paid as dividends) by the company and in the event that the company winds up, preference share holders are paid first before ordinary shareholders.
- Preference shares: This type of shares entitles the holder to a fixed dividend and whose payment takes priority over the ordinary shares dividends.
The companies that can issue and allot shares are as follows:
- Private Company Limited by Shares. This is the most common type of company. The liability of the members is limited by the shares the shareholders hold in the company which remains unpaid. What this means is that in the event of winding up, the members are only liable to pay such amount of unpaid shares (if any). The membership of the company is between 2-50 members. That is, the members of this company must not exceed 50. The articles of association of this company must restrict the transfer of shares of the members of the company. Also, this type of company does not offer its shares to the members of the public. The name of the company must end with "Limited".
- Public Company Limited by Shares. This is similar to the private company limited by shares but it can invite the members of the public to subscribe to its shares (that may be listed on the Nigerian Stock Exchange). There is no limit to the membership of the company. The name of the company must end with "PLC".
- Unlimited Liability Companies. An unlimited liability company is a company that has no restriction on the responsibility of the members of the company. Consequently, members of an unlimited liability company will be held responsible for all the debts of the company until the debts are fully paid and there is no extent of liability. The name of the company must end with "Unlimited".
The document outlines the parties to the transaction, description of the shares being offered for sale, purchase price (consideration), warranties and representations of the parties, pre-completion and post-completion requirements, etc.
- The parties: The parties to the transaction are the company and the investor(s). Note that the investor(s) can either be an individual, company or any other organization.
- The shares: In this document, the form filler will be required to set out the type and the amount of shares to be sold to the investor(s).
- The consideration: This is the purchase price of all the shares sold under the agreement. In this agreement, the form filler will be required to include the purchase price and how and when the investor(s) will pay. This includes:
- whether the investor(s) will be required to pay deposit;
- whether the payment will be made in installments or by a single lump sum;
- the mode of payment;
- when the payment will be made, etc.
- Covenants and representations: This is the legal promise to do or refrain from doing certain acts. The document also contain the covenants of the company and investor(s).
- Completion: This occurs when the investor(s) is granted title and ownership of the shares. This includes the date of completion and the place of completion. It also includes the requirement of the parties after completion (such as, the transfer of title documents to the investor(s)).
- Termination: This occurs when any of the parties decide not to continue with the agreement. This may occur in a number of situations such as where all the parties mutually agree to terminate the contract, where the warranties/representations of the transferor/company are untrue, where the investor(s) fails to pay the purchase price (but in this case will be liable to pay damages and other reliefs available to the company), etc.
How to use this document
This document is used by companies to raise capital from investors.
After filling the form, the parties to the agreement must sign the document. If the agreement involves the sale of shares by the issuing company, the common seal of the company must be affixed on the document and at least two directors or one director and one secretary must sign the document on behalf of the issuing company.
The investor(s) must also sign the document. If the investor(s) is a company, the common seal of the company must be affixed on the document and at least two directors or one director and one secretary must sign the document on behalf of the investor(s). If the investor(s) is an organization other than a company, an authorized representative of the organization must sign the document.
Once all the parties to the agreement have duly sign the document, the parties are expected to keep at least one original signed copy of the document for record purposes.
After this is done, the company must file the following document at the Corporate Affairs Commission to reflect the allotment of shares to the investor(s):
- form CAC2A (Return of Allotment);
- form CAC 2.4 (Increase in Share Capital) (if applicable);
- board resolution of the company (whose shares are being transferred) approving the transfer of shares;
- if the seller is a company, board resolution of the company approving the transfer of shares;
- if the buyer is a company, board resolution accepting the transfer of shares; and
- a share transfer form (which is available for sale on this website).
After the post incorporation filing is done, the company must take steps to ensure that the name of the investor(s) is entered in the register of members of the company (if the investor is not already a member of the company).
The Companies and Allied Matters Act is the applicable law. Also, the Investment and Securities Act and the Securities and Exchange Commission (SEC) Rules are applicable if the agreement is for the issue and allotment of the shares of a public company. The general rules of contract are also applicable.
How to modify the template
You fill out a form. The document is created before your eyes as you respond to the questions.
At the end, you receive it in Word and PDF formats. You can modify it and reuse it.