When it comes to buying or selling shares in a company, there are two types of agreements that come into play – the share purchase agreement and the subscription agreement. Both agreements are crucial in the process of ownership transfer, but they differ in their approach and purpose. In this article, we will explore the differences between these two agreements and shed light on their importance.

Share Purchase Agreement:

A share purchase agreement is a legal document that sets out the terms and conditions of the sale and purchase of shares in a company. It is a contract between the buyer and the seller that outlines the rights and obligations of both parties. When a buyer purchases shares in a company, they acquire ownership of a portion of the company’s equity. The share purchase agreement is usually used when one party wants to purchase a controlling interest in the company.

The share purchase agreement includes details such as the number of shares being sold, the purchase price, the payment terms, and the warranties and representations given by the seller. This agreement is often used in mergers and acquisitions, where a company’s ownership is transferred to a new buyer or group of buyers.

Subscription Agreement:

A subscription agreement is a legal document that sets out the terms and conditions of the sale and purchase of new shares in a company. It is a contract between the company and the buyer, outlining the details of the investment in the company. The subscription agreement is used when a company wants to raise capital by issuing new shares to investors.

The subscription agreement includes details such as the number of shares being issued, the purchase price, the payment terms, and the terms of the investment. This agreement is used when a company wants to raise funds for expansion or new projects. The subscription agreement is usually used for private placements, where the shares are sold directly to investors, rather than being publicly traded.

Key Differences:

The primary difference between a share purchase agreement and a subscription agreement is the type of shares being sold. In a share purchase agreement, existing shares are being sold, while in a subscription agreement, new shares are being issued. Additionally, a share purchase agreement is focused on the transfer of ownership of shares, while a subscription agreement is focused on raising capital for the company.

Another key difference is the parties involved in the agreement. In a share purchase agreement, the buyer and seller are the only parties involved, while in a subscription agreement, the company and the investor are involved.

Final Thoughts:

Both share purchase agreements and subscription agreements are essential in the process of buying and selling shares in a company. The share purchase agreement is used when a buyer wants to acquire a controlling interest in a company, while the subscription agreement is used when a company wants to raise capital by issuing new shares. As with any legal document, it is important to seek professional advice and ensure that all the terms and conditions are clearly defined and agreed upon by all parties involved.