The stock subscription contract is a kind of share offer document. It is also known as a two-way warranty, the subscriber agrees to buy shares at a fixed price, while the company agrees to sell those shares. It is an exchange of promises between a shareholder (subscriber) and a company. Most of the time, it is preferred by startups according to terms and negotiated on a non-binding document, the terminology sheet. Any dispute or question about its existence, validity or termination can first be resolved by mutual agreement. If the case is not resolved, the same can be referred to arbitration and the seat of arbitration can be determined by the parties involved in the agreement. The arbitration award is binding on both parties. Section 41 (2) of the Act provides for exceptions where shareholder agreement is not required for a share issue, in accordance with section 41, paragraph 1, of the Act. The complexity of an agreement leads to the dubious idea of why the agreement should be as simple as possible. As can be mentioned on the fact that the investor read the private placement memorandum instead of repeating it.
From the subscriber`s point of view, the cost (as a base cost of assets) of the shares in the hands of the shareholder is determined by a company`s subscription to the shares. These costs are relevant if the shareholder then disposes of the shares. In addition, the tax capital paid by the company is increased with the same amount. When a company issues shares to a person because of employment or the manager`s office, the value of the shares held by the employee or director of income tax (PAYE) may be subject to income tax (PAYE) and not to capital gains tax (section 8C ITA). Severability: It is agreed that if a provision of this contract is invalidated, unenforceable and illegal, that provision does not affect other provisions in any way. A Share Agreement is the commitment of a potential shareholder, also known as a subscriber, to pay funds to a company (company) in an agreed number of “slices” in return for the issuance and allocation of a certain number of shares at a certain price, so that the participant becomes a shareholder (shareholder). A share subscription agreement must include the number of shares issued to the shareholder, as well as the order and date on which the funds are advanced. It sometimes seems that a share subscription contract no longer specifies the terms of a term sheet (“Term Sheet”). A share subscription contract would be necessary if the company wants to raise funds and in particular by issuing shares, by not diluting the share of the owners. He uses that money for his own purposes. Normally, the founders of the company use their own money at the beginning of the business, but ultimately, the founders must look for money from angel investors or friends or strangers who must be spent in exchange for shares for the investment.
When one of the founders sells his shares, a share purchase agreement is executed to record the transfer between the founders of the sale and the incoming investor.