Introduction
A Share Subscription Agreement (SSA) is a core legal document in a startup funding transaction. While the term sheet defines commercial intent and the shareholders agreement governs long-term rights, the share subscription agreement legally records how, when, and on what terms investors subscribe to shares.
Many startups face delays in funding closure due to poorly structured or misunderstood SSAs. This Saving Mantra guide explains a clear, step by step process to draft, review, and execute a share subscription agreement correctly.
Step 1: Understand What a Share Subscription Agreement Is
A share subscription agreement is a binding contract between:
- The startup company
- Incoming investors
It governs:
- Issue of shares
- Subscription amount
- Share price and class
- Conditions precedent
- Closing mechanics
It is the legal bridge between commitment and actual fund infusion.
Step 2: Identify When a Share Subscription Agreement Is Required
An SSA is executed:
- After signing the term sheet
- Before or along with the shareholders agreement
- Prior to receiving investor funds
- Before allotment of shares
Without an SSA, share issuance lacks contractual backing.
Step 3: Define the Type of Shares Being Issued
The agreement must clearly specify:
- Equity shares or preference shares
- Class of shares
- Rights attached to each class
- Conversion terms (if applicable)
Incorrect share classification can invalidate allotment.
Step 4: Mention Subscription Amount & Pricing
Clearly state:
- Total investment amount
- Price per share
- Number of shares to be issued
- Pre-money and post-money valuation reference
This ensures transparency in ownership dilution.
Step 5: Include Conditions Precedent
Conditions precedent are actions required before closing, such as:
- Completion of due diligence
- Compliance filings
- Amendment of Articles of Association
- Execution of shareholders agreement
- Regulatory approvals, if any
Funds are released only after conditions are fulfilled.
Step 6: Representations & Warranties
Founders and the company provide assurances on:
- Legal existence and authority
- Ownership of shares and IP
- Compliance with laws
- Accuracy of financial statements
- Absence of undisclosed liabilities
False warranties can trigger indemnity claims.
Step 7: Covenants & Obligations
The agreement may include:
- Pre-closing covenants
- Post-closing obligations
- Restrictions on actions before allotment
- Compliance commitments
These protect investor interests during the transition phase.
Step 8: Closing & Allotment Process
The SSA should clearly define:
- Closing date
- Fund transfer mechanism
- Share allotment timeline
- Issuance of share certificates
- Statutory filings post allotment
Clear timelines avoid disputes and delays.
Step 9: Termination Clauses
Termination provisions may apply if:
- Conditions precedent are not met
- Regulatory approvals fail
- Material breach occurs
- Closing is delayed beyond agreed timelines
Exit clarity protects both parties.
Step 10: Confidentiality & Non-Disclosure
The agreement includes confidentiality clauses covering:
- Business information
- Financial data
- Investor discussions
- Transaction terms
Confidentiality preserves competitive advantage.
Step 11: Governing Law & Jurisdiction
Every SSA specifies:
- Applicable law
- Jurisdiction or arbitration mechanism
- Dispute resolution method
This ensures enforceability in case of disputes.
Step 12: Alignment with Other Documents
Ensure the SSA aligns with:
- Term sheet
- Shareholders agreement
- Articles of Association
- Board and shareholder resolutions
Misalignment can create legal conflicts.
Common Share Subscription Agreement Mistakes by Startups
- Vague conditions precedent
- Incorrect share class definitions
- Missing timelines for allotment
- Weak warranties without disclosures
- Not updating Articles of Association
Avoiding these prevents funding disputes.
Why Choose Saving Mantra for Share Subscription Agreement Support
Saving Mantra helps startups with:
- Drafting and reviewing share subscription agreements
- Founder-friendly structuring
- Compliance alignment and filings
- Investor coordination and closing support
- End-to-end fundraising documentation
We ensure legally sound and investor-ready funding execution.
Conclusion
A share subscription agreement is not just paperwork. It is the legal foundation of share issuance and fund infusion. A well-drafted SSA ensures smooth closing, regulatory compliance, and clarity between founders and investors.
Follow this step by step process to execute your share subscription agreement with confidence.
Disclaimer
This blog is for informational and educational purposes only and does not constitute legal, financial, or investment advice. Share subscription agreements may vary based on jurisdiction, funding structure, and investor requirements. Readers are advised to consult qualified legal and financial professionals before executing any investment agreements.