Subscription Agreement Explained 2025: Key Details, Pricing, and Regulations

Adam Hayes, Ph.D., CFA, brings over 15 years of Wall Street experience as a derivatives trader and financial expert. With advanced degrees in economics and sociology from The New School and University of Wisconsin-Madison, Adam specializes in economics and behavioral finance. Holding CFA and FINRA Series 7, 55 & 63 licenses, he currently researches and teaches economic sociology and finance at Hebrew University in Jerusalem.

What Is a Subscription Agreement?

A subscription agreement is a formal contract between an investor and a company, allowing the investor to purchase shares in a limited partnership (LP) or private placement at a specified price. This mutual agreement ensures the company commits to selling a defined number of shares, while the investor agrees to buy them at the agreed price.

Key Points to Remember

• A subscription agreement outlines the terms of investment in private placements or limited partnerships.
• It is regulated primarily under SEC Rules 506(b) and 506(c) within Regulation D.
• Regulation D enables companies to raise capital privately without registering securities with the SEC.

Deep Dive into Subscription Agreements

Partnerships involve two or more individuals sharing ownership and profits, with income passing through to partners who report taxes individually. Limited partnerships (LPs) include general partners who manage the business and limited partners who invest capital but do not participate in daily operations.

Limited partners invest typically once and have limited liability, restricted to their initial investment amount. The subscription agreement details the investor’s financial background, experience, and net worth to ensure suitability.

Regulatory Framework Governing Subscription Agreements

Subscription agreements fall under SEC Regulation D, specifically Rules 506(b) and 506(c), which specify offering procedures and disclosure requirements. When new limited partners join, existing partners' consent is usually required to amend agreements. This regulatory path simplifies capital raising compared to public offerings, saving time and effort.

Subscription Agreements in Private Placements

Companies raising funds may offer shares publicly or through private placements. Public investors receive a prospectus, a comprehensive disclosure document, whereas private placement investors receive a private placement memorandum, which provides essential but less detailed information.

Subscription agreements often accompany these memoranda, specifying terms such as investor return rates—either as percentages of net income or lump sums—and payment schedules. These agreements prioritize investor returns ahead of company founders or minority owners.

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