Share Subscription Agreement

A Share Subscription Agreement is an agreement between a company and investors to sell shares to the investors at a fixed price. This is simply done by offering new shares to investors, who after the closing of the transaction, become shareholders of the company. If a company wants to raise capital, it can do so by issuing shares that can be purchased by private placement or public offer.

What distinguishes this document from a Share Sale and Purchase Agreement is that in the case of share subscription, the company itself is the party selling new shares, while in share sale, a shareholder of the company is selling an already issued shares to another party.

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. The various classes of shares that can be offered by a company are: ordinary shares, preference shares, deferred ordinary shares, cumulative preference shares, redeemable preference shares, etc.

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 completing the document, 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 CAC 2A (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;
• resolution of the board of directors of the company approving the share issue;
• if the investor is a company, a board resolution accepting the shares; and
• a share transfer form.

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).

Applicable law

The Companies and Allied Matters Act, 2020 apply to this document. Also, the Investment and Securities Act and the Securities and Exchange Commission (SEC) Rules applies to the allotment of the shares of a public company. The general rules of contract are also applicable to this document.

How to modify the template

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