What is a Subscription Agreement?

An Investors agreement to subscribe to a limited partnership is called a Subscription Agreement. As part of the deal, the company sells a percentage of its shares to the investor a prefixed price, while the investor is on record to buy these shares at the agreed upon price.

How Does a Subscription Agreement Work? 

Investors are brought into a limited partnership (LP) business by way of Subscription Agreements to buy shares at predetermined prices. This subscription confers limited partnership privileges on the investors. The decision to accept Subscription Agreements rests with the general partners. Limited partners, a.k.a, sleeping partners provide capital investment and have a limited role in the day to day operations of the business. The risks they assume also carry limited liabilities. The Subscription Agreement specifies details pertaining to liabilities, net worth of the limited partnership, potential, and investment experience. Limited Partners only pay taxes on their distributed profits and aren't responsible for paying the taxes levied on the business.

Subscription Agreements With Private Placements

When companies want to raise capital without going public, they seek investments from private entities by way of Private Placement Memorandums. These memorandums specify the percentage of shares on sale, prices, durations, etc., to evoke investor interests in their firms. Accompanying this Private Prospectus is the Subscription Agreement that deals with the specifics of this investment like date of returns, payment schedule, net income, rate of returns, and percentage of profits earmarked for distributive payments. This is a legal document that enforces the agreed upon rules and investment details of entering the limited partnership.