Subscription Agreement – Definition

Cite this article as:"Subscription Agreement – Definition," in The Business Professor, updated April 17, 2019, last accessed October 20, 2020,


Subscription Agreement Definition

An Investor’s 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.

A Little More on What is a Subscription Agreement

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.

References for Subscription Agreement

Academic Research on Subscription Agreement

The Validity in Arkansas of a Subscription Agreement for Corporate Shares, Waterman, J. S. (1931). Law Sch. Bull., 3, 14. This paper takes a look at the legal rules governing corporate ‘Subscription Agreements’ in Arkansas, in the United States.

Legal Issues of Subscription Agreement and Deposit of Commercial Housing, Heng-ke, L. I. U. (2012). Journal of Shanxi Agricultural University (Social Science Edition), 5, 011. This paper explores the legal issues in enforcing ‘Subscriptions Agreements’ in the commercial housing sector.

Corporations: Agreement to Purchase Stock: Subscription or Executory Contract, Randall, C. A. (1934). Marquette Law Review, 19(1), 46. This paper studies the implications of a ‘Subscription Agreement’ in purchasing corporate stocks.

Contracts-Charitable Subscriptions-Iowa Supreme Court Finds Subscription Agreement Binding without Showing of Consideration or Detrimental Reliance-Salsbury v …, Schwarzkopf, R. (1974). Creighton L. Rev., 8, 848. This paper takes a look at the legal implications of enforcing Subscription Agreements in the case of charitable causes in Iowa.

Limitations of the subscription agreement., GUESS, J. (1953). Journal of the South Carolina Medical Association, 49(3), 78. This paper discusses the limitations of Subscription Agreements.

Creation of Corporate Shares in Return for Promissory Notes, Waterman, J. S. (1928). Tex. L. Rev., 7, 215. This paper takes a look at the corporate practice of shares creation in return for promissory notes.

The Amount Available for Dividends Where No-Par Shares Have Been Issued, Weiner, J. L. (1929). Colum. L. Rev., 29, 906. This paper takes a look at the dividend price sums for shares without a par value.

Consideration for Corporate Shares With Special Reference to Shares Without Par Value, Masterson, W. E. (1932). Idaho LJ, 2, 75. This paper discusses corporate shares structures with special emphasis on no par shares.

Corporate Finance–Chapter 1.5–Part I–Classes and Issues of Shares, Nexsen, J. J. (1962). SCL Rev., 15, 357. This chapter discusses the different types, issues, and classes of shares.

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