Overview of a Share Subscription Letter
What is a Share Subscription Letter?
A Share Subscription Letter is a simple, direct letter to apply for the issue of new shares. Contrary to a Seed Investment Agreement, a Share Subscription Letter does not include any warranties or limitations on liabilities, nor any rights for investors or obligations for existing shareholders. A Share Subscription Letter, given its simple and no-frills nature, is often used to issue new shares to only existing shareholders.
Why is a Share Subscription Letter important?
It is a legally binding letter needed while issuing shares and normally takes a few minutes to do all the formalities. Unlike a Share Subscription Agreement, where there are many legal formalities, a share subscription letter is an easy option for the investor which takes very little time and is easy to onboard new investors.
How to draft a Share Subscription Letter?
It is basically a short form of Share Subscription Agreement and is an easy option for new investors before buying any shares. The important things to include in this letter are: Subscription price: it is a price on which existing shareholders can buy additional shares of a company before the price enters into the general public market. Normally the subscription price is set below the market price. Settlement date: The date of settlement is the date on which the shares have been bought and recorded in the letter. The number of shares: This is the total number of shares that an investor has bought. The price is calculated on the basis of price per share multiplied by the number of shares bought.
What is the difference between the issue and allotment of shares?
Issuance of shares is a process in which companies issue shares to shareholders (these shareholders might be individuals or corporates); whereas allotment of shares is the division of shares between those who have applied for those shares. For instance, if a company issues 1000 shares and 100 people have applied for it, then each applicant is allotted a minimum of 10 shares.
What is the difference between share subscription and share purchase?
A company enters into the Share Subscription Agreement with the investors of the company when they have raised capital by issuing shares. On the other hand, a company enters into a Share Purchase Agreement to sell the stake of the current promoters of the company. This can be to let in new promoters or for current ones to make an exit.
Mainly, the consideration in a Share Purchase Agreement is credited into the account of the seller who wants to sell their stake in the company; while in a Share Subscription Agreement the consideration is cleared by the buyer of the shares and it is credited in the account of the Company.
Further, Share Purchase Agreements are faster in comparison to the Share Subscription Agreement and they also do not lead to the dilution of the stake of the existing shareholders of a company.
A Share Subscription Letter is an easy or short form of Share Subscription Agreement which also acts as a legally binding document. Normally it is used to make an easy onboard experience for the new investor.
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