As businesses evolve and grow, the need for capital becomes imperative. One of the common avenues for raising funds for a business is through the issuance of securities, such as shares or units. In Australia, the process of raising capital can often involve the usage of a Subscription Agreement. Understanding this agreement and its role in the capital-raising process is important for businesses seeking to expand their operations.
Let’s delve into the intricacies of the Subscription Agreement and its process in Australia.
What is a Subscription Agreement?
A Subscription Agreement is a legally binding contract between a company and an investor. It outlines the terms under which the investor agrees to purchase newly issued securities from the company. These securities can include shares, units, or other forms of equity. This agreement serves as an important document in fundraising activities, detailing the rights and obligations of both parties involved.
The Process of Raising Capital through Subscription Agreements
Offering Memorandum or Information Memorandum:
Detailed Company Profile: The Offering Memorandum serves as a comprehensive document presenting the company’s history, operations, management team profiles, business strategies, and market positioning.
Financial Information: It includes audited financial statements, revenue breakdowns, cash flow analyses, and projections, offering potential investors a clear understanding of the company’s financial health.
Risk Factors: Identifies and delineates potential risks the company may face, such as market volatility, regulatory changes, competition, and technological disruptions.
Investment Opportunity: Articulates the purpose of the investment, the use of funds, potential returns, and the structure of securities being offered.
Negotiation and Drafting of the Subscription Agreement:
Customised Terms: Negotiations involve tailoring the Subscription Agreement to specify the type of securities being offered (e.g., common shares, preferred shares), pricing mechanisms, payment schedules, dividend rights, voting rights, and exit strategies.
Legal Drafting Expertise: The Subscription Agreement is meticulously drafted by legal professionals, ensuring precise and unambiguous language to accurately reflect the terms negotiated between the company and investors.
Compliance and Alignment: The agreement aligns with legal requirements, accounting for regulatory compliance and protecting the interests of both parties involved.
Legal Compliance and Due Diligence:
Regulatory Adherence: The company ensures compliance with the Corporations Act 2001 (Cth) and other relevant laws governing investments, substantiating the legality of the offering and protecting investor rights.
Thorough Due Diligence: Both parties conduct due diligence. Investors scrutinise the company’s financial records, operational metrics, intellectual property rights, legal documents, and market position. Simultaneously, the company verifies investor credentials and suitability to maintain transparency and mitigate risks.
Execution and Subscription:
Finalising Agreements: Upon mutual agreement and completion of due diligence, the Subscription Agreement is executed. Investors provide the committed funds, and the company issues the securities according to the terms outlined.
Compliance Certifications: Both parties ensure compliance with all legal formalities, providing certifications and acknowledgments as required by law.
Post-Subscription Formalities:
Share Register Updates: The company updates its shareholder register to reflect the new investors and their respective shareholdings.
Issuance of Share Certificates: Share certificates are issued to investors as formal documentation of their ownership in the company.
ASIC Reporting Compliance: The company complies with Australian Securities and Investments Commission (ASIC) reporting requirements, submitting necessary documents and reports within the mandated timelines.
Final take away
The Subscription Agreement serves as the cornerstone of the capital-raising process in Victoria, Australia. It outlines the mutual understanding between the company and investors, ensuring transparency and clarity regarding the terms of the investment. However, navigating through this process requires a comprehensive understanding of legal nuances and compliance requirements.
Given the legal complexities involved in raising capital through Subscription Agreements, seeking professional legal counsel such as Allied Legal is highly recommended. A legal firm experienced in corporate law and securities regulation can provide invaluable guidance to both companies seeking to raise capital and investors looking to invest in promising opportunities.
Allied Legal stands ready to assist businesses in Australia in navigating the complexities of capital raising through Subscription Agreements. Contact us today to ensure a smooth and legally compliant fundraising journey for your company at 03 8691 3111 or hello@alliedlegal.com.au
