Share subscription and share purchase agreement are two legal documents that are commonly used in the world of corporate finance and investment. While both documents involve the acquisition of shares in a company, there are key differences between the two that prospective investors should be aware of.
Share Subscription
A share subscription is a legal agreement between a company and an investor that outlines the terms of a new share issuance. This typically occurs when a company needs to raise capital to finance its operations or pay off debts. In a share subscription, the investor agrees to purchase a certain number of shares at a predetermined price. The shares are typically issued by the company at a future date, once the investor has paid the agreed-upon amount.
Share Purchase Agreement
A share purchase agreement, on the other hand, is a legal document that outlines the terms of a sale of shares from one shareholder to another. This typically occurs when an existing shareholder wishes to sell some or all of their shares in a company. In a share purchase agreement, the buyer agrees to purchase a certain number of shares from the seller at an agreed-upon price. The sale typically occurs immediately, with the buyer paying the seller the agreed-upon amount in exchange for the shares.
Key Differences between Share Subscription and Share Purchase Agreement
There are several key differences between a share subscription and a share purchase agreement. The most notable differences are:
1. Timing: In a share subscription, the shares are typically issued at a future date, once the investor has paid the agreed-upon amount. In a share purchase agreement, the sale occurs immediately, and the buyer takes ownership of the shares immediately.
2. Purpose: A share subscription is typically used by a company to raise capital, while a share purchase agreement is used when an existing shareholder wishes to sell their shares.
3. Price: In a share subscription, the price is predetermined and agreed-upon before the shares are issued. In a share purchase agreement, the price is negotiated between the buyer and the seller.
4. Control: In a share subscription, the investor typically has no control over the company until the shares are issued. In a share purchase agreement, the buyer takes ownership of the shares immediately and may gain some degree of control over the company.
Conclusion
In summary, while share subscription and share purchase agreement both involve the acquisition of shares in a company, they are two different legal documents with different purposes, timing, pricing, and control. Prospective investors and shareholders should understand the differences between the two in order to make informed decisions about their investments in a company.