Share subscription is a process that companies can use to raise capital. It involves an arrangement between the Company and the Investor, whereby the Company commits to issuing a predetermined number of shares to the investor at an agreed-upon price.
There are two ways of realising the Share Subscription:
1. Share Subscription Agreement; and
2. Share Subscription Letter.
The Share Subscription Agreement is a legally binding document between the Company and the Investor which specifies:
– the number of shares that the Company will issue to the Investor;
– the share price;
– when the shares will be issued;
– when the funds will be paid to the Company;
– any other provisions that the parties agree to include, such as representations, warranties, covenants, indemnities, termination, and so on.
The Share Subscription Letter is a simple, legally binding document through which an Investor applies to purchase new shares in a Company. It specifies:
– name of the Investor;
– the number of shares that the Company will issue to the Investor;
– the share price;
– when the shares will be issued;
– when the funds will be paid to the Company.
The Share Subscription Letter is a simpler and less time-consuming alternative to the Share Subscription Agreement, making it a better option for onboarding new investors.
Pros of the Share Subscription Letter:
– simplicity. It is easier to prepare than the Share Subscription Agreement, making it suitable for companies and investors who prefer a more streamlined process;
– speed. It can be prepare quickly, enabling the parties to move forward with the share subscription process without significant delay;
– cost-effectiveness. It involves fewer legal and administrative costs than more complex Share Subscription Agreement, making it a cost-effective option for smaller transactions.
Cons of the Share Subscription Letter:
– limited protection. The Share Subscription Letter does not provide the same level of legal protection as a more comprehensive Share Subscription Agreement;
– ambiguity. The Share Subscription Letter is a less clear or specific than more detailed Share Subscription Agreement, potentially leaving room for ambiguity or misunderstandings.;
– limited scope. The Share Subscription Letter may not cover all the necessary legal requirements or regulatory obligations, potentially leading to legal or regulatory issues in the future.
The process of realising the Share Subscription in private companies operating in the AIFC is as follows:
1. Determine the type and class of shares you want to issue and the nominal value of each share;
2. Check that your company’s Articles of Association permit the issuance of new shares;
3. Respect the pre-emptive rights under section 48 of the AIFC Companies Regulations 2017 or the alternative pre-emption rights under the Company’s Articles of Association;
4. Prepare a Share Subscription Agreement or a Share Subscription Letter;
5. Receive payment from the subscribers for the shares;
6. Prepare a resolution to be approved by the board of directors or shareholders, depending on the company’s Articles of Association, regarding increasing the Company’s share capital and allotting shares to the Investor;
7. File the necessary forms with the AIFC Registrar of Companies.
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