A subscription agreement is between a company and a private investor to sell a specific number of shares at a specific price. This investor fills out a form documenting his or her suitability for investing in the partnership. A subscription agreement can also be used to sell stock in a privately owned business.
The subscription agreement is used to keep track of how many shares have been sold and at what price the shares sold at for a privately held company. The subscription agreement details all the information about the transaction, such as the number of shares and price, and confidentiality provisions.
Some agreements include a specified rate of return that investors are guaranteed to receive. That might be a percentage of the company's net income, or it could be a specific amount in lump sums that are to be paid out on specific days.
Subscription agreements are most common with startups and smaller companies. They're used when business owners don't have the resources to work with venture capitalists or to take the company public.