Also known as: subscription agreements · subscription contract
Written by attorneys · grounded in primary & secondary sources — see below
A contract by which an investor agrees to purchase shares from a corporation. Preincorporation subscriptions remain binding for six months absent contrary agreement or unanimous subscriber consent. The board may set payment terms for such subscriptions when the agreement is silent, subject to a uniformity requirement across shares of the same class. Shares become fully paid and nonassessable upon receipt of the specified consideration.
Stephen Shaw signed a written subscription agreement in January to purchase shares in a proposed corporation. In March he delivered written notice attempting to withdraw after grain prices fell. The corporation was formed in April and later demanded payment under the original terms. Shaw's notice did not release him from the commitment.
Sydney Santos and Serena Soto each signed preincorporation subscriptions for the same class of shares in Sterling Manufacturing. Santos agreed to contribute equipment while Soto agreed to pay cash. After incorporation the board adopted a resolution allowing equipment contributors a ninety-day deferral but requiring immediate payment from cash subscribers. The nonuniform call created a dispute over enforceability.
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Spencer Silver purchased shares directly from Spectrum Financial under a subscription agreement specifying a cash price. After the corporation encountered creditor claims Silver refused further payment. Creditors sought to hold him personally liable beyond the agreed amount. The agreement capped his exposure at the stated consideration.
A subscription for shares entered into before incorporation is irrevocable for six months unless the subscription agreement provides a longer or shorter period or all the subscribers agree to revocation.
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The board may determine payment terms when the agreement is silent, but any call must be uniform so far as practicable across shares of the same class or series unless the agreement specifies otherwise.
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Shares issued pursuant to subscriptions entered into before incorporation are fully paid and nonassessable when the corporation receives the consideration specified in the subscription agreement.
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If a subscriber defaults the corporation may collect the amount owed as any other debt or, unless the agreement provides otherwise, rescind the agreement and sell the shares after written demand and twenty days' unpaid status.
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