Also known as: subscription contracts · subscription agreement
Written by attorneys · grounded in primary & secondary sources — see below
A written agreement by which one party commits to purchase newly issued shares of a corporation or to contribute money or property for a designated purpose.
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Simone Sanders signed a subscription contract in January to buy shares in a new corporation for $50,000. In March she sent written notice attempting to revoke. The corporation was formed in April and demanded payment. The subscription remained binding because six months had not elapsed and no other subscribers consented to revocation.
Selena Singh and Sean Steele each signed preincorporation subscription contracts for the same class of shares. After formation the board issued a call requiring immediate payment from all subscribers. The call satisfied the uniformity requirement because it applied the same terms to every subscriber of that class.
Sydney Santos purchased shares under a subscription contract that required payment of $100,000. After the corporation received the full amount, creditors sought to hold Santos personally liable for additional corporate debts. Santos owed nothing beyond the agreed consideration because the shares were fully paid.
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 of directors may determine the payment terms of subscriptions for shares entered into before incorporation unless the subscription agreement specifies them.
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A call for payment by the board of directors must be uniform so far as practicable as to all shares of the same class or series unless the subscription 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 rescind the agreement and sell the shares if the debt remains unpaid for more than twenty days after written demand.
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A purchaser from a corporation of the corporation's own shares is not liable to the corporation or its creditors with respect to the shares except to pay the consideration for which the shares were authorized to be issued or specified in the subscription agreement.
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