- Pre-money and post-money valuation
- Size and stages of the investment for the Company
- Type of Securities issued which can be equity or convertible securities
- Basic agreed on terms of issue of securities
What is a Share Subscription Agreement (SSA)?
A Share Subscription Agreement (SSA) deals with the subscription of new shares of the company by a set of existing or new shareholders. A Share Subscription Agreement is executed when existing or new shareholders subscribe to new shares. Investors who subscribe to new shares are considered to ‘subscribe’ to the corporation. Basic contents of a well-drafted Share Subscription Agreement: ····· ·····Non-Compete, Promoter Lock-in etc. A shareholders agreement controls commercial transactions and the directors’ relationship with shareholders. It should describe each shareholder’s unique situation and special rights, duties, and commitments. The shareholders’ agreement is the central document that sets up the relationship between the corporation and each shareholder.
Term sheet and shareholders agreement: What’s the difference?
The fundamental distinction between a term sheet and SHA is that the former is not legally binding. In contrast, the latter is legally binding. An shareholders agreement is an agreement that establishes the connection between a company and its shareholders. It determines the rights and obligations of shareholders, including those of the firm. The other key points of difference between a term sheet and SSA/SHA are:
Termsheet is Intent:
A Termsheet is merely an indication of an investor’s ‘firm intent to invest’, as well as a condensed version of the eventual SHA/definitive agreement that parties would sign.
SHA is Binding:
However, SHA is a legally binding document and not abiding by it will constitute a breach of the Shareholding Contract.
Can investors choose not to honour a signed term sheet?
Investors can technically back out of a term sheet commitment, but it is not a desirable situation. On the other hand, there have been cases where a deal has not gone through after the execution of the term sheet.
Conclusion
When a company seeks funds from its new investors, the term sheets are helpful. It makes discussion and coordination, simple and convenient. From the aforesaid discussion, it can be easily understood that SSA/SHA usually follows the term sheet. Founders must carefully go through all these papers before affixing their signatures.
