Should/ could a subscription agreement be combined with a shareholders’ agreement?

While it’s possible to combine the two agreements, I prefer to have a subscription agreement separate from a shareholders’ agreement for the following reasons:

1. The parties to the agreements are different. The subscription agreement primarily involves the company which issues the shares. On the other hand, a shareholders’ agreement doesn’t necessarily require the company to be a party to the agreement unless the company has rights and obligations under the shareholders’ agreement.

2. In a shareholders’ agreement, the shareholders may give representations and warranties to the other shareholders. However, in a subscription agreement, the company is the key party which gives representations and warranties to the subscriber although in certain cases, the founders/ other shareholders may also provide representations and warranties to the subscriber.

3. A subscription agreement and a shareholders’ agreement serve different purposes. A subscription agreement is meant to be a one-off document that sets out the subscription terms which are typically not revisited after the subscription is completed. Conversely, the shareholders’ agreement governs the ongoing relationship between the shareholders and continue to bind the shareholders after the subscription.

Due to the distinctions between a subscription agreement and shareholders’ agreement as set out above, having two separate agreements provides better clarity.

It’s certainly not because lawyers want to charge more.

#malaysiancorporatelawyer

This post was posted on LinkedIn on 21 December 2023.