In Redweaver Investments Ltd/Lawrence Field Ltd (1991) 5 ACSR 438, Nsw Supreme Court found that a provision in an in-stock subscription contract requiring the defendant to pay the applicant, in certain circumstances, an “amount of compensation” “in the form of liquidated damages” essentially resulted in an undue reduction in the defendants` capital. Therefore, the purported contractual obligation to pay the funds is not applicable. Subscription contracts are generally covered by SEC 506 (b) and Regulation D rules 506 (b) and 506 (c). These provisions define how an offer is implemented and how much essential information companies must disclose to investors. As new sponsors are added to an offer, co-sponsors receive approval from existing partners before amending the subscription contract. In addition to the sales contract function, a subscription contract can also help the company qualify potential subscribers. SEC rules state that only companies and individuals considered accredited investors have the right to acquire shares from a private company. If the company violates this regime, it loses its exemption for private companies and must register with the SEC. Regulation D of the Federal Regulation Code defines companies, organizations and individuals considered accredited investors with whom a private company can enter into a subscription contract. As a result, they generally have little or no voice in the day-to-day running of the partnership and are less exposed to risks than full partners. The risk of loss of activity by each sponsorship is limited to the initial investment of that partner. The subscription contract for membership in the limited partnership reflects the investment experience, refinement and net worth of the potential sponsor.
A share subscription contract is used to formalize the terms of the investor`s investment in the company, to bind the parties to the agreement and to define the investment process. However, the document may contain investor-friendly companies (and sometimes business creation guarantees).