Advance Subscription Agreement
Advance Subscription Agreements (“ASAs”) are mechanisms that enable investment for equity. Investors pay for shares which are allocated to them at a later date, usually at a discount to the price per share at the next round of funding. The shares are usually issued upon a funding round that meets any criteria specified in the agreement (a “Qualifying Funding Round”).
This ASA includes key provisions to ensure it complies with SEIS/EIS eligibility requirements, such as a longstop date of no more than 6 months from the date of the agreement. This means that if the Qualifying Funding Round has not occurred within 6 months, the money will automatically convert on this date. The number of shares received will be determined by the price per share at the date of conversion, rather than a predetermined number.
Other ASA provisions included for SEIS/EIS eligibility are the prohibition of refunds for the subscription; the fact the subscription cannot be varied, cancelled or assigned; and that the subscription does not charge interest. Using this ASA should not impact your company’s SEIS/EIS eligibility.
An ASA may include provisions for certain subscriber rights, such as the right to appoint a board observer. This may be drafted so the rights are in force from the date of the agreement, or they may only come into effect upon the conversion of the shares.
It is important not to confuse ASAs with convertible loan notes (“CLNs”). While they both allow companies to get a quick injection of cash and tend to be relatively short in duration, an ASA will always convert to shares, whereas a CLN can be repaid in cash in certain circumstances. This is one of the reasons why ASAs are SEIS/EIS compliant (provided they are structured properly), while CLNs are not. Similarly, while money invested under CLNs will accrue interest over its lifetime, money invested under an ASA generally will not.
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