Capital without contracts is chaos. If investors are giving you money, the Subscription Agreement is your legal lifeline.”
– Matt Glynn

Taking investment into your startup is a big milestone – but failing to formalise that capital with a properly structured Subscription Agreement is like wiring funds into a black hole.

Founders often obsess over valuation and term sheets but neglect the actual document that seals the deal. That document is the Subscription Agreement – and without it, your cap table could collapse under legal challenge.

Legal issues like this are easy to overlook. The energy is on pitching, closing deals, and hitting growth targets - not on the “boring paperwork.” But get this part wrong and your startup could be exposed to disputes, invalid share issues, and investor pullouts.

In this “start up stage review”, we’re going to flag up some considerations to help you better prepare to tackle this part of your start up journey - before it tackles you.

“You don’t actually have an investor until the Subscription Agreement is signed and money’s in the bank.”

The Subscription Agreement stage is an important stage of the start-up journey because:

◼️Legal Formality: it is the binding contract that governs how shares are legally issued in exchange for investment.

◼️Investor Confidence: it protects investors’ interests and ensures they're properly onboarded.

◼️Company Protection: it reduces the risk of future claims or legal disputes over what was promised.

◼️Capital Clarity: it clearly defines how much money is being invested and under what terms.

◼️Regulatory Compliance: it helps ensure the company complies with securities laws and corporate governance obligations.

◼️Share Issue Validity: it confirms that new shares are legally issued - avoiding invalid capital raises.

◼️Terms Enforcement: it gives legal teeth to term sheet conditions (e.g., share price, warranties, milestones).

◼️Due Diligence Foundation: it becomes a key document for future funding rounds or exits.

◼️Investor Onboarding: it facilitates structured entry of new stakeholders onto your cap table.

◼️Avoiding Misunderstandings: it ensures all parties have a clear, written understanding of the deal.

The consequences of not attending to this issue may include the following:

1. Legal Implications

◼️Invalid Share Issuance: shares may be legally unenforceable if not properly subscribed.

◼️Regulatory Breach: failing to comply with securities laws may attract penalties.

◼️Contractual Ambiguity: no enforceable record of investment terms means future litigation risk.

2. Founder Relationship Issues

◼️Dilution Confusion: without clarity on share issuance, founders may feel blindsided by cap table changes.

◼️Investor Distrust: lack of transparency damages relationships with early backers.

◼️Escalated Disputes: small misunderstandings around terms can become existential threats.

3. Commercial Implications

◼️Funding Delays: investors may refuse to release funds without proper paperwork.

◼️Reputation Damage: being seen as legally disorganised deters future capital.

◼️Loss of Leverage: vague or missing terms can weaken your negotiating position.

4. Operational Implications

◼️Banking & Admin Issues: no proper documentation makes it harder to open accounts or verify capital.

◼️Corporate Filings Blocked: company registries may reject incomplete share issuance filings.

◼️Board Disruption: unclear investor rights create confusion at the board or management level.

5. Biz Valuation Issues

◼️Due Diligence Red Flags: lack of formal documentation will alarm future investors or buyers.

◼️Equity Disputes: disputed share issuances can trigger costly equity adjustments.

◼️Cap Table Corruption: lack of clarity erodes confidence in your ownership structure.

The above lists are indicative issues – the relevance of which will depend on your circumstances, including the nature of business undertaken by your start up.

Take the money - but get the agreement right first”

We’ve identified quite a number of potential issues that the start-up needs to consider and below are some examples of the types of steps you might want to consider taking to address these issues considered above.

1. Prepare a Standard Subscription Agreement

◼️Use a legally sound template tailored to your local jurisdiction and company structure.

◼️Include clear terms on price per share, number of shares, and total subscription amount.

2. Link to Shareholders Agreement

◼️Ensure the Subscription Agreement enforces or references the rights set out in the SHA.

◼️Prevent contradictions that could weaken governance or investor protection.

3. Include Warranties and Representations

◼️State key promises made by the company and the investor.

◼️Reduce future risks by clarifying expectations at the outset.

4. Confirm Investor Eligibility

◼️Include statements ensuring the investor is eligible under applicable laws (e.g., accredited investor).

◼️Avoid regulatory issues and later disputes.

5. Set Payment and Completion Triggers

◼️Clearly define when payment must be made and when shares are officially issued.

◼️Avoid timing disputes or incomplete transactions.

6. Keep Proper Records and Filings

◼️Ensure all executed agreements are properly stored and accessible.

◼️File all share issuances promptly with the relevant registry or authority.

The above suggestions are just a few of the steps you can consider taking.
There are many more things that need to be done to ensure the associated risks are effectively and pragmatically dealt with.

We’re not trying to be alarmists and go so far as to say that some of the legal risks we have flagged may never materialise for your business - but others can hit like a freight train.

The key point is awareness – just have a think about the issue – know that it exists and decide for yourself what you want to do.

Yes, we know you're juggling limited time, money, and human bandwidth. Sometimes ignoring a legal risk might even make sense – providing doing so is not illegal.

However, “Knowledge” has always been your greatest asset and know you have the GLS Knowledge Centre to help fill in details about the start up journey.

Let’s look at how things can go sideways:

Case Study 1: “The Unsubscribed Shares”
A startup accepted $200k from an investor but failed to issue a Subscription Agreement. Two years later, during due diligence, the investor claimed 10% equity - but the company had no clear paperwork. Deal fell through.

Case Study 2: “The Regulatory Breach”
A Singapore startup raised capital from multiple investors without checking their eligibility or including required statements in the Subscription Agreement. They were later fined for non-compliance with local securities laws.

Case Study 3: “The Founder Fallout”
Two founders disagreed over whether an investor had actually bought in. No Subscription 

Agreement, no bank records. It triggered a months-long dispute that ended in arbitration - and a lost client.

As a start-up operator you may not be familiar with legal jargon. As you navigate this stage of your start-up journey – you might encounter the following legal definitions:

◼️Subscription Agreement: A legally binding agreement between an investor and a company that governs the issue of new shares in exchange for capital.

◼️Consideration: The money or benefit given in exchange for the shares being subscribed.

◼️Warranties: Contractual statements that both parties declare to be true - and which may carry liability if proven false.

Watch out for the legal jargon and refer to the knowledge hub for an extensive legal dictionary that you can access at any time:
https://www.gls-startuplaw.com/legal-ops-terminology

Your startup can’t grow without capital - and capital needs contracts.
The Subscription Agreement is where dreams of funding become reality - or unravel in courtrooms and cap table chaos.

Protect your company. Protect your investors. Protect your equity.

GLS can help you implement Subscription Agreements that are fast, compliant, and investor-ready. Don’t let sloppy paperwork undo the biggest moment in your startup’s early life.

GLS may well be able to help you navigate the issues associated with the Subscription Agreement stage.
Few, if any, integrated legal solution providers have made themselves as accessible to the start-up community as we have.

Consider engaging with GLS via any of the following means:

◼️GLS Start Up Centre: visit our world-leading start-up legal support resource – we might have a solution “ready to go” available to you at a fraction of the cost – visit www.gls-startuplaw.com

◼️GLS Knowledge Hub: check out the knowledge hub for more information on this issue to learn more about what you need to do
https://www.gls-startuplaw.com/blog

◼️GLS Support Plan: consider engaging your own in-house legal team capability with a highly disruptively priced GLS Start Up Support https://www.gls-startuplaw.com/plans

◼️GLS Legal On Call™: trial GLS Legal On Call™ for free - access up to 3 free in-house legal consults and feel the power of your own “on call” legal team https://www.gls-startuplaw.com/product/gls-legal-on-call-free-trial

◼️Book A Consult: book a complimentary one-off 15 min consult via our e-calendar https://calendly.com/globallegalsolutions/startup-free-legal-consultation?month=2025-03

◼️GLS Start Up Clinic: join our next pro bono start-up clinic for an in-person free consult – book here.