How Subscription Agreements Work on StartEngine
Though you may occasionally find debt, convertible-note, revenue-share or other offerings, most investment opportunities on the StartEngine platform are for equity. This equity comes in the form of a subscription agreement – the contract that represents your investment.
When you decide to invest in a company on StartEngine, your money will be held in escrow – in other words, it is safely held in a third-party account until the deal becomes official, or “closes”. Once the company has reached its fundraising target, it will then “close” on all the funding held in escrow and receive its cash. Then, it distributes equity to all of the investors, at which time your signed subscription agreement will be delivered to your email inbox.
Let’s walk through exactly what a subscription agreement is and how they work on StartEngine.
What Is a Subscription Agreement?
A subscription agreement is a contract between an investor and the company they are investing in that details an exchange of a certain number of shares (or another type of security) for a certain price. These details are also known as the terms of investment. These agreements are binding at the time the company countersigns it, even if the money you’ve agreed to invest in the company and/or the equity you will receive isn’t transferred right away.
A subscription agreement does not mean that you are now “subscribed” in some way and will be charged monthly, or multiple times. It is just the contract representing your one-time investment.
Subscription Agreements on StartEngine
Here’s how subscription agreements work on StartEngine:
Can I See the Subscription Agreement Before I Invest?
Yes, you can read the subscription agreement for any company before making an investment decision. You can find subscription agreements by clicking the “Invest Now” button on any campaign. At the bottom of the next page, there is a link to view the subscription agreement, and you will be asked to sign a statement saying that you have read and agree to the document.
How Will I Receive My Subscription Agreement?
After you agree to invest in a company on StartEngine, once that company’s campaign successfully closes and your invested funds clear, you will receive a confirmation email from the company via StartEngine with details about your investment, including your fully executed subscription agreement.
Because of the time it takes for a company to reach its investment target, disburse on funds in escrow (as explained above), and distribute equity, there is often a lag between the time in which you submit an investment and when you officially become an investor in that company – i.e. receive your subscription agreement.
The subscription agreement is your official proof of purchase and includes the number of shares you own in that company as a result of your investment on StartEngine.
When Will I Receive My Subscription Agreement?
Depending on how long it takes the company to close on the funds raised, it could take as little as a few weeks or as long as several months after your original investment was submitted. Sometimes, companies will close on the funds they’ve raised while the campaign is still ongoing, so you may receive your subscription agreement before the offering is over.
How Do I View My Signed Subscription Agreement?
You can view your signed subscription agreement by logging into your StartEngine account. Click your name in the top right-hand corner and select “View Investments”. You should see the option to view your signed subscription agreements next to all investments for which they’re available!
Remember, subscription agreements are only distributed once a company closes its fundraise, so you will not be able to view your signed subscription agreements for investments you’ve made in companies that haven’t closed their fundraising yet. You will be able to view your subscription agreement once your status changes from “received” to “invested”.
A signed copy of your subscription agreement is also sent to you via email once the company takes your investment out of escrow.
Will I Receive Stock Certificates Too?
As with most stocks in today’s digital age, StartEngine shares are issued as “book-entry”. This means you will not receive a physical stock certificate.
Instead, your shares are held via electronic record by the issuing company’s transfer agent – an entity that handles important administrative tasks between a company and its shareholders. This digital process minimizes the cost and risk of physical stock certificates, as these require much more time to transfer (via mail) and can become lost.
We do issue ceremonial stock certificates for your investments, which you can view from your investor dashboard. However, these are not binding contracts. They are just ceremonial certificates that show you how much you invested.
Subscription agreements are the simplest, most effective and least costly way to account for the private exchange of equity, making the process easier for all involved – far easier for our users to manage than physical stock certificates!
Now that you know how they work on StartEngine, it’s time to find out which company your next subscription agreement will come from!