Corporate & finance

Share Subscription Agreement: What to Check Before Signing

A Share Subscription Agreement (SSA) records the terms on which an investor agrees to subscribe to shares of a company. It sets out the price, the number of shares, and the conditions that must be met before the money is paid and the shares are allotted. The SSA, together with a Shareholders’ Agreement, settles the new governance and economic rights between the founders and the incoming investor.

The investor or their legal counsel almost always drafts the SSA. The standard form is structured to secure the investor’s capital and give them significant control and downside protection. Founders and the company should read it closely because the fine print often contains rights that can permanently alter control of the board, restrict future fundraising, and create personal financial obligations.

Who it usually favours: The standard form usually favours the investor, and the company and its founders should push back on terms that create open-ended liability or cede disproportionate control.

Law that usually governs it
Companies Act 2013Indian Contract Act 1872Foreign Exchange Management Act 1999

The clauses that decide risk

What each one settles in a share subscription agreement, and the wording that shifts the risk.

Conditions Precedent

Why it matters. This clause lists the actions the company and founders must complete before the investor is obliged to transfer the funds. It decides when the money actually arrives.

Watch for. A long list of subjective conditions, such as 'due diligence satisfactory to the investor', may allow the investor to walk away without penalty even after the agreement is signed.

Indemnity

Why it matters. The indemnity clause allocates liability for losses arising from breaches of warranties, tax demands, or undisclosed liabilities. It can create a direct personal financial obligation on the founders.

Watch for. Wording that makes founders personally liable for the full subscription amount, without a time limit or a financial cap, and without requiring the investor to first claim against the company.

Affirmative Voting Rights

Why it matters. This lists the board or shareholder decisions that cannot be made without the investor’s prior written consent. It defines the real extent of the investor’s veto power over business operations.

Watch for. An overly broad list that captures ordinary business matters like opening a bank account, hiring key employees, or entering standard commercial contracts, which can paralyse day-to-day management.

Exit Rights

Why it matters. This clause gives the investor a path to sell their stake, often through an IPO, a sale to a third party, or a buyback by the company or founders. It dictates how and when the investor can get their money back.

Watch for. A 'put option' that forces the company or founders to buy back the shares at a high guaranteed return if an IPO does not happen by a certain date, which can create an unsustainable debt burden.

Anti-Dilution Protection

Why it matters. This protects the investor’s ownership percentage if the company later issues shares at a price lower than what the investor paid. It determines if the founders' stake will be further reduced for free.

Watch for. A broad-based weighted average formula is standard, but a 'full ratchet' provision can be punitive, drastically reducing the founders' holding if even a small number of shares are issued at a lower price.

Representations and Warranties

Why it matters. These are statements of fact about the company’s legal, financial, and tax standing. A breach of any warranty, even if unknown to the founders, can trigger an indemnity claim.

Watch for. Warranties that are not qualified by a 'knowledge' or 'materiality' standard, meaning founders are guaranteeing absolute perfection on every statement, including minor or unknown issues.

Dispute Resolution

Why it matters. This clause sets the process for resolving disagreements—usually arbitration. It determines the location, the rules, and the language of the proceedings, which directly affects the cost and convenience of a fight.

Watch for. An arbitration venue in a foreign country under foreign law, which can make it prohibitively expensive for the company and founders to defend a claim, effectively forcing an unfair settlement.

Red flags for the company and its founders

  • Founders are required to give personal guarantees or provide personal assets as security for the company's indemnity obligations.
  • The investor's consent is required for routine business decisions, effectively giving them a veto over daily operations.
  • The exit clause contains a mandatory buyback obligation on the company or founders with a high assured rate of return.
  • The anti-dilution clause uses a full ratchet method instead of a broad-based weighted average.
  • The representations and warranties are unqualified by materiality or the founders' knowledge, creating liability for trivial or unknown matters.
  • The governing law and dispute resolution clause mandates a foreign seat of arbitration.

How LexPilot reviews a share subscription agreement

  1. 1Drop in the contract (PDF, DOCX or a scan). The document type, the parties and the governing-law clause are detected for you.
  2. 2Every clause is checked two ways — against the text of central Indian Acts, and for balance: which party it favours. You get a plain-English verdict, the main risks ranked, who the document favours, and what to ask for.
  3. 3The full report lists every clause with the finding and the provision relied on, says what could not be checked, and downloads as a PDF.

Frequently asked questions

What is the difference between a Share Subscription Agreement and a Shareholders’ Agreement?

A Share Subscription Agreement is a transactional document focused on the specific issue and allotment of shares. A Shareholders’ Agreement is a continuing governance document that regulates the ongoing relationship between all shareholders, covering board composition, voting, and transfer of shares. The two are often signed together as part of a single investment transaction.

Can a foreign investor subscribe to shares using a standard Indian SSA?

Yes, but the transaction must comply with the Foreign Exchange Management Act 1999 and the pricing guidelines and sectoral caps issued by the Reserve Bank of India. The SSA will typically include specific conditions precedent and representations confirming compliance with these regulations. A standard domestic SSA template may be insufficient for a foreign subscription.

How can a contract review tool help me with a Share Subscription Agreement?

You can upload the SSA and the tool will detect the document type, the parties, and the governing law. It then checks every clause against central Indian Acts, flagging points for an advocate to confirm, and assesses which party each clause favours. The output is a plain-English summary with ranked findings, a balance assessment, and a full clause-by-clause report, serving as a starting point for a human advocate's detailed review.

Review your contract — free

Free trial · Assistive review, not legal advice — every finding is a starting point for an advocate.