Subscription Agreements

We realise that for many CrowdBnk investors, investing in a private company is a new experience and an investment in a CrowdBnk project may represent the first time they have encountered a shareholder or subscription agreement.   This can be daunting for some and outright confusing for others.   While we urge all CrowdBnk investors to read all project documentation carefully, we thought it would be helpful to provide a brief explanation of some of the key terms in CrowdBnk’s template subscription agreement to help demystify the process.

Receipt of Documents and Information (Section 1)

We strongly believe that all investors should be provided clear and full disclosure on the company in which they are choosing to invest.  We work with all CrowdBnk companies to ensure that the project pages have adequate information to allow a reasonably investor to make an informed decision, and ask that in return investors read and understand the documents before investing.
This section is simply an acknowledgement that each investor has been provided with the appropriate documents and that all information contained in them is correct and not misleading.

Subscription and Purchase of Shares (Section 2) and Completion (Section 3)

These section set out the general mechanics of your investment in a CrowdBnk project.  The document you receive will set out the amount of your investment and the number of shares you will receive in return.
When we say that the shares will be “issued fully paid free from all encumbrances”, we’re essentially saying they are yours without any further payment due on your behalf or claim by any other person over your shares.

Subsequent Offers (Section 4)

This section gives existing CrowdBnk investors the first right to invest in any subsequent offerings made by the company (with a few exceptions) before it can accept an offer from outside party.  If a company doesn’t successfully raise the required investment from its existing shareholders, then it will be free to seek investment from outside the CrowdBnk community.

Stock Option and Employee Share Schemes (Section 5)

This section gives the company the right to provide incentives to its employees in the form of share and options awards.  We think this is a good thing as it encourages employees to help the company grow as they will share in the upside, but CrowdBnk investors should be conscious that any new share issue to employees may have a dilutive impact on existing shareholders.

Accounts (Section 6)

We decided to go beyond the statutory requirements and ask CrowdBnk companies to distribute quarterly updates as well as a final year-end report (which we will help them prepare and distribute.  This is to ensure that all investors are kept up-to-date with respect to the performance of their investment.

Restrictions (Section 7)

This section is designed to protect CrowdBnk companies and ensure that investors don’t use any confidential information disclosed to them by the company to compete against the company.  The vast majority of companies that list projects on CrowdBnk will be very early-stage with a business model based on a core idea or technology – without this protection there is a risk that investors could misappropriate the information for their own game which we don’t think is fair or in the spirit of what crowdfunding represents.

Miscellaneous (Section 8)

This is the boring boilerplate stuff that almost no one ever reads.  While it’s unlikely any of these clauses will ever have a material impact on your investment, if you need to work out what law applies (its English law in case you were wondering), where to send notices, the steps required to amend the agreement etc., this is the place to look.
We spent a lot of time crafting a set of terms that we believe are fair and balanced for all parties, but nevertheless an investment in a start-up or early-stage company may not be the right investment choice for everyone.  The above is intended as a high-level explanation only and, again, we urge all investors to read a project’s documentation carefully and seek advice if necessary before investing. 
In a later post we’ll highlight some of the more important sections of the template Articles of Association that all CrowdBnk companies are required to adopt.