Ever wondered what really happens after you sign the term sheet and move on to the SSA? Let’s break it down with thoughts from our experience at Auxano Capital.
What is a Share Subscription Agreement (SSA) exactly?
It is the core legal document among founders, the company, and investors that records the investment transaction in detail.
A. Key Contents and Clauses
Transaction details:
Who is investing, how much, what type of shares, and how many. There can be a separate SSA for each investor or even a combined one, depending on the terms agreed.
Shareholding pattern:
Presented in a simple table showing share capital on a fully diluted basis as of execution and closing dates. Transparency is everything here.
Conditions Precedent (CPs): What must happen first?
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- Necessary resolutions passed and filed with the RoC.
- Offer letter (PAS-4) issued
- Issues from company due diligence addressed
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- Are the shares of the company in dematerialized form?
Why does this matter? The investor’s obligation to invest is conditional on these CPs being fulfilled!
Completion/Closing Date Actions (after the condition precedent points are fulfilled)
- Investor accepts the offer letter
- Funds transfer happens
- Company convenes meetings to approve share allotment
Conditions Subsequent (after the Closing date)
- Statutory filings with RoC
- Specific matters from due diligence agreed to be completed within a certain timeframe for example, completing a tax planning exercise within 60-90 days.
Indemnity Provisions
If investors lose money due to breach of warranties, fraud, or similar, they can claim indemnification from the company.
- To avoid trivial claims, there are “De-minimis” (minimum claim threshold) and “Basket” (maximum trigger threshold) amounts.
- Beyond the basket, the company covers the entire loss, not just the excess.
- In case of fraud or misrepresentation by the founders.
Governing Law & Dispute Resolution:
Typically arbitration. Key questions:
- Who appoints arbitrator(s)?
- Single arbitrator or three?
- Seat of arbitration
Designated Bank Account: Why a separate bank account for subscription funds?
To prevent mixing invested money with company’s operational cash. Only after shares are allotted can funds be used – this separation protects all parties.
Representations & Warranties (Reps & Warranties), examples:
- The company has full power and corporate approvals to enter the deal. (Capacity)
- Intellectual property rights belong exclusively to the company, including all creations by employees.
- Subscription shares will be duly authorized, validly issued, and fully paid. (Shares & Securities)
- Company is free from ongoing investigations that may affect the business (Litigation).
- Founders focus entirely on this business; no hidden side businesses (Exclusivity).
Any exceptions to the above should be given in Disclosure schedule
B. Typical Discussion Points between founders and investors
SSA is a fairly straight forward document, recording the modalities of the investment transaction. However, at times, few points come up in discussion between the founder and investors such as :
- Whether the company and founders are jointly and severally liable to indemnify the investors?
- Are founders liable in their personal capacity if yes, then in what cases?
- What is the founders’ liability in case of fraud?
- What should be the indemnity period? (Typically, it is 36 months to claim losses, but for fundamental warranties (e.g., ownership of shares), investors insist on no time limit.)
- What should be the seat of arbitration? Investor base, or company location? What if one investor is located in Mumbai and the other in Delhi?
What’s your take?
- Have you debated personal liability with your investors?
- Which arbitration seat do you think is most fair ?
Author,
Mansi Handa
