Subscription Agreement

To subscribe is to buy securities from the issuer itself. The money goes to the corporation, which issues new shares from its treasury. That is the difference from a share purchase agreement, where a buyer acquires shares that already exist and pays the selling shareholders, not the company.

No statute requires a document called a subscription agreement. Section 23 of Ontario's Business Corporations Act (OBCA) lets the directors issue shares at such times, to such persons and for such consideration as they determine, subject to the articles, the by-laws, any unanimous shareholder agreement and any pre-emptive rights. The subscription agreement is how the corporation proves what was agreed: who offered to buy, how many shares of which class, at what price, and why the sale was exempt from the prospectus requirement.

The form scales with the deal. Founders at incorporation often sign a one-page subscription for a nominal number of common shares. Angel and seed rounds use a subscription agreement with investor representations, often alongside a shareholders' agreement. A priced venture round, usually preceded by a venture capital term sheet, adds detailed company representations and closing conditions. Our comparison of priced equity rounds and SAFEs explains when a company sells shares this way and when it issues a SAFE instead.

• Subscription terms. Number and class or series of shares, price per share, total subscription price, payment method and closing date.
• Acceptance. Most forms treat the investor's signed subscription as an offer that the company may accept in whole or in part, or reject.
• Company representations. Due incorporation, authorized and issued capital, and that the shares will be validly issued as fully paid and non-assessable; larger rounds add financial statements, intellectual property and litigation. See representations and warranties.
• Investor representations. Buying as principal, the exemption category relied on, residence and capacity to bear the loss.
• Acknowledgements. No prospectus has been filed, resale is restricted and the investment is risky.
• Covenants. Signing or joining the shareholders' agreement and supplying information the corporation needs for its registers.
• Privacy notice and consent for personal information reported to the securities regulator.
• Governing law, usually Ontario.

Issuing a security is a distribution under the Securities Act (Ontario), so section 53 requires a prospectus unless an exemption applies. The investor's representations are the factual foundation for that exemption, so they should identify the specific category, not just say "I am an accredited investor":

• For an accredited investor, the branch of the definition met, such as financial assets over $1,000,000 or net income over $200,000. Individuals relying on the $1,000,000 financial asset, income or net asset test also sign Form 45-106F9 at or before signing the agreement.
• For the private issuer exemption, the relationship relied on, such as close personal friend of a named director, with enough detail to show it is direct.
• For the family, friends and business associates exemption in Ontario, a Form 45-106F12 signed by the investor, an executive officer and the insider whose relationship is relied on.

Representations are necessary but not sufficient. The Companion Policy to National Instrument 45-106 says a seller cannot rely only on standard representations in a subscription agreement; it should ask questions, obtain documents where needed and keep a record. When the accredited investor or family, friends and business associates exemption is used, the company files Form 45-106F1 within 10 days after the distribution. In signing that report, the company confirms that each individual purchaser resident in Canada was notified that their information is going to the regulator and authorized that collection, which is why subscription agreements include the notice.

Closing turns an accepted subscription into issued shares. For an OBCA corporation, closing usually involves these steps:

1. Full payment. Section 23(3) prohibits issuing a share until the consideration is fully paid in money, or in property or past services worth no less than the cash the corporation would have received. A promissory note from the subscriber, or from someone not dealing at arm's length with them, is not property for this purpose, and future services do not count. Funds are often held in trust by the company's lawyer until closing.
2. Directors' resolution. The board accepts the subscription and issues the shares as fully paid. For non-cash consideration, the directors must determine the cash equivalent and the value of the property or past services. If the articles or a unanimous shareholder agreement grant pre-emptive rights, those holders must first be offered the shares or waive.
3. Stated capital. The full consideration is added to the stated capital account for that class.
4. Evidence of ownership. The corporation issues a share certificate or, for uncertificated shares, sends a written notice with the same information within a reasonable time.
5. Registers. The securities register under section 141 records the holder's name and address, the number and class of shares, and the date and particulars of the issue. If the investment makes an individual someone with significant control, generally 25% or more of the votes or value, the corporation records them in its register of individuals with significant control within 15 days of learning the information.
6. Filing and records. The company files Form 45-106F1 if required, updates the cap table and puts the signed agreement, risk forms and resolution in the corporate minute book.

Our startup legal hub maps these documents to each stage of a company's growth, and our startup financing practice prepares and reviews them for Ontario rounds.

Lumen Health Labs Inc., a Toronto digital health company, closes a $1,200,000 seed round of Class A preferred shares at $1.25 per share, issuing 960,000 shares to three investors.

• Bayview Ventures Inc., a family holding company that has managed a diversified portfolio for over a decade and whose latest financial statements show net assets of $8,000,000, subscribes for $800,000 (640,000 shares). It qualifies under the $5,000,000 net asset test for entities and signs no Form 45-106F9.
• Rajiv Mehta subscribes for $250,000 (200,000 shares). His net income before taxes was $260,000 in 2024 and $240,000 in 2025, and he expects similar income in 2026. He signs Form 45-106F9, and Lumen's lawyer reviews his notices of assessment.
• Sofia Lindqvist subscribes for $150,000 (120,000 shares) on the strength of $1,400,000 in investments and signs Form 45-106F9. She asks to pay $50,000 of it with a promissory note. Counsel explains that the OBCA does not treat a subscriber's own note as property, so she wires the full amount.

All funds sit in the lawyer's trust account until closing. At closing the board accepts the three subscriptions and issues the shares as fully paid, $1,200,000 is added to the Class A stated capital account, certificates are issued, the securities register is updated and the three investors join the shareholders' agreement. Lumen files one Form 45-106F1 listing all three purchasers within 10 days.