Reg D & Compliance
The Subscription Agreement: The Document That Closes Your Investor
The subscription agreement is the document an investor signs to actually commit money to your offering. If the pitch deck creates interest and the PPM makes the disclosures, the subscription agreement is where the investor says 'I'm in,' confirms who they are, and legally agrees to the terms. It's the closing instrument of a private raise — the moment a soft commitment becomes a binding subscription.
By One Million Media4 min read
This is a sponsor's guide to the subscription agreement: what it does, what's inside it, how it fits with the rest of your offering documents, and where sponsors get it wrong. It's educational, not legal advice — your securities attorney drafts the actual agreement.
What is a subscription agreement?
A subscription agreement is a contract between the investor (the 'subscriber') and the entity issuing the securities — your fund or deal LLC. By signing it, the investor agrees to purchase a specific amount of interests at a stated price, and the issuer agrees (subject to acceptance) to sell them. It's a two-way commitment, though the issuer typically reserves the right to accept or reject any subscription.
Beyond the purchase itself, the subscription agreement is where the investor makes the representations your exemption depends on — most importantly, that they're accredited (and, in a 506(c) deal, that you can verify it). Those representations are part of what protects your Reg D exemption, which is why this document does far more than record a dollar amount.
How it fits with your other offering documents
The subscription agreement is one of three core documents in a typical private raise, each with a distinct job:
| Document | What it does | Who acts |
|---|---|---|
| PPM | Discloses the offering terms and risk factors | Sponsor discloses; investor reads |
| Operating agreement | Governs how the entity is run and how cash is split | Binds all members going forward |
| Subscription agreement | Commits the investor's capital and captures their representations | Investor signs and funds |
The order in practice: an interested investor receives the PPM (which usually attaches the operating agreement and subscription agreement as exhibits), reviews the disclosures, then signs the subscription agreement and an investor questionnaire and wires their funds. Acceptance by the sponsor and admission into the entity completes the subscription.
What's inside a subscription agreement
A typical real estate subscription agreement contains:
- Subscription amount — how much the investor is committing and the number/price of interests.
- Investor representations — accredited-investor status, that they're investing for their own account, and that they understand the risks and illiquidity.
- Accredited-investor questionnaire — the income/net-worth qualification, and (for 506(c)) the basis for verification.
- Acknowledgment of risk — that the investor has read the PPM and understands they could lose their entire investment.
- Acceptance mechanics — the issuer's right to accept or reject, and what happens to funds if rejected.
- Signatures, entity/title information, and wiring or funding instructions.
In a 506(c) offering, the accreditation piece is especially important: self-certification isn't enough — you must take reasonable steps to verify, often via a third-party letter from the investor's CPA, attorney, or a verification service. The subscription package is where that process is documented.
Where sponsors get it wrong
The subscription agreement is the last document before money moves, so mistakes here are costly. The common ones:
- Treating it as a formality — using a generic template instead of one matched to your specific entity, exemption, and terms.
- Skipping real verification on a 506(c) deal — accepting a checkbox where the rule requires reasonable verification steps.
- Inconsistent terms — a subscription amount, price, or minimum that doesn't match the PPM and operating agreement.
- Counting a signed subscription as funded — a signature isn't a wire; track commitments and cleared funds separately.
- Accepting subscriptions before the documents and exemption are properly in place — get the structure done before you collect a dollar.
Have a securities attorney prepare the subscription agreement as part of your offering package. It's the document that turns interest into capital — and the one that, done wrong, can jeopardize the exemption the whole raise depends on.
Frequently asked questions
What is a subscription agreement?
A subscription agreement is the contract an investor signs to commit capital to a private offering. It records how much the investor is purchasing, captures their representations — including accredited-investor status — and acknowledges the risks. The issuer typically reserves the right to accept or reject each subscription. It's the closing document that turns a soft commitment into a binding investment.
What's the difference between a subscription agreement and a PPM?
A PPM (private placement memorandum) discloses the offering's terms and risk factors — it's the sponsor informing the investor. A subscription agreement is the investor committing: it captures the amount invested and the investor's representations. The PPM usually attaches the subscription agreement as an exhibit, and the investor signs the subscription agreement after reviewing the PPM.
What does a subscription agreement include?
It includes the subscription amount and price, the investor's representations (accredited status, investing for their own account, understanding the risks), an accredited-investor questionnaire, an acknowledgment that they've read the PPM, the issuer's acceptance mechanics, and signature and funding instructions. In a 506(c) deal it also documents the basis for verifying accreditation.
Does a subscription agreement verify accredited investor status?
It captures the investor's accreditation representations and questionnaire. In a 506(b) offering, self-certification is generally acceptable. In a 506(c) offering, the sponsor must take reasonable steps to verify accreditation — often a third-party letter from the investor's CPA or attorney, or a verification service — and the subscription package documents that process.
Do I need a lawyer to draft a subscription agreement?
Yes — a securities attorney should prepare it as part of your offering documents, matched to your specific entity, exemption, and terms. A generic template that doesn't align with your PPM and operating agreement, or that skips proper verification on a 506(c) raise, can create inconsistencies and put your exemption at risk. This article is educational and not legal advice.
Keep reading
This article is for educational purposes only and is not legal, investment, tax, or securities advice. Securities offerings are regulated; always work with your securities attorney to structure and run your offering. One Million Media is a marketing and lead-generation provider — not a broker-dealer, investment adviser, or law firm.
