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Private Equity Subscription Agreement for Hong Kong

Private Equity Subscription Agreement Template for Hong Kong

A comprehensive legal agreement governed by Hong Kong law that documents the terms and conditions under which a private equity investor subscribes for shares in a target company. The agreement sets out the subscription price, number of shares, conditions precedent, representations and warranties, and various rights granted to the investor. It incorporates Hong Kong regulatory requirements, including compliance with the Companies Ordinance and Securities and Futures Ordinance, while establishing the framework for the investment relationship, including governance rights, information rights, and exit provisions.

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What is a Private Equity Subscription Agreement?

The Private Equity Subscription Agreement is a fundamental document used in Hong Kong private equity transactions to formalize the investment of funds into a target company through the subscription of newly issued shares. This document is essential when a company seeks to raise capital from private equity investors while ensuring compliance with Hong Kong's regulatory framework, particularly the Companies Ordinance (Cap. 622) and Securities and Futures Ordinance (Cap. 571). It typically includes detailed provisions on valuation, investment terms, investor protections, governance rights, and exit mechanisms. The agreement serves as the primary transaction document that protects both the investor's interests and the company's operational flexibility, while establishing clear parameters for the ongoing relationship between shareholders.

What sections should be included in a Private Equity Subscription Agreement?

1. Parties: Identification of the Company, Investor(s), and any other relevant parties to the agreement

2. Background: Context of the transaction, including company's business and purpose of investment

3. Definitions and Interpretation: Key terms used throughout the agreement and rules of interpretation

4. Subscription and Payment Terms: Details of shares being subscribed for, subscription price, and payment mechanisms

5. Conditions Precedent: Conditions that must be satisfied before completion of the subscription

6. Completion: Timing, location, and actions required at completion of the subscription

7. Company's Representations and Warranties: Company's statements of fact and assurances about its business, assets, and liabilities

8. Investor's Representations and Warranties: Investor's statements regarding capacity, authority, and investment intent

9. Pre-Completion Covenants: Obligations of parties between signing and completion

10. Post-Completion Covenants: Ongoing obligations after completion

11. Information Rights: Investor's rights to receive financial and other company information

12. Reserved Matters: Decisions requiring investor consent

13. Confidentiality: Obligations regarding confidential information

14. Announcements: Requirements for public statements about the investment

15. Notices: Process for formal communications between parties

16. General Provisions: Standard boilerplate clauses including governing law, jurisdiction, etc.

What sections are optional to include in a Private Equity Subscription Agreement?

1. Tag-Along Rights: Used when investors require the right to join in sales by other shareholders

2. Drag-Along Rights: Used when majority shareholders want the right to force minorities to join in a sale

3. Anti-Dilution Protection: Include when investors require protection against future down rounds

4. Board Representation: Used when investor requires right to appoint board members

5. Dividend Rights: Include when specific dividend rights are being granted

6. Liquidation Preference: Used when investors require preferential rights in liquidation

7. Pre-emptive Rights: Include when investors require rights to participate in future fundraising

8. Share Transfer Restrictions: Used when specific restrictions on share transfers are required

9. Exit Rights: Include when specific provisions regarding IPO or trade sale are needed

10. Most Favored Nation Clause: Used when investors require protection against better terms being offered to future investors

What schedules should be included in a Private Equity Subscription Agreement?

1. Schedule 1 - Company Information: Details of company's share capital, directors, and corporate information

2. Schedule 2 - Subscription Details: Detailed breakdown of shares being subscribed for and payment terms

3. Schedule 3 - Conditions Precedent: Detailed list of all conditions to be satisfied before completion

4. Schedule 4 - Completion Requirements: Detailed list of documents and actions required at completion

5. Schedule 5 - Company Warranties: Full list of company warranties and representations

6. Schedule 6 - Disclosure Letter: Company's disclosures against the warranties

7. Schedule 7 - Reserved Matters: Detailed list of matters requiring investor consent

8. Schedule 8 - Form of Board Resolution: Template board resolution approving the subscription

9. Schedule 9 - Key Performance Indicators: Metrics for monitoring company performance

10. Appendix A - Articles of Association: New/amended articles reflecting investor rights

11. Appendix B - Shareholders' Agreement: Form of shareholders' agreement if required

Authors

Alex Denne

Head of Growth (Open Source Law) @ Ƶ | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents

Jurisdiction

Hong Kong

Publisher

Ƶ

Document Type

Contract to Sell

Cost

Free to use

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