Subscription Agreements and Investor Questionnaires
A subscription agreement is the contract in which an investor commits capital to a fund and makes statements the sponsor relies on to confirm the investor qualifies and understands the risks. It travels with an investor questionnaire covering accredited investor or qualified purchaser status, tax forms, bad actor and anti-money laundering information. A thorough package protects the sponsor's exemption and documents the basis on which each investor was admitted.
What the package usually includes
- Subscription agreement. The commitment amount, representations, acknowledgments and agreement to be bound by the fund documents.
- Investor questionnaire. Accredited investor, qualified purchaser and sophistication information.
- Tax forms. Form W-9 for U.S. persons or the appropriate W-8 for foreign investors.
- Anti-money laundering and identity forms. Information the fund or administrator needs to verify who is investing.
- Wire and contact information. Details for funding and communications.
- Signature pages. Counterparts to the operating or partnership agreement.
Key investor representations
| Representation | Why the sponsor needs it |
|---|---|
| Accredited investor status | Supports the Regulation D exemption |
| Investing for own account, not for resale | Supports restrictions on transfers |
| Received and read the PPM and had a chance to ask questions | Supports disclosure defenses |
| Understands the illiquidity and risk of loss | Shows informed consent |
| Not a bad actor | Supports the Rule 506(d) analysis if the investor is a covered person |
| Source of funds is lawful | Supports anti-money laundering compliance |
Verifying status
In a 506(b) offering, an investor can generally self-certify as accredited, but the sponsor should not ignore red flags. In a 506(c) offering, the sponsor must take reasonable steps to verify. See verifying accredited investor status under 506(c). For a 3(c)(7) fund, the questionnaire should also cover qualified purchaser status.
Handling the paperwork
- Use electronic signature and an administrator if the fund has many investors.
- Do not accept money until the documents are complete and the sponsor has accepted the subscription.
- Protect investors' personal data and avoid emailing sensitive information in the clear.
- Keep each package in the fund's records for the period the rules require.
Working with other documents
The subscription agreement refers to the PPM and governing agreement and should be consistent with them. Side letters are signed alongside, if any. See what a PPM contains and side letters.
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Book Free ConsultationFrequently asked questions
Can an investor sign electronically?
Yes, in most cases, using a platform that records the signature and timestamp.
What if an investor does not qualify as accredited?
Under 506(b) a limited number of sophisticated non-accredited investors may be allowed with extra disclosure. Many sponsors decline them.
Do I need a subscription agreement for a small raise?
Yes. It documents the commitment and the investor's qualifications regardless of size.
Who keeps the signed documents?
The sponsor or the fund administrator, as part of the fund's permanent records.