Unlike other forms of investment which often have a debt element, an investment via an Advanced Subscription Agreement (ASA) is a purely equity investment. An investor will invest money into a company after entering into an ASA, however will not receive any shares in the company until specific events occur as set out within the agreement. Although a little riskier than a standard investment agreement whereby shares are allotted on completion, investment via an ASA does have its perks. Greenaway Scott takes a look at how ASA's work and the advantages of these compared to investing in the "traditional" sense.
An ASA operates so that the shares which an investor had pre-paid for are issued when a certain event as specified in the ASA occurs. This will usually be the completion of a subsequent investment into the company at which point the shares which the investor has pre-paid for will be allocated at a discounted rate which will be specified in the agreement. There will also be a long stop date in the agreement in which should the company not receive investment by that date, the shares will be allotted at "the Long Stop Price" which will be a set price agreed between the parties before completion of the ASA. However this will be more than the price that the investor would have got had the company received investment. The last "event" at which the shares will be allotted will be insolvency. The shares here can also be allotted at the "Long Stop Price".
So what are the advantages? Using an ASA is often quicker than doing an equity priced round, this is mainly because there are fewer documents involved which means less drafting and negotiation time. This can be important to your company as it can have a significant difference on when the money coming from the investment is going to hit the company account. In addition to this, the fewer documents and standardisation of these document means that it is usually less expensive to use an ASA. On top of this, by going down the route of an ASA the question of company valuation is delayed until the next investment round, however care should be taken with regards to including a cap for this valuation.
Whilst an ASA might seem like a more advantageous option for a company, for an investor it could seem too risky. An investor might want to become a shareholder of the company on the handover of the investment monies rather than later on down the line, even if the delay does mean a lower buy in price. Lastly, investors may have their own preferences for one structure of investing over another because of the familiarity with a particular type of investment or because of their own specific circumstances, such as tax treatment meaning that whether to use a ASA will be at the discretion of the investor rather than the company.
The information contained in this article is for information purposes only and is not intended to constitute legal advice. If you require further information our property team would be more than happy to assist you. Please contact us at firstname.lastname@example.org or call us on 029 2009 5500 to speak to one of our team.