What is the Difference Between a Subscription Agreement and a Share Purchase Agreement?

The difference between a share subscription agreement vs share purchase agreement comes down to one question: where do the shares come from? A share subscription agreement is used when a company issues brand new shares to an investor, and the money goes into the company. A share purchase agreement (also called a share sale agreement) is used when an existing shareholder sells shares they already own, and the money goes to that shareholder.

Most founders use the two terms interchangeably. That works fine right up until an investor’s $50,000 lands in a co-founder’s personal account instead of the business account, and everyone realises they signed the wrong document. The good news? Once you know which way the money flows, choosing the right agreement takes about thirty seconds.

What is the difference between a share subscription agreement and a share purchase agreement?

Think of it as primary versus secondary. A subscription is a primary transaction: the company creates shares that didn’t exist yesterday. A purchase is a secondary transaction: shares that already exist move from one owner to another.

Here’s how the two stack up side by side.

	Share subscription agreement	Share purchase agreement
Who sells the shares?	The company	An existing shareholder
Where does the money go?	Into the company’s bank account	To the selling shareholder
Are new shares created?	Yes	No
Effect on other shareholders	Everyone else is diluted	Only the seller’s holding changes
Company approvals	Directors’ resolution, plus anything your constitution or shareholders agreement requires	Directors must register the transfer, and pre-emptive rights may apply
ASIC notification	Share issue within 28 days	Member changes within 28 days (proprietary companies)
Main tax issue	Usually none for the company on a cash issue	Possible capital gains tax for the seller
Main risk for the investor	Will the company use the money well?	Is the company carrying problems the seller hasn’t mentioned?
Common use	Seed rounds, angel investment, bringing in a funded partner	Co-founder exits, buyouts, selling the business

You’ll sometimes see these called a stock subscription agreement and a stock purchase agreement. That’s American terminology for the same two documents. In Australia, we issue and transfer shares, not stock, but the mechanics are identical.

How does a share subscription agreement work?

The investor (the “subscriber”) agrees to pay a set price. In return, the company agrees to issue a set number of new shares. Once the money clears and the shares are issued, the subscriber is a shareholder in the company. That’s it.

One correction worth making, because older guides (including an earlier version of this one) got it wrong: a subscription agreement doesn’t make the investor a partner in a partnership. Partnerships don’t have shares. If shares are changing hands, you’re dealing with a company, and the investor becomes a shareholder.

What a subscription agreement should cover

• The share details: class, number, price per share and the total subscription amount.
• Payment timing. Some deals pay in full at completion. Others pay in instalments (“tranches”) tied to milestones, with shares issued as each payment lands.
• Conditions precedent. These are things that must happen before completion, like a board resolution or the investor signing up to your shareholders agreement.
• Warranties from the company about its share capital, its authority to issue shares and its legal position. Investors also give warranties, for example that they qualify for a disclosure exemption.
• Completion steps: who does what on the day, from transferring funds to updating the share register and issuing a share certificate.

Tranches deserve a second look. They sound tidy on paper. In practice, they’re where deals get messy, because nobody wrote down what happens if the second payment never arrives. Spell it out: does the investor keep the shares already issued, and can you go and find someone else for the rest?

If you’re issuing new shares, Lawpath’s share subscription agreement template covers these core terms and walks you through each one.

How does a share purchase agreement work?

A share purchase agreement records the sale of shares that already exist. The seller might be a founder leaving the business, an early investor cashing out, or every shareholder selling the whole company. The buyer might be a stranger or someone already on the register.

Here’s the bit people forget. The company isn’t a party to the deal in the same way, and it doesn’t get a cent. If your business needs cash, a share sale won’t give it any.

What a share purchase agreement should cover

• Which shares are being sold, including their class and the rights attached to them.
• The price and how it’s worked out, including any adjustment if the company’s finances look different at completion.
• Conditions precedent, such as the buyer finishing due diligence or other shareholders waiving their pre-emptive rights.
• Seller warranties about the company’s assets, debts, contracts, tax position and any disputes.
• Restraints that stop the seller setting up a competing business straight after the sale.

Why buyers fight hard over warranties

When you buy shares, you buy the company exactly as it is. Unpaid tax, a brewing employee claim, a supplier contract with a nasty termination fee: all of it comes with the shares. Warranties are the buyer’s main protection, because they give the buyer a claim against the seller if something turns out to be untrue.

Sellers, expect pushback. If you’re selling, cap your liability with a maximum claim amount and a time limit. Buyers, don’t accept “the company is in good standing” as a warranty. Ask for specifics.

For a simple sale between two people, a share sale agreement does the job. Where there’s more than one seller, or you need the other shareholders to stand behind warranties about the company, use the long-form share sale agreement instead. Our guide to share sale agreements covers negotiation in more depth.

What happens to your cap table? A worked example

Numbers make this click. Say Priya and Tom each own 50 shares in their company, 100 shares in total. An investor wants to put in $50,000 at $2,000 per share.

Option A: subscription. The company issues 25 new shares to the investor. There are now 125 shares. Priya and Tom each hold 40%, the investor holds 20%, and the company has $50,000 to spend on growth.

Option B: purchase. Tom sells 25 of his shares to the investor. There are still 100 shares. Priya holds 50%, Tom holds 25%, and the investor holds 25%. Tom has $50,000 in his pocket. The company has nothing new.

Same cheque. Very different outcomes. In Option B, Priya keeps her full 50% and Tom has quietly halved his stake, which might be exactly what everyone wants or might start a very awkward board meeting. The investor’s percentage also differs (20% versus 25%) for the same money, because no new shares were created to soak it up.

Which agreement do you actually need?

Ask yourself who should end up with the money. Then match it up:

• Raising money to grow the business? Use a share subscription agreement.
• Bringing in a new “partner” who’s putting cash in? That’s a subscription, plus a shareholders agreement.
• Buying out a co-founder who wants to leave? Use a share purchase agreement.
• Selling 100% of your company? Use a share purchase agreement, almost certainly the long-form version.
• Giving a key hire or adviser shares for their work? Neither on its own. Speak to a lawyer about a share issue with vesting conditions.

Then there’s the mixed deal. A growing number of rounds include both: the company issues new shares to raise money, and an early investor or departing founder sells some existing shares to the new investor at the same time. You need both documents here, and they should complete together. Get the order wrong and the percentages in each agreement stop matching.

Subscription agreement vs shareholders agreement: what’s the difference?

A subscription agreement is a one-off deal document. Once the shares are issued and paid for, its job is done. A shareholders agreement is the rulebook for everyone who owns shares, and it lasts as long as the company does.

The shareholders agreement answers the questions that cause the real fights. Who sits on the board? Which decisions need everyone’s sign-off? What happens if a founder leaves, dies or stops pulling their weight? Can someone sell to an outsider without offering their shares to the rest of you first?

In most raises, the subscription agreement makes signing the shareholders agreement a condition of completion. If you already have one, the new investor signs a deed of accession to join it. If you don’t, this is the moment to put a shareholders agreement in place. It’s far easier to agree the rules while everyone is excited about the deal than after the first disagreement.

What legal and tax rules apply in Australia?

Your constitution and the Corporations Act

Share issues and transfers in a Pty Ltd company are governed by the Corporations Act 2001 (Cth) and your own constitution. Check your constitution before you sign anything. Many private companies are bound by pre-emptive rights, which means existing shareholders get first dibs on new shares, or on shares a fellow shareholder wants to sell. Directors of a private company may also have power to refuse to register a share transfer.

Disclosure rules for raising money

Offering shares to investors normally needs a disclosure document such as a prospectus. Most small raises rely on exemptions instead. The best known is the small-scale offering exemption: personal offers that result in no more than 20 investors and $2 million raised in any rolling 12-month period.

Here’s the surprise for many founders. That 20-investor limit applies to sales of existing shares as well as new issues. Sophisticated and professional investors sit outside the count, so it pays to know which category each investor falls into before you start making offers.

ASIC notifications after completion

For a subscription, the company must tell ASIC about the share issue within 28 days, including the updated share structure. For a transfer in a proprietary company, ASIC needs the change to the register of members within the same 28-day window. Late lodgement means late fees. Diary it on the day you complete.

Before you issue anything, the directors need to approve it. A directors’ resolution to issue shares records that approval, and our step-by-step guide on how to issue shares in a private company covers the paperwork that follows.

Tax: capital gains and stamp duty

On a share sale, the seller may make a capital gain. Under the current rules, individuals and trusts who’ve held their shares for more than 12 months can claim the 50% CGT discount. That changes soon. Parliament has passed laws replacing the discount with cost base indexation and a 30% minimum tax on capital gains, with the new CGT rules applying to gains that accrue from 1 July 2027. The small business CGT concessions remain.

If you’re planning to sell shares in the next couple of years, talk to your accountant now about timing. The split between gains before and after 1 July 2027 will matter, and you’ll likely need a valuation as at that date.

A company issuing new shares for cash doesn’t make a capital gain from the issue itself. The money is share capital, not income.

Stamp duty is simpler than it used to be. No Australian state or territory charges general duty on transfers of shares in a private company anymore. The exception is landholder duty. If the company owns land (and in some states, certain leases and fixtures) above the state threshold, a share purchase can trigger duty as though the buyer bought the land directly. In NSW and Queensland, that threshold is $2 million.

What we see in Lawpath consultations

Our lawyers field share deal questions every week. A few patterns come up again and again.

The “partnership agreement” that isn’t one. Business owners regularly ask us for a partnership agreement because a new “partner” is joining with an investment. When we dig in, the business is a company, the new person is putting in cash for shares, and there’s no shareholders agreement at all. What they actually need is a subscription agreement and a shareholders agreement. Calling it a partnership is fine over coffee. On paper, it creates confusion about who owns what.

Cash and sweat equity jammed into one document. Early-stage founders often describe a deal where investors put in some cash, take some shares for advice, and promise more money “at launch”. By the time we add it up, the percentages don’t reconcile, and there’s no term sheet. Sort out the cap table first. Then document cash-for-shares in a subscription agreement, and shares-for-services separately, with vesting.

50/50 co-founder exits with no rulebook. A common request is a simple share sale where one of two equal shareholders is buying the other out. More often than expected, there’s no shareholders agreement and nothing in the constitution about how to value the departing founder’s shares. The deal still happens, but every term has to be negotiated from scratch, under pressure.

Treating the agreement as the whole job. Founders tend to see the agreement as the finish line. It’s closer to the halfway mark. Resolutions, the share register, share certificates and the ASIC notification all follow, and missing them is what trips people up in their next raise when an investor’s lawyer asks for the paper trail.

Common mistakes to avoid

• Using a share sale agreement when the company needs the money. The cash goes to the wrong person, and fixing it later means unwinding the deal.
• Ignoring pre-emptive rights. If your constitution or shareholders agreement gives existing shareholders first right of refusal, skipping it can make the deal open to challenge.
• Forgetting dilution. Founders agree to “give up 20%” without checking how that sits alongside earlier promises to advisers or employees.
• Advertising the raise. Small-scale offers must be personal. A public social media post inviting investment can take you outside the exemption.
• Missing the 28-day ASIC deadline. It’s a small fee, but it signals messy records to the next investor.

How to complete each deal, step by step

For a share subscription:

1. Agree the valuation, the amount and the share class, ideally in a short term sheet.
2. Check your constitution and any shareholders agreement for approvals and pre-emptive rights.
3. Sign the subscription agreement and pass a directors’ resolution to issue the shares.
4. Receive the funds, issue the shares, update the register and issue a share certificate.
5. Notify ASIC within 28 days.

For a share purchase:

1. Agree the price and do your due diligence on the company.
2. Offer the shares to existing shareholders first if pre-emptive rights apply, or get written waivers.
3. Sign the share purchase agreement and a share transfer form.
4. The directors approve and register the transfer, then update the register and certificates.
5. Notify ASIC of the change in members within 28 days, and check for landholder duty.

Frequently asked questions

Is a share subscription agreement the same as a share purchase agreement?

No. A share subscription agreement is for new shares issued by the company, with the money going to the company. A share purchase agreement is for existing shares sold by a shareholder, with the money going to that shareholder.

Who gets the money in a share subscription?

The company does. That’s the whole point of a subscription: it brings new capital into the business. Existing shareholders don’t receive anything directly, but their shares may be worth more if the money is used well.

Does a share subscription dilute existing shareholders?

Yes. Every new share issued reduces everyone else’s percentage. If you own 50 of 100 shares and the company issues 25 more, you now own 40%. A share purchase doesn’t dilute anyone except the seller.

What is the difference between a subscription agreement and a shareholders agreement?

A subscription agreement covers one deal: buying new shares. A shareholders agreement sets the ongoing rules between all shareholders, such as decision-making, exits and share transfers. Most investors sign both.

Is a share sale agreement the same as a share purchase agreement?

Yes. Share sale agreement, share purchase agreement and share transfer agreement all describe the same thing: a contract for an existing shareholder to sell shares to a buyer. The name changes depending on whose side you’re on.

Do I pay stamp duty when I buy shares in a private company?

Not in most cases. Australian states no longer charge general duty on private company share transfers. Landholder duty can still apply if the company owns land above the state threshold, which is $2 million in NSW and Queensland.

Do I need to tell ASIC when shares are issued or sold?

Yes. A company must notify ASIC of a share issue within 28 days. A proprietary company must also notify ASIC of changes to its members, including a share transfer, within 28 days.

Can I use a SAFE or convertible note instead?

You can, if you’re not ready to agree a valuation. These instruments convert into shares later, at which point a share issue happens. Read our comparison of a SAFE vs a convertible note to see which fits your raise.

Ready to get your share deal sorted?

If you’ve been putting this off because the terminology felt like a wall, that’s completely normal. You now know the one question that decides everything: who should end up with the money? Answer that, and the right document picks itself.

Bringing in an investor? Start your share subscription agreement today, and get the deal on paper before the excitement wears off.