If you are in one of these warehouses, you have the opportunity to raise funds through convertible loan notes (CLNs), which are debt securities that can be converted into shares in the future. Or you can take the ASA route, which means you`ll receive subscription money for the shares in advance, but your business would be valued and the shares issued in the next round of financing. In other words, under an ASA, an investor agrees to buy shares of your company (i.e., provides you with equity), but you do not issue the shares immediately. In addition, an extended subscription contract may be preferable for an investor because shares issued under an early subscription contract are usually issued at a discount. Unlike a convertible bond, however, provided that the early subscription agreement is properly structured, the investor can still benefit from SEIS/EIS when the shares are issued. To prove a concept, start trading, or fill a funding gap, some companies raise funds through convertible bonds or advanced subscription contracts (ASAs) rather than going straight into an equity financing round (i.e., issuing shares in exchange for funds). Emer Hughes is a Senior Partner in the Corporate and Commercial team. She works on a wide range of corporate and commercial transactions, including advising on commercial agreements and shareholder agreements, corporate governance, corporate restructuring, asset and equity acquisitions, venture capital investments and junior stock listings. Previously, HMRC had limited the long-term shutdown date to a maximum of 12 months after the ASA agreement – if it was to be used for SEIS or EIS investment purposes.
Since then, however, new updates have been released starting in February 2020. An extended subscription contract is an investment in shares where the investor pays in advance for shares that will be allocated at a later date. Shares are typically issued at a discount to the price per share in the next round of funding, provided the startup meets an agreed funding target for that round (commonly referred to as the „Qualifying Round“). If such goals are not achieved, there is a long shutdown period (which should not exceed one year), when the investment is automatically converted and the shares are issued. We have contacted HMRC to clarify whether this applies to ASAs and SeedFAST manufactured before this date or only those after their policy has changed and they have confirmed that ASAs executed before 30 December 2019 will be assessed in accordance with HMRC`s previous guidelines, but the new 6-month maximum deadline policy applies to agreements signed after that date. The ASA is an agreement that, although the cossion funds are paid at the beginning, the shares related to the investment will be calculated and issued at a certain point in the future (e.g. B in the case of a future equity-financed financing round, a sale of the company or an agreed long-term date). The extended shutdown date should not exceed 6 months from the date of the pre-subscription contract. In addition, the existence of ongoing advanced underwriting agreements may deter future investors in subsequent funding rounds, as ASA holders receive shares at a discount and therefore a higher percentage of advanced funds than new investors. The guidelines also stipulate that any application for advance insurance for the shares to be issued must be made prior to the conclusion of the ASA. A: Investing in a company through an Advanced Subscription Agreement (ASA) is a pure capital agreement. Investors are expected to prepay the shares awarded in a subsequent funding round at a discount to the valuation before money under the advanced subscription agreement.
Unlike a convertible loan note (CLN), funds invested through an ASA cannot be repaid in cash. As such, an ASA is equity, while a CLN can technically be both. This pre-subscription agreement is intended only for investors domiciled in England, Wales or Scotland. This is due to the complexity of foreign-based investors (e.g.B complex tax implications). If an investor is based abroad, you may need to seek expert advice or the help of a specialized lawyer. You can create a SeedFAST agreement on SeedLegals in less than 10 minutes. SeedFAST agreements are designed to be quick and easy, so that anyone can create their agreement at any time. But be sure to check the questions and tutorials carefully and click the chat button for any questions – we`re here to help. Our team of legal and financial experts will review your agreement as soon as it is ready to be signed by your investors. Log in to create a SeedFAST.
For more answers to frequently asked questions and advice on extended underwriting contracts, equity financing and EIS/SEIS systems, please contact our corporate lawyers. Contact us on 0800 689 1700, send us an e-mail to firstname.lastname@example.org or fill out the short form below with your request. In particular, HMRC highlights the specific characteristics that an ASA must have to be adapted to EIS or SEIS relief and confirms that it considers an ASA to be suitable for EIS or SEIS only if the agreement: A pre-signature agreement (or ASA) is an agreement under which investors invest in a company. This is a form of equity investment rather than a debt investment, as the money invested cannot be repaid to the investor in cash. For ASA investors, funds that are advanced under an advanced underwriting contract, unlike financing under a CLN, may be eligible for tax relief under the EIS and SEIS systems. .