The subject shares: Overview, definition, and example
What are the subject shares?
The subject shares refer to a specific set of shares in a company that are being discussed, transferred, or dealt with in a particular transaction, agreement, or legal matter. These shares are the focus of the transaction, meaning they are the shares being bought, sold, transferred, pledged, or otherwise acted upon as part of a deal.
For example, in a stock purchase agreement, the term "subject shares" refers to the actual shares that are being transferred from the seller to the buyer. The term is often used in legal contracts to clarify which shares are being referred to, especially when there are multiple classes of shares in the company or when some shares are subject to special conditions.
Why are the subject shares important?
The concept of the subject shares is important because it clearly identifies the specific shares involved in a transaction or legal matter, which helps avoid confusion and ensures accuracy in the agreement. By specifying the subject shares, both parties to the transaction can know exactly which shares are being transferred, sold, or encumbered.
In corporate law, this term is frequently used to distinguish the shares being dealt with from other shares that may be part of the same company but are not part of the transaction. For example, if a company has different classes of shares, such as common and preferred shares, the subject shares will specify which class of shares is involved in the agreement.
Understanding the subject shares through an example
Imagine a company, XYZ Corp., is selling 10,000 shares of its stock to an investor as part of a private equity deal. The agreement specifies that the "subject shares" are 10,000 common shares of XYZ Corp., which are being sold at $10 per share. In this case, the term subject shares refers specifically to the 10,000 common shares being transferred, as opposed to any other shares the company may have, such as preferred shares.
In another example, a shareholder agreement may include provisions regarding the "subject shares" being pledged as collateral for a loan. These shares are identified and specified in the contract as the shares that will be used to secure the loan, and not any other shares the shareholder might own in the company.
Example of subject shares clause
Here’s how a subject shares clause might appear in a stock purchase agreement or shareholder contract:
“The Seller agrees to transfer and the Buyer agrees to purchase 5,000 shares of common stock in XYZ Corp. (the ‘Subject Shares’) at a purchase price of $15 per share, subject to the terms and conditions set forth in this Agreement.”
Conclusion
The subject shares are the specific shares that are being transferred, sold, pledged, or dealt with in a legal transaction or agreement. This term is crucial for distinguishing the shares involved in the transaction from others in the company, especially when dealing with different classes of shares or special terms related to the shares.
By clearly identifying the subject shares in legal documents, parties to the transaction can avoid confusion, ensure that the right shares are transferred, and establish clarity regarding ownership and rights related to the shares in question. Understanding the concept of subject shares is essential for anyone involved in stock transactions, corporate agreements, or shareholder matters.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.