The Subscription Booklet (often just referred to as the “Sub”) is the agreement with the fund your investors will sign when they invest in it.
In what follows, we walk through the main parts of our template Sub and guide you towards the sections that need special attention, so you can get your fund all investor-ready.
Our guide below uses our template Subscription Agreement which you can download and use on an “as is” basis. If you need help you can easily book a call here.
It is clear that, from a legal mechanics point of view, the Sub:
“[…] accompanies and must be read in conjunction with the confidential Statement of Terms of the Fund pertaining to Class A non-voting investor shares of the Fund (as may be amended, supplemented or modified from time to time, the “Memorandum”) and the Fund’s Memorandum and Articles of Association (as may be amended, supplemented or modified from time to time, the “M&As”).”
Further on page 2, the Sub then clearly sets out what needs to be done towards completion.
The signed and completed Sub together with associated forms and other documentation to the fund is then typically emailed to a dedicated email to Managers have created for purposes of subscriptions/redemptions.
Meet the deadline
Importantly, to meet the deadline for investing when the fund opens a subscription window (in our example, at the end of each quarter) the signed Sub together with the funds themselves need to be received by a certain cut-off time to be specified in the Sub:
For an application to be duly processed as of the Initial Closing Date or, thereafter, as of the first Business Day of a Relevant Quarter, the completed Subscription Agreement and associated forms and other documentation, and subscription proceeds, must be received by no later than [to be specified, e.g. 5 p.m. GMT] on the Business Day that is at least 2 Business Days prior to the subscription date (unless otherwise determined by the Fund). A “Relevant Quarter” means each period of 3 months commencing on each [as per Term sheet].
Furthermore:
Subscriptions will be accepted or rejected at the sole and absolute discretion of the Fund. Upon acceptance of the subscription, a copy of the executed Subscription Agreement, signed as accepted on behalf of the Fund, will be returned to the Investor.
As explained earlier, without an appointed fund administrator who, in addition to calculating the fund’s NAV per share also manages the subscription and redemption process, Managers can set their own policies as to whom they want to accept as investors in the fund.
In this light, they will have shared a “KYC Manual” at the time of the notification with the BVI’s Financial Services Commission, which its a document Otonomos provides as part of the fund setup work for its clients.
Fill out the blanks
From page 4 of the Sub onwards, you will start filling out the square brackets with the information related to your fund.
Even though the Sub is structured as an application form on behalf of your investor for shares in the fund and to be “admitted as a investor”, you will probably want to be helpful to your investor and fill the document out on his/her/its behalf, though certain sections, and obviously the signing itself, can only be done by the applicant.
Note that the application is not meant to be used by US-based investors who for a number of reasons (including habit!) will want to see a feeder entity in place (see Part I) with its own investor documentation and sub agreement.
On page 5, your investor will make a series of representations to you that, from a legal mechanics point of view, are quite advantageous to the Managers as they are entitled to rely on these. In other words, if an investor were to misrepresent on any of such representations and warranties, the fund will be able to claim misrepresentation and cannot be held liable (with exceptions) for relying on the investors’ representations, which run all there way through to page 12 in our Sub template.
This page 12 then deals with financial disclose requirements under its heading “FATCA/CRS”, essentially asking the investor to agree that, if and when required, information can be shared with relevant authorities.
The general provisions starting on page 14 through to page 17 are essentially further terms the investor is bound by when signing the Sub.
Sign on the dotted line
Page 18 is titled “Signature page” and you will need to fill out the blanks according to information you have.
The USD amount (assuming that is the currency of denomination of your fund) will be the net USD amount that was sent to your wallet (in case you took crypto) or that hit the fund’s bank account (if done by wire).
As explained earlier, if crypto is used for subscriptions, even in the case of stable coin, you may want to put an exchange rate mechanism in place, using a defined oracle that calculates the exact US dollar value of the stable coin subscription, unless you’re ok to treat USD-linked stable at exact parity with the USD.
You’ll most definitively need this exchange rate calculation, which will typically be specified in the term sheet, if you accept any other crypto than stable.
After specifying the US dollar amount, the application form then asks for the specific name and address details of the investor to be recorded in the fund’s internal ledger, and also needs confirmation as to the legal structure of the investor (individual, corporation, partnership, trust, etc), together with further details for the chosen structure.
Page 19 then has the actual signature fields.
Show me the money
Page 20 asks the investor to specify what bank account or crypto currency wallet they will use to send funds to the fund (and also receive funds form at redemption).
Page 21 lists the countries where the fund is willing to accept fiat wires funds from, which gives Managers the opportunity to exclude certain jurisdictions.
Where the fun starts
Annex B on Page 22 is where the fun really starts. It lists the Know-Your-Customer (KYC) requirements for the specific structure the investor has chosen to use and the corresponding documents that will need to be submitted, always in accordance with the KYC manual that the fund has put in place.
The fun continues in Annex C with the FATCA/CRS declarations your investor will have to make.
What's we recognize few people really like to deal with these lengthy documentation and disclosure requirements, and despite the lighthearted title of this section of our post, it is important to take these Annexes B and C serious: Your fund will suffer if it accepts investors that it should not have accepted, with other investors most likely withdrawing if the fund becomes tainted.
Also, most investors will have some sort of infrastructure around them with internal staff that can help them to meet the documentation and disclosure requirements in Annex B and C. In other words, it would be quite surprising that your investor would not have done this before.
After completion, the investor will be asked to sign on either page 26 or 33, as the case may be.
Annex D deals specifies the rights your investor has (or gives up…) regarding their privacy as an investor in your fund.
You’re in!
Page 38 confirms that your investor has been accepted into the fund. Some of the information is repetitive (bank account and/or digital wallet) but most importantly it confirms that your investor is in.
Exhibit A on page 40 is then used for additional subscriptions by way of a letter to the fund, followed by a separate acceptance signed by the fund itself on pages 42-43.
Finally, page 44 will be used when an investor wants to redeem.
> Download our template Subscription Agreement here:
