What is an "ASA" (Advance Subscription Agreement)?

ASAs (advance subscription agreements) are becoming more and more popular these days as a way to quickly bring in funding. They can be useful as they allow a company to receive investment in “advance” of any equity being issued, with the idea broadly being that the actual issue of equity (i.e. shares) only occurs when the company completes a substantial investment round at a later date, or after an agreed longstop date (usually 6-12 months from signing) if no investment has occurred prior to then.

The following are some typical characteristics of an ASA:

• Enables a company to receive funds from an investor on signing, but with the actual issue of shares deferred until a later date.
• Funds provided are not repayable in any circumstances and are not debt instruments. If your investors are asking for their funds to potentially be repaid to them in certain circumstances then you are dealing with something which is not an ASA (e.g. a convertible loan).
• Shares are issued on the earlier to occur of a) an investment round, b) a “longstop date”, c) a sale of the company, or d) an insolvency event.
• To reward investors for being on risk and (often) for investing at an early stage, the shares issued under an ASA can be offered at a discount to the price paid by other investors. For example, we often see ASA shares being issued at a 20% discount to the price paid by investors at the next investment round.

ASA are often viewed as an easy way to avoid difficult questions around valuation at too early a stage. However, in practice we would say that this is not really the case, as many ASAs will include an agreed “ceiling” – being an agreed valuation of the company which would be used to set the maximum price an ASA investor may have to pay on the next investment round, or used to determine the price at which the shares would be issued if there is no investment round (e.g. on the longstop date). So realistically you will still need to consider the company’s valuation and agree a suitable figure.

It is possible that an investment made via an ASA could qualify for SEIS/EIS relief (see our FAQs on these reliefs for more detail). However, HMRC have issued guidance on ASA which sets out some of their expectations for any ASAs looking to benefit from SEIS/EIS relief – these include, for example, a requirement that the longstop date is no longer than 6 months. If SEIS/EIS relief is important to you and your investors we would recommend that you speak to your lawyers / tax advisors before using an ASA, and you may want to consider applying for “advance assurance” (see “Do I need “advance assurance” for SEIS / EIS?”).

We have provided an example of an ASA here. This template was prepared to be EIS-friendly at the time of drafting, but note that eligibility cannot be guaranteed and advance assurance may be sensible for any agreements which require SEIS/EIS qualification.

We have more FAQs covering a range of topics to help your business available here.