Subscription Agreement

A subscription agreement is the contract between a limited partner and a fund through which the LP commits capital, makes legally binding representations and warranties regarding its eligibility to invest, and is admitted as a limited partner in the fund. It is the foundational document formalising the LP's participation and is executed at or before each fund closing.

How it works

The subscription agreement is completed by each prospective LP before it is admitted to the fund. It typically includes: the LP's commitment amount; representations regarding the LP's status as an eligible investor (professional investor under AIFMD, well-informed investor under SICAR or QIAIF rules, qualified purchaser or accredited investor under US securities law, or the applicable local standard); KYC/AML information and source of funds declarations; data protection consents; tax representations (FATCA and CRS classification, W-8BEN or W-9 forms for US tax purposes); and the LP's designated bank account details for capital calls and distributions.

Once the GP reviews and accepts the subscription (which may be conditional on satisfactory KYC clearance), the LP is admitted to the fund at closing. The subscription agreement is the transfer agency's primary source document: the LP's registered name, bank account details, address, tax classification, and commitment amount are extracted from the subscription and entered into the fund's investor register. Any errors at this stage propagate through all subsequent capital call and distribution processing.

Subscription agreements are fund-specific documents drafted by the GP's lawyers. They incorporate by reference the LPA and offering memorandum (or placement memorandum) and are governed by the law of the fund's jurisdiction. For funds with multiple sub-funds (Luxembourg SIF or RAIF umbrella structures, ICAV umbrellas), an LP typically signs a single subscription agreement covering all sub-funds in which it participates, with an annex specifying sub-fund-specific allocations.

Changes to an LP's bank account details after admission require a separate bank account change process governed by the fund's transfer agency procedures, not a new subscription agreement. The subscription agreement itself does not need to be amended for bank account changes; however, the fund administrator's bank detail change controls (including verification of the new account and confirmation of the instruction through an out-of-band channel) apply independently.

Worked example

Nordic Pension Fund AB (a Swedish institutional investor) commits EUR 50M to Bridgestone Private Credit Fund II, a Luxembourg RAIF structured as an SCSp. It receives a subscription package consisting of the subscription agreement, the private placement memorandum, the LPA, and supplemental investor questionnaires.

Nordic Pension Fund completes: the subscription agreement (commitment EUR 50M; investor classification: professional investor under AIFMD; FATCA status: non-US financial institution, providing a W-8BEN-E form; CRS status: reportable financial institution in Sweden); a KYC questionnaire and supporting documents (certificate of incorporation, register of beneficial owners, board resolution authorising the investment); and account designation forms (specifying the designated EUR bank account for capital calls and distributions).

The fund's transfer agent receives the completed package, runs the KYC documents against its verification process, and forwards the package to the GP for investment committee sign-off. Once accepted, Nordic Pension Fund is admitted to the fund at first close. Its EUR 50M commitment, bank account details, and tax classification are entered into the investor register. The subscription agreement is filed in the fund's corporate records and is referenced in all subsequent capital account statements and distribution notices issued to Nordic Pension Fund.

Frequently asked questions

What happens if an LP makes an error in its subscription agreement? Minor errors (incorrect bank account details, incomplete tax forms, missing supporting documents) are typically resolved through correspondence between the LP and the fund's transfer agent before the LP is admitted. Material errors in representations (for example, incorrect FATCA classification) may require the subscription to be resubmitted with corrected information. The transfer agent maintains a deficiency log tracking outstanding corrections for each LP during the subscription process.

Can an LP change its commitment after signing a subscription agreement? Commitment amounts are generally fixed at signing and cannot be reduced unilaterally. An LP may request a reduction before the GP accepts the subscription (i.e. before the relevant closing); once admitted, the commitment is binding. Some LPAs include provisions allowing increases in LP commitments before the final close, subject to the hard cap. Commitment reductions after admission require GP consent, which is rarely granted except in exceptional circumstances.

What is the difference between a subscription agreement and a side letter? The subscription agreement establishes the LP's basic terms of participation (commitment, representations, bank account, tax status). A side letter is a separate bilateral agreement between the LP and the GP that modifies or supplements certain terms of the LPA in ways specific to that LP (such as most-favoured-nation clauses, co-investment rights, reduced management fees, or additional reporting rights). Side letters are confidential between the LP and GP; the existence of side letters is typically disclosed to all LPs (as a representation in the subscription agreement) but their content is not.

Is the subscription agreement the same as the LPA? No. The LPA is the governing document for the fund as a whole, establishing the rights and obligations of all LPs and the GP collectively. The subscription agreement is an individual contract between the GP and a specific LP through which that LP joins the fund and agrees to be bound by the LPA. The LPA is typically incorporated by reference into the subscription agreement, so by signing the subscription, the LP accepts the LPA terms.

Related terms

Commitment, LPA, Side letter, Transfer agency, AIFMD and capital calls, IBAN verification, Capital account

Related pages

LP onboarding and subscription processing in fund administration, Swelv for fund administrators