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Subscription Agreement

A Subscription Agreement, within the Qualified Opportunity Fund (QOF) industry, is a legal document that outlines the terms and conditions under which an investor commits to invest capital into the fund. The Qualified Opportunity Fund industry, established under the Tax Cuts and Jobs Act of 2017 in the U.S., is designed to incentivize private investment in designated Opportunity Zones (OZ) with the aim of spurring economic growth and job creation in distressed communities.

  1. Purpose: The Subscription Agreement serves as a formal contract between the QOF and the investor. It stipulates the amount of money the investor intends to commit, details on the transfer of funds, the issuance of interests or shares in the QOF in exchange for the investment, and other pertinent terms.
  2. Investor Representations: Often, the agreement will include representations and warranties from the investor. These can include confirmations that the investor meets certain eligibility criteria, has the financial capacity to make the investment, and understands the associated risks.
  3. Terms & Conditions: The agreement will lay out the terms of the investment, including details about capital calls (requests for the investor’s committed funds), timelines for investment, fund management fees, and terms of distribution of profits, among others.
  4. Qualified Opportunity Fund Requirements: Given the unique nature of QOFs and the tax benefits they offer, the Subscription Agreement may also outline specific conditions related to maintaining eligibility for these benefits. For instance, the document might stipulate that the fund will invest a certain percentage of its assets in Qualified Opportunity Zone Property within a set timeframe.
  5. Termination and Redemption: Terms related to how and when an investor might exit or redeem their investment from the fund, and any penalties or conditions associated with early withdrawal, might also be specified.
  6. Miscellaneous Provisions: As with many contracts, there will also be miscellaneous provisions related to governing law, dispute resolution, confidentiality, and other standard legal and contractual terms.

The Subscription Agreement is crucial in protecting both the investor and the fund. Investors get clarity on their investment terms, while the fund ensures it’s raising capital in compliance with legal regulations and its own internal stipulations.