A major step for investors who want to get involved with a private equity or hedge fund – including funds dealing with renewable energy and other impact investment funds – is completing the necessary subscription documentation. This can involve some fairly voluminous and complicated paperwork, the purpose of which is essentially to document that you understand what you are doing by investing.
Through your subscription documents, you state that you are a sophisticated financial investor with an understanding of the action you are taking and the risks involved. You acknowledge that you realize you are taking part in an alternative type of investment, one that may not be as straightforward as a more-typical investment in securities such as buying shares on a stock exchange. You confirm that you are willingly taking this risk and that you have read the documents describing the fund in detail. The main way you convey all of this is by making certain representations, and completing page after page of boxes to check and blanks to fill in.
In our experience at Fonville Legal, investors often make an error when completing these documents. Those who do the documents themselves, and even those who hire an attorney who isn’t used to this type of work, can frequently make mistakes that subsequently need to be fixed. These are the three biggest types of mistakes in subscription documents:
1. Leaving something blank.
2. Forgetting to verify something.
3. Contradicting yourself.
The consequences of uncorrected mistakes can be significant. In completing the investor questionnaire and the subscription agreement, thereby joining the fund and signing on to its operative documentation, the investor is making serious representations. Even if not deliberately fraudulent, misrepresentations, inaccuracies, and inconsistencies could affect an investor’s rights in relation to the fund down the road.
For the fund, the consequences are potentially drastic: if the fund allows investment by a someone who doesn’t fit one of the categories of a legally acceptable investor, it could lose its status as exempt from having to make much more extensive and burdensome regulatory disclosures – at a minimum, negatively impacting the offering’s business and economic terms, and generally defeating its purpose as an alternative investment fund. It could even be directed to cease operations. As a result of these potential consequences, funds will look over incoming subscriptions and to the extent any mistakes are found, the investor (in order to be able to invest at all) will have to redo the documents, and possibly supply additional information to the fund to verify their status, resulting in an increased administrative burden on both sides to ensure fund regulation compliance.
At Fonville Legal, we utilize our keen attention to detail to thoroughly examine complicated subscription documents and make sure everything is in order the first time. After a close review, we identify any mistakes and let our clients know what they need to revisit or clarify.
Get Legal Counsel
If you are an investor, you know that investing in a new endeavor is not something to be taken lightly. You should always partner with an experienced attorney who understands the weight that subscription agreements carry, and can help ensure your documents are error-free. The Fonville Legal team is here to help. If you have questions or if you’re ready to partner with us, we encourage you to contact us today. We look forward to hearing from you!