Ruling on Advanced Subscription Agreements (ASA)

I would be grateful if someone could kindly explain the islamic ruling associated with an ‘Advanced Subscription Agreement.’ The reason why I ask is that IFG offer subscriptions for various company shares, some of which are through this mechanism and whilst I have reservations o this transaction type, I don’t know of the legal ruling on this and would like to know as this has held me back in investing.

My understanding of this subscription type from another website is as follows;

Investment into a company via an Advanced Subscription Agreement (ASA) is purely an equity agreement. The intention is for investors to pre-pay for shares that will be allocated during a subsequent funding round at a discount to the pre-money valuation as stipulated in the Advanced Subscription Agreement.


A: Shares are usually issued on the next funding round subject to the company hitting a pre-determined target as set out in the ASA. Should the requirements not be met, come the Long Stop Date, the number of shares that will be allocated is determined by the Long Stop Price.

The islamic reasons why I have some reservations on this type of transaction are primarily linked to the uncertainty in it, whilst islam places an emphasis on certainty in the transactions that one gets involved in - for example, with the ASA I am concerned about;

  1. Entering into a transaction where the price of something is not known
  2. Entering into a transaction where the value of what i am buying (be that the individual shares and/ or the company valuation) is not known
  3. Being allocated a price for the shares at a future date - this could be at an attractive or unattractive price - at that future date, I have no knowledge of what this could be nor at that stage would I be able to withdraw if it was unattractive

I would be very grateful for some help in understanding this matter and the basis upon which it is allowed.

Jazakallahu Khairun


Will let muftis comment but just a few quick thoughts on this:

  1. The long-stop date bakes in a hard number for valuation so you know what you will end up with if that date is passed.
  2. If the next round is successfully raised (and in the UK it has to be raised within 6m for an ASA to be valid for tax purposes) then you have clarity that you will be getting an X% discount on the full round - the target valuation of which is also known. Sometimes you can also negotiate in an upper bound too sometimes.
  3. Where the target valuation is negotiated down, that is beneficial for investors. It is extremely unlikely for a valuation to go up and be accepted by VC investors.
  4. Taking a step back - the point of avoiding uncertainty in pricing is to avoid dispute and to make sure there is no economic unfairness. In a well-negotiated ASA that objective is capable of being achieved.
  5. Finally, in startup investing, the key thing isn’t the share price - that is just a function of how many shares the company issues and what value it sets for each share. The key thing is % of ownership. Even with a set valuation, the % is variable as it is dependent on how much money is raised in total. So as an example if a company raises 500k on 4m premoney valuation, and you invest £100,000, then your % ownership is 100k/4.5m. But if the total raise is £1m, then your % ownership is £100k/5m.