Stock Redemption Agreement

Most of the close traders we work with do not have a stock withdrawal agreement. A small percentage may have prepared an agreement, but it was concluded many years ago and normally only covers the death of a shareholder. Readmission agreements are valuable instruments in business succession planning for companies that are kept cramped. This type of agreement allows the owners of a business to set in advance the conditions for the purchase or transfer of ownership shares if one of the owners leaves the business. One company issued re-enterable preferred shares with a call price of $US 150 per share and decided to buy back some of them. However, the stock is trading on the market at 120 $US. The company`s executives could choose to buy back the shares rather than pay the $30,$US per share premium associated with the withdrawal. If the company can`t find willing sellers, it can still use the withdrawal as a fallback. Withdrawals are when the company requires shareholders to resell a portion of their shares to the company.

In order for a company to repurchase shares, it must have established in advance that these shares are receptible or searchable. The shares to be exchanged have a fixed call price, which is the price per share that the company is willing to pay to the shareholder upon withdrawal. The call price is set at the beginning of the share issue. Shareholders are required to dispose of the shares following a withdrawal. Shareholders need to understand the importance of a share withdrawal agreement or buy-sell agreement for each shareholder and their family. Many business owners have prepared wills and trusts that they believe are sufficient to complete the estate planning process. In reality, the share withdrawal agreement could be more important for the protection of the company and all shareholders. If a company wishes to purchase outstanding shares from shareholders, it has two options; it may buy back or redeem the shares. You should be aware of the three types of share purchase/sale agreements: withdrawal agreements are usually related to who can buy or exchange the interests of the outgoing owner and the price or method of determining the price of that interest.

In addition, these contracts also describe the events that would trigger the withdrawal, sale or transfer of ownership shares. As a result, these agreements are beneficial in tightly managed businesses, as they allow owners to establish a succession plan for outgoing owners and maintain business continuity before problems arise.

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