Stock Repurchase Agreement
A stock repurchase agreement is used for purposes of buying stocks back from trader/stockholder. This type of agreement can also be used by an individual who owns stock in a particular company and they are interested in selling it back. Before making an agreement on a stock repurchase agreement, it is advisable to ensure the terms are clearly outlined first. Getting this type of agreement signed aids in moving the process forward.
A stock repurchase agreement can be used when:
- A company wants to repurchase shares from one of its shareholders
- When one is a stockholder interested in re-selling their stock back to the company.
There are instances when departing stockholders are required to sell and/or the remaining stockholders might be required to purchase stock from the departing stockholders. The resulting effects of this arrangement can include any of the following:
- Liquidity might be provided to the stockholder departing according to the price per share
- It makes it possible for the surviving to retain ownership 100 percent
- Prevents undesirables from becoming part of the stockholders.
There are several reasons as to why a trader would prefer to resell their stock to a corporation. For instance, it could be a lucrative time for them to re-sell or they could be interested in getting out of that specific investment. Other instances, they might be partners in the corporation interested in selling their stock to a fellow partner in the corporation. Note that there are instances when the stock repurchase agreement is signed by a trader who wants to get their stock back. Whatever the reason might be, it is essential to have a clear understanding of how the stock repurchase agreement works. This not only makes it easy to acquire the stock back or sell it but also ensures all the terms are clearly clarified in the form of writing.
If the corporation is repurchasing the stock, it should state clearly in the agreement the amount it is purchasing it at as well what the total purchase price is going to be. In addition to this, the representations and warranties should be clearly outlined in the agreement. Ideally, this will include the power and authority which states the stakeholder has the authority and power to deliver on the agreement. Also, the enforceability and validity of the stock purchase agreement should be clearly laid out.
It is important to note this type of agreement is not only valid and legal but binding as well. It clearly outlines the obligations of the stockholder in accordance to the terms stated in the agreement.
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