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What is a Share Repurchase Agreement?
Sometimes a corporation sells its marketable securities (i.e., shares or bonds) to a shareholder and agrees to buy them back at a later date. In this case, they’ll need a Share Repurchase Agreement to set out the terms of the buyback. This contract often addresses things like warranties, expenses, dividends, confidentiality, and more.
You can use LawDepot’s Share Repurchase Agreement whether you’re an individual or someone who’s facilitating a buyback on behalf of your company or organisation.
A Share Repurchase Agreement is also known as a:
- Stock Repurchase Agreement
- Stock or Share Buyback Agreement
- Share Redemption Agreement
Why would a company buy back its own shares?
Share buybacks typically happen because a company believes its market shares are undervalued.
By repurchasing some of the shares, the company decreases the supply of shares on the market. Then, as demand for shares increases, the value of any remaining shares raises as well. In turn, this brings shareholders more earnings per share.
Share buybacks are also a way to deliver profits to shareholders since companies typically buy the shares back at a premium price. In this case, the company can also benefit from avoiding the taxes that typically apply to dividend payments (only paying direct tax on the sale share).
How does a share repurchase work?
Corporations can choose from five methods to repurchase shares.
1. Open market
In an open market (i.e., the stock exchange), the company simply announces the buyback program and then proceeds to repurchase shares.
2. Private negotiations
The company negotiates the share repurchase with individual shareholders.
3. Repurchase 'put' rights
Creates a time period in which the shareholder can sell their shares back to the company at a fixed price.
4. Self-tender offer
The company offers to buy back its shares at a higher price than the current market value.
5. Dutch auction repurchase
The company specifies a price range for their shares. Shareholders may sell their shares at any price within this range.
How do I write a Share Repurchase Agreement?
The document identifies the parties involved and records the total price of the shareholding, the method of payment, and the date of the transaction. The contract also includes representations and warranties on behalf of both parties to the general effect that they are each legally capable of following through with the transaction.
1. Give details about the company and its shareholders
Select your jurisdiction and describe the industry that your company operates in. Then give the names and contact details of any relevant vendors (i.e., the shareholders that agree to sell their shares). You should also state the company’s name and address (i.e., the purchaser).
2. Describe the shares being sold
State how many shares are being sold and their class type.
3. Set the terms of the agreement
Set out payment details, including:
- The total purchase price
- The deposit amount (if applicable)
- The closing date
Next, consider which terms you’d like to include in the document. (Don’t worry, LawDepot’s template explains terms commonly included in a Share Repurchase Agreement.) For example, the company may release the vendor from their shareholder obligations once they sell their shares.
You can also use the Additional Clauses section of the template to write new clauses in your own words. On the other hand, if you’d like to remove clauses from the template, use LawDepot’s editor to make final changes to your document.