Overview of Share Buyback Agreement

What is this document?

A Share Buyback Agreement gives the corporation a right to repurchase shares from a shareholder.

When would I use this document?

A Share Buyback Agreement is often used when shares are issued to an employee or contractor as compensation for services provided (or to be provided) to the corporation. This agreement can be used when the corporation wishes to give the shareholder an incentive to stay on with the corporation as an employee or contractor by having a right to buy back the issued shares at a stated price if the shareholder leaves his or her position with the corporation.

Who signs this Agreement?

A Share Buyback Agreement is signed by an authorized officer of the corporation and by the shareholder.

More details about this document

The corporation’s right to buy back the shares will arise on a ‘triggering event’. This can be the termination of the employment or consulting contract between the corporation and the shareholder, but can also include the death or disability of the shareholder if the corporation is closely held and the other shareholders wish to control who will participate in the business of the corporation.

A Share Buyback Agreement may also contain a ‘vesting schedule’ where the number of shares subject to the buy-back rights decreases over time. For example, if the shares ‘vest’ over four years at 25% per year, if there is a ‘triggering event’ the corporation will have the right to buy back 100% of the shares during the first year, 75% of the shares during the second year, 50% during the third year etc., with no buy-back rights at the end of four years.

What are the core elements of this document?

The core elements of a Share Buyback Agreement include: Definitions of Restricted Shares and Triggering Event, Power of Attorney, Repurchase Rights, Exercise of Rights, Share Certificates and Closing. The agreement will also deal with dividends and voting rights.

Additional clauses may include a Vesting Schedule, Expenses, and Acceleration of Vesting upon a change of control.

Related Documents

  • Shareholders’ Agreement - an agreement between shareholders that governs relationships between shareholders, including shareholder ‘exits’ from the corporation
  • Share Purchase Agreement - an agreement governing the sale of shares.

Written by Rajah. Rajah Lehal is Founder and CEO of Clausehound.com. Rajah is a legal technologist and technology lawyer who is, together with the Clausehound team, capturing and sharing lawyer expertise, building deal negotiation libraries, teaching negotiation in classrooms, and automating negotiation with software.