It’s not uncommon for a corporation to buy back its shares from shareholders. Most commonly, this is done to boost the stock value.
When a corporation buys back its shares, it will use a Share Repurchase Agreement. This document serves this specific purpose and aims to ensure that both the buyer and the seller are protected.
The Share Repurchase Agreement is necessary regardless of how the actual repurchase is to be executed. There are several methods a corporation can go about in repurchasing its shares.
It can announce the buyback on the open market, but it can also hold private negotiations with the shareholders. A self-tender offer is a way to repurchase shares by offering a price that’s higher than the value they’re currently traded.
Finally, there’s the Dutch Auction repurchase, where the corporation specifies a price range.
Depending on your state, a Share Repurchase Agreement may also be known as:
A corporation looking to buy back its shares will need a Share Repurchase Agreement. If you think your corporation’s shares are undervalued, you can repurchase some of them and increase the value. Another example will be if a corporation wants to reduce the dilution or acquire more voting rights.
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Share Repurchase Agreement is to be signed by the corporation authorized representative, usually the secretary, and the seller or representative. It is customary to have witnesses to the signature, but notarization is not required.
After signing, the Share Repurchase Agreement should be distributed to the seller and the corporate representative. For the latter, it would be recorded in the corporation’s stock ledger.
Share Repurchase Agreements are used to buy back a corporation’s common shares. As compared to common shares, preferred shares have no voting rights, though owners of preferred shares do have priority to the corporation’s income and therefore they have first dip on the dividends (over owners of common shares).
Company share buybacks are generally more beneficial to the corporations than the seller. While this is not always the case, it may not be in a shareholder’s best interest to sell his or her shares. However, it is another story if the seller will not be able to get rid of the shares so easily otherwise, or if he or she is to get more selling the shares back.
Nowadays, many American corporations buy back their shares, usually those that sit on a lot of cash, but not necessarily. A corporation may have to borrow money to buy back its shares, and that move can hurt the company's credit rating. Also, share buybacks have picked up a bad reputation in recent years because they do not do anything for the overall economy and often only serve the corporate executives, especially when their stock options become due.
A share purchase agreement is used to initiate a transfer of shares between two parties. It is designed to protect the interest of both buyer and seller. It is necessary to use this document for the transaction to be legally enforceable.
It is an official accounting ledger that a company uses to record all transactions of its shares. Needless to say, a corporation must keep track of all its float of shares.
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