Agreement with seller
A share buyback cannot proceed without a valid buyback contract. The contract is an agreement between the company and the shareholder(s) whose shares are being bought back, whereby the company agrees to purchase those shares.
Form of agreement
The contract can be an unconditional agreement to purchase the relevant shares or conditional on certain events. The contract must state the names of the shareholders whose shares are being bought back and the purchase price (or details of how the price is to be calculated).
For example, the contract may:
- Allow the company to buy back the shares if a shareholder ceases to be a director or employee, or
- Be a way of providing a future exit strategy for an investor in the company, or
- Even be used as an alternative to creating new redeemable shares.
The buyback contract does not have to be writing – although if it is an oral contract then a memorandum of its terms must be produced.