Share Retention Agreement Definition

Share retention agreement, also known as a share repurchase agreement, is a legal contract between a company and its shareholders that outlines the terms of repurchasing company shares. The contract specifies the conditions under which shareholders can sell their shares back to the company, including the price and timeline for doing so.

The primary goal of a share retention agreement is to provide a mechanism for a company to maintain control of its shares and to regulate the sale of shares by its shareholders. The shareholders, in turn, benefit from having a guaranteed exit strategy for their shares in the company.

Companies often use share retention agreements to prevent hostile takeovers or to ensure that certain key shareholders do not sell their shares to other parties. Additionally, these agreements can help prevent dilution of existing shareholders` ownership and control over the company.

Share retention agreements typically include provisions for determining the fair market value of the shares being repurchased, which can be based on a formula or an independent appraisal. The agreement may also specify a minimum or maximum number of shares that the company is obligated to repurchase.

Other key provisions of a share retention agreement may include restrictions on the transfer of shares, provisions for acceleration of the repurchase timeline in the event of a change of control, and a mechanism for resolving disputes between the company and its shareholders.

In summary, a share retention agreement is a critical legal document that can help a company maintain control of its shares and regulate the sale of shares by its shareholders. If you are an investor or a business owner, it is important to understand the terms of any share retention agreement that you may be a party to, and to work with experienced legal professionals to ensure that your interests are protected.

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