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A Redemption Agreement spells out how and when a company can buy back its shares from shareholders under Saudi law. This legal contract protects both the business and its investors by setting clear terms for share repurchases, including the pricing method, timing, and conditions that trigger a redemption.

In the Kingdom's business landscape, these agreements play a vital role in private companies and family businesses, especially during ownership transitions or when implementing employee stock plans. They must comply with the Saudi Companies Law and Capital Market Authority regulations, which limit share buybacks to 10% of a company's capital for listed firms. The agreement also typically includes payment terms, transfer procedures, and any restrictions on the redeemed shares.

Consider putting a Redemption Agreement in place when your Saudi company needs a clear exit strategy for shareholders or wants to maintain control over ownership transitions. This becomes especially crucial during succession planning in family businesses, when setting up employee stock ownership programs, or if you need to protect against unwanted share transfers to third parties.

The agreement proves invaluable when minority shareholders seek to sell their stakes, during shareholder disputes, or if your company needs to comply with Saudization requirements through employee share schemes. It also helps manage risks when shareholders face personal bankruptcy or death, ensuring the company maintains stability while following Capital Market Authority regulations and Sharia compliance requirements.

• Mandatory Share Redemption: Requires the company to buy back shares under specific conditions like death, retirement, or termination - common in Saudi family businesses
• Optional Redemption: Gives the company the right, but not obligation, to repurchase shares when triggered by specific events
• Employee Stock Plan Redemption: Tailored for Saudization compliance and employee ownership programs, with specific pricing and vesting terms
• Sharia-Compliant Redemption: Structured to meet Islamic finance principles, particularly regarding valuation and payment methods
• Cross-Purchase Alternative: Allows other shareholders, rather than the company, to purchase the shares - useful for tax and capital preservation

• Company Directors: Authorize and implement the agreement, ensuring it aligns with corporate strategy and Saudi Companies Law requirements
• Shareholders: Both majority and minority shareholders bound by the terms, particularly regarding their rights and obligations during share transfers
• Corporate Legal Counsel: Draft and review agreements to ensure Sharia compliance and alignment with CMA regulations
• Company Secretary: Maintains records, processes redemptions, and handles documentation with the Ministry of Commerce
• Financial Officers: Calculate share valuations and manage payment terms according to the agreement's provisions

• Company Details: Gather current shareholding structure, articles of association, and board resolutions authorizing the redemption
• Trigger Events: Define specific circumstances that activate share redemption rights under Saudi law
• Valuation Method: Determine and document the agreed share pricing formula in line with Sharia principles
• Payment Terms: Specify timing, installment options, and funding sources within CMA guidelines
• Compliance Check: Verify alignment with Saudi Companies Law, particularly the 10% buyback limit for listed companies
• Documentation: Prepare shareholder approvals, Ministry of Commerce forms, and required corporate authorizations

• Parties and Recitals: Full legal names of company and shareholders, with commercial registration details
• Trigger Events: Clear conditions activating redemption rights under Sharia principles
• Valuation Mechanism: Detailed formula for calculating share price compliant with CMA guidelines
• Payment Terms: Timeline, method, and conditions for share purchase settlement
• Transfer Procedures: Steps for executing the share transfer per Ministry of Commerce requirements
• Governing Law: Express reference to Saudi law and relevant regulations
• Dispute Resolution: Specified Saudi court jurisdiction or approved arbitration mechanism

A Redemption Agreement differs significantly from a Business Acquisition Agreement in Saudi Arabia's legal framework. While both deal with ownership transfers, they serve distinct purposes and operate under different regulatory requirements.

• Transaction Scope: Redemption Agreements focus specifically on a company buying back its own shares, while Business Acquisition Agreements cover the complete purchase of a business, including assets, liabilities, and operations
• Regulatory Framework: Redemption Agreements must comply with CMA's 10% buyback limit and Sharia-compliant valuation methods, whereas Business Acquisition Agreements follow broader M&A regulations and competition laws
• Payment Structure: Redemptions typically involve simpler payment terms within company capital limits, while business acquisitions often include complex financing arrangements and earn-out provisions
• Due Diligence: Business acquisitions require extensive due diligence across all business aspects, while redemptions focus mainly on share valuation and company's financial capacity to repurchase