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A Redemption Agreement sets out the terms and conditions for a company to buy back its own shares from shareholders in South Africa. Under the Companies Act 71 of 2008, this legal contract specifies the purchase price, timing, and process for the company to "redeem" or repurchase shares from existing shareholders.

These agreements protect both the company and selling shareholders by clearly outlining payment methods, required approvals, and compliance with solvency and liquidity tests. They're commonly used when shareholders exit a business, during succession planning, or to restructure company ownership while maintaining proper corporate governance and shareholder rights.

Consider using a Redemption Agreement when your company needs to buy back shares from departing shareholders or restructure ownership. This agreement becomes essential during succession planning, when shareholders retire, or if you need to adjust shareholding percentages while maintaining compliance with South African company laws.

The timing often aligns with major business transitions: bringing in new investors, implementing BEE ownership changes, managing shareholder disputes, or executing pre-planned exit strategies. Having this agreement in place protects everyone by clearly defining the share valuation method, payment terms, and necessary corporate approvals before they're urgently needed.

• Fixed-Price Redemptions: Pre-sets the share buyback price using a specific formula or amount, giving certainty to all parties
• Fair Market Value Redemptions: Uses independent valuations to determine the share price at redemption time
• Triggered Redemptions: Activates automatically upon specific events like retirement, death, or BEE compliance requirements
• Phased Redemptions: Structures the share buyback in stages over time, helping with cash flow management
• Conditional Redemptions: Only proceeds when certain company performance or regulatory requirements are met

• Company Directors: Approve and execute the Redemption Agreement on behalf of the company, ensuring compliance with the Companies Act
• Selling Shareholders: Agree to sell their shares back to the company under specified terms and conditions
• Corporate Lawyers: Draft and review agreements to protect both parties' interests and ensure legal compliance
• Company Secretary: Maintains records, updates share registers, and ensures proper corporate governance procedures
• Independent Valuators: Determine fair market value of shares when required by agreement terms

• Company Details: Gather MOI, shareholder register, and latest share valuations
• Share Information: Document number and class of shares being redeemed, current ownership structure
• Financial Status: Confirm company meets solvency and liquidity requirements under Companies Act
• Payment Terms: Define purchase price, payment schedule, and funding source
• Board Approval: Secure necessary resolutions and shareholder consents
• Compliance Check: Review BEE requirements and any existing shareholder agreements
• Documentation: Use our platform to generate a legally compliant agreement that includes all required elements

• Party Details: Full legal names of company and selling shareholders, registration numbers
• Share Specifics: Number, class, and nominal value of shares being redeemed
• Purchase Terms: Redemption price, payment method, and timing details
• Conditions Precedent: Required approvals, solvency tests, and regulatory compliance
• Representations: Warranties about share ownership and authority to sell
• Compliance Statement: Confirmation of Companies Act requirements being met
• Execution Details: Signature blocks, witness requirements, and board resolution references
• Governing Law: South African law application and jurisdiction clause

A Redemption Agreement differs significantly from a Business Acquisition Agreement, though both deal with ownership changes. The key distinction lies in who buys the shares and the overall transaction structure.

• Buyer Identity: In a Redemption Agreement, the company itself buys back its shares. With a Business Acquisition Agreement, an external party purchases company shares or assets
• Legal Requirements: Redemptions must meet strict Companies Act solvency tests and shareholder approval requirements. Business acquisitions focus more on due diligence and transfer conditions
• Transaction Scope: Redemptions typically involve specific shareholders and defined share portions. Business acquisitions often cover entire businesses, including assets, contracts, and intellectual property
• Tax Implications: Share redemptions have specific tax consequences under South African law, while business acquisitions may trigger different capital gains considerations