Q&As

Is it possible to include, within a shareholders’ agreement, a provision that a company will buy back a shareholder’s shares within a particular timeframe?

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Published on LexisPSL on 27/04/2016

The following Corporate Q&A provides comprehensive and up to date legal information covering:

  • Is it possible to include, within a shareholders’ agreement, a provision that a company will buy back a shareholder’s shares within a particular timeframe?

Is it possible to include, within a shareholders’ agreement, a provision that a company will buy back a shareholder’s shares within a particular timeframe?

For the purposes of this Q&A, we have assumed that the company in question is a private company limited by shares and that the proposed share buyback is not for the purposes of, or pursuant to, an employees’ share scheme within the meaning of section 1166 of the Companies Act 2006 (CA 2006).

There is nothing in the CA 2006 or otherwise that prevents a shareholders’ agreement containing a provision that requires a company to buy back a shareholders’ shares within a particular timeframe. However, there are a number of reasons why including such a provision in a shareholders’ agreement may not be desirable:

  1. For the requirement to be enforceable against the company, it would be need to be a party to the shareholders’ agreement. On the issues this may raise, please see paragraphs [4.42] and [4.43] of Reece, Thomas & Ryan: The Law and Practice of Shareholders’ Agreements (available as a related document to this Q&A) and Practice Note: The joint venture agreement, in particular the section on the parties to the joint venture agreement.

  2. As it requires the company to buy back shares, the shareholders’ agreement will be a share buyback contract, which must be approved by a shareholders’ resolution

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