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Share repurchases are a popular method for returning cash to shareholders and are strictly voluntary on the part of the shareholder. Redemptions are when a company requires shareholders to sell a portion of their shares back to the company.
With a redemption plan, the business enters into a contract with the owners to purchase each owner's interest at a specified time. In the cross- purchase arrangement, the owners establish an agreement among themselves to buy and sell the stock. The business entity is not a party to the arrangement.
Another common type of buy-sell agreement is the ?stock redemption? agreement. This is an agreement between shareholders in a company that states when a shareholder leaves the business, whether it be due to retirement, disability, death, or other reason, the departing members shares will be bought by the company.
When a corporation purchases the stock of a departing shareholder, it's called a ?redemption.? When the other stockholders purchase the stock, it's called a cross-purchase. Typically, the redemption versus cross-purchase decision doesn't impact the ultimate control results.
Cross-purchase agreements allow remaining owners to buy the interests of a deceased or selling owner. Redemption agreements require the business entity to buy the interests of the selling owner.