A stock redemption agreement is a contractual arrangement between the shareholders and a close corporation. In the agreement, the close corporation is obligated to redeem the shares of the deceased, withdrawing or disabled shareholder. Retirement, death and disability tend to be the three most common withdrawal events found in buy-sell agreements, but corporations are not limited to those three and are free to mix and match as they see fit.
An Escrow Agreement to be used with Stock Redemption Agreement between Corporation and Stockholder is a legally binding agreement between the corporation (seller) and the stockholder (buyer) regarding the transfer of stock. The agreement outlines the terms and conditions of the stock redemption, including the price and the manner in which the transaction will be handled. The Escrow Agreement is used to ensure that all parties involved in the transaction are protected from potential risks, such as defaulting on payment or the stock not being transferred. In general, there are two types of Escrow Agreement to be used with Stock Redemption Agreement between Corporation and Stockholder: an escrow deposit agreement and an escrow payment agreement. An escrow deposit agreement requires the stockholder to put a security deposit in an escrow account, which will be released to the corporation upon completion of the stock redemption. An escrow payment agreement requires the corporation to put the agreed-upon stock redemption price in an escrow account, which will be released to the stockholder upon completion of the stock redemption. Both types of Escrow Agreement will typically include details such as the amount of the deposit or payment, the terms of the stock redemption, the responsibilities of each party, and the conditions for release of funds from the escrow account. The Escrow Agreement should also include a timeline of when the transaction must be completed and the consequences for failure to follow the terms of the agreement.
