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Redemptions are when a company requires shareholders to sell a portion of their shares back to the company. For a company to redeem shares, it must have stipulated upfront that those shares are redeemable, or callable.
The amount owed to the investor is normally the current market value of their shares less any fees and other charges. As consumers, we often make redemptions in our everyday lives. For example, a coupon or gift card is a form of redemption because the value of the coupon or card is redeemed for a good or service.
Investopedia defines a stock redemption plan as, A binding agreement that is implemented by the owners of a business to facilitate the orderly transition of a business interest in the event of the death, disability or retirement of a business owner.
A REDEMPTION AGREEMENT ALLOWS A DEPARTING SHAREHOLDER, PARTNER OR LLC MEMBER TO SELL OUT THEIR INTEREST IN THE BUSINESS TO THE COMPANY INSTEAD OF THEIR CO-OWNER. Another common type of buy-sell agreement is the stock redemption agreement.